Lane Const. Corp. v. Comptroller of Treasury

• Decision Date: 16 March 1962
• Docket Number: No. 188,188
• Citation: 178 A.2d 904,228 Md. 90
• Parties: The LANE CONSTRUCTION CORPORATION v. COMPTROLLER OF the TREASURY of the State of Maryland.
• Court: Maryland Court of Appeals

Page 90

228 Md. 90

178 A.2d 904

The LANE CONSTRUCTION CORPORATION v. COMPTROLLER OF the TREASURY of the State of Maryland.

No. 188.

Court of Appeals of Maryland.

March 16, 1962.

E. Dale Adkins, Jr., and Raymond S. Smethurst, Jr., Salisbury (Adkins, Potts & Laws, Salisbury, on the brief), for appellant.

William J. McCarthy, Asst. Atty. Gen. (Thomas B. Finan, Atty. Gen., and Edward F. Engelbert, Chief, Retail Sales Tax Div., Baltimore, on the brief), for appellee.

Before BRUNE, C. J., and HENDERSON, HAMMOND, PRESCOTT and MARBURY, JJ.

HAMMOND, Judge.

This appeal presents for decision the constitutionality of the Maryland use tax, imposed by Code (1957), Art. 81, Secs. 372-393 (as amended by Code (1961 Supp.)). In 1959, Lane Construction Corporation, the appellant, brought into this State to use in construction work at Andrews Air Force Base various pieces of heavy equipment, most of which had been purchased outside Maryland and used for some time on jobs in other states. The comptroller assessed on this latter equipment a use tax measured by the purchase price of each item of equipment less an allowance of 10% of the price a year for each full year after its purchase (as provided by Sec. 373(e) of Art. 81 of the Code (1961 Supp.)) and an allowance for excise taxes on the item paid another state (as required by Sec. 375(c) of Art. 81 of the Code (1961 Supp.)).

Claiming that the value placed on the property by the comptroller under the statutory formula greatly exceeded its fair market value and that, therefore, the tax imposed on it exceeded the sales tax a purchaser in Maryland of similar equipment would pay (since the in-state purchaser would be taxed on the purchase price, which Lane equates to fair market value), Lane protested to the comptroller that the use tax imposed an unconstitutional burden on interstate commerce and violated the equal protection provision of the Constitution of the United States. After a formal hearing the assessment was affirmed by the comptroller, and then by the Circuit Court. Lane appeals to this Court from the order of the Circuit Court for Prince George's County.

Maryland first enacted a retail sales and use tax in 1947. Comptroller of Treasury v. Thompson Trailer Corp., 209 Md. 490, 121 A.2d 850, and Comptroller v. Julian, 215 Md. 406, 137 A.2d 674, held that the use tax statutes as they then read showed a clear legislative intent to tax the use, storage or consumption of property in Maryland only if the property had been purchased with the specific intent to use, store or consume it here. By Ch. 332 of the Acts of 1955, the statute was amended to make use tax liability depend on actual use, storage or consumption in Maryland, rather than on purchase with intent to use, store or consume in the state. Thus, goods were taxed on their purchase price no matter how long after the purchase they were first used, stored or consumed in Maryland. In 1958, in order to soften the impact of the use tax in situations where goods first became taxable in Maryland after long use elsewhere, the legislature by Ch. 91 of the Acts of 1958 (now Code (1961 Supp.), Art. 81, Sec. 373(e)) provided that in computing the assessable basis, 10% of the purchase price be deducted for each full year of use outside the state. The same year the sales and use taxes were both raised from 2% to 3% on each sale where the price is in excess of one dollar.

Lane concedes that the use tax was a valid compensating tax complementary to the sales tax before its amendment in 1955, ¹ but contends that by eliminating the requirement of intent to use the purchased goods in Maryland the legislature 'disturbed the traditional purpose of the tax' and changed its concept from a tax complementary to the sales tax to an independent revenue tax which does not afford equal treatment to in-state and out-of-state purchases and is not, therefore, entitled to the judicial approval accorded the traditional and customary use tax. ²

We do not agree. The general plan and purpose of the use tax remains as it was before the 1955 amendment. The change was made then to insure accomplishment of its purpose, to subject property brought into the state after it had been first used elsewhere to the same tax its purchaser would have borne if it had been bought in the state, and the obvious effort of the 1958 amendment was to make the taxable measure of a used article brought into Maryland the approximate equivalent of its taxable measure if it had been bought in the State at the time it was imported--that is, its purchase price. In the words of Mr. Justice Cardozo, in approving for the Supreme Court the use tax of the State of Washington in Henneford v. Silas Mason Co., 300 U.S. 577, 584, 57 S.Ct. 524, 81 L.Ed. 814, the present purpose and design of the Maryland use tax is, as it has been since its enactment, to make sure that 'When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates.' He said also what we think is true here: 'Equality is the theme that runs through all the sections of the statute.' Id. at 583, 57 S.Ct. at 527.

Lane sought to show that the 10% yearly allowance was inadequate and caused its property to be valued at substantially more than its fair market value, by the testimony of two witnesses as to that value.

It would seem that Maryland could have validly continued to measure the use tax by the purchase price without any allowance for depreciation. To quote Mr. Justice Cardozo again: 'A taxing act is not invalid because its exemptions are more generous than the state would have been free to make them by exerting the full measure of her power.' Id. at 587, 57 S.Ct. at 529. The sales tax is an excise on the privilege of selling specified property at retail, with the tax paid by the purchaser. The measure of the tax is the purchase price. What the purchaser does thereafter with the property has no effect on or relation to the tax exacted--whether he uses it in Maryland or elsewhere, or how long he uses it in Maryland or elsewhere, are of no matter. The use tax is an excise on the privilege of using, storing or consuming specified property in Maryland. The measure of the tax is the purchase price. It is immaterial to the amount of the tax how long the onwer uses or stores the property in the state--that he does so is enough. Whether he exercises any of the attributes of ownership which Maryland taxes if done within its borders just after purchase or years later, presumably his doing so will be equally useful and valuable to him. Thus, in the instant case, Lane undoubtedly benefitted from the contributions the aged but serviceable machinery made to its construction efforts substantially as much as it would have from the contributions of new equipment.

Lane's testimony seeking to show market value had definite infirmities. It was stipulated that the total purchase price of the equipment was $2,119,408; and it was shown that the comptroller's appraisal under the statutory formula was $1,434,914 and that Lane's estimate of its market value was $768,030. An executive of a firm which sells heavy equipment appraised some two-thirds of the equipment after physical inspection, as of the time of his inspection. When the inspections were made some items had been in Maryland almost a year, and all the others for from six to nine months. The witness said frankly that it would be very difficult to estimate the value of the machinery as long as six months prior to the time of his examination, and did not, in fact, make such an estimate. His appraisal, as of the times of his examinations, was $412,580. The book value on Lane's books was $410,554. It appeared from the testimony of Lane's vice-president that book value figures are not realistic and that Lane did not use the straight line method of depreciation alone, where an equal percentage of cost is deducted each year, but rather used the so-called double declining method in conjunction with the straight line method. Under Lane's method, for example, a machine with an estimated life of five years would be depreciated 40% in the first year and this 40% deducted from the cost before another 40% of the remainder is deducted the second year, and so on for three...