Macke Co. v. Comptroller of the Treasury

• Decision Date: 01 September 1984
• Docket Number: No. 24,24
• Citation: 485 A.2d 254,302 Md. 18
• Parties: The MACKE COMPANY et al. v. COMPTROLLER OF THE TREASURY. ,
• Court: Maryland Court of Appeals

Page 18

302 Md. 18

485 A.2d 254

The MACKE COMPANY et al. v. COMPTROLLER OF THE TREASURY.

No. 24, Sept. Term, 1984.

Court of Appeals of Maryland.

Dec. 26, 1984.

James E. Carbine, Baltimore (Monica L. Newman, Baltimore, on the brief), for appellant.

Linda Koerber Boyd, Asst. Atty. Gen., Baltimore (Stephen H. Sachs, Atty. Gen., Baltimore, on the brief), for appellee.

Argued before MURPHY, C.J., SMITH, ELDRIDGE, COLE, RODOWSKY and COUCH, JJ., and JAMES C. MORTON, Jr., Associate Judge of the Court of Special Appeals (retired), Specially Assigned.

ELDRIDGE, Judge.

The issue before this Court is whether certain paper and plastic products ¹ purchased by the Macke Company and Macke Company of Baltimore (Macke) were resold to Macke's customers within the meaning of Maryland Code (1957, 1980 Repl.Vol., 1984 Cum.Supp.), Art. 81, §§ 372(d)(1) and 324(f)(i), thus excluding Macke's purchase of those products from the Maryland Use Tax.

The undisputed facts show that Macke purchased certain paper products that were used in its vending and cafeteria business at several institutions, factories and office buildings in Maryland. The paper plates, cups, bowls and lids were used as containers for the food items sold through the vending machines and over the cafeteria lines. The napkins, paper bags, utensils, stirrers and straws were on "condiment tables" in eating areas and were freely available to purchasers of Macke's food items as well as all other persons in the eating areas. ²

Macke was assessed for the unpaid use taxes on its purchase of these paper products for the period from August 9, 1971, through February 29, 1976. Macke twice requested revision of the tax, but the Comptroller denied both requests. Macke appealed to the Maryland Tax Court, which affirmed the Comptroller's action. The Tax Court found that the transfers of the paper products in cafeteria lines and through vending machines were supported by consideration and therefore constituted sales within the meaning of § 324(d), but that the paper products on the condiment tables were not "sold." For reasons that are not clear to us, however, the Tax Court ruled that, despite consideration being given for some of the products, Macke was not entitled to an exemption for its purchase of any of the products.

The Circuit Court for Baltimore City upheld the Tax Court's decision, and the Court of Special Appeals affirmed in an unreported opinion. The Court of Special Appeals based its affirmance on the Comptroller's administrative practice of taxing a vendor's purchase of a paper food container if the resold food item was to be consumed on the vendor's premises, but not taxing the vendor's purchase of the paper container if the food item was to be consumed off the vendor's premises.

This Court granted Macke's petition for writ of certiorari. We shall reverse with regard to the assessments for the paper cups, plates, bowls, hot food cups and lids, but affirm the imposition of the tax for Macke's purchase of the paper bags, napkins, utensils, stirrers and straws.

The Use Tax in question, Art. 81, § 373, is imposed upon tangible personal property that is used, stored or consumed within this state. Section 372(d)(1) specifically excludes from the definition of "use, storage or consumption" any tangible personal property that is purchased "for the purpose of resale within the meaning of § 324(f)(i) ...." Section 324(f)(i), which defines "retail sales," excludes from the Retail Sales Tax any tangible personal property which is purchased for the purpose of being resold "in the same form in which the same is, or is to be, received by [the taxpayer]."

The Comptroller argues that this Court should accept the administrative practice followed by the Comptroller since 1947 in taxing these paper food containers and utensils on the basis of whether the food was resold for on-premises or off-premises consumption. The Comptroller maintains that "the construction placed upon a statute by administrative officials soon after its enactment should not be disregarded except for the strongest and most cogent reasons." (Brief, p. 9, citing Comptroller v. Rockhill, Inc., 205 Md. 226, 233, 107 A.2d 93 (1954)). This principle is applicable when statutory language is ambiguous. Nevertheless, the rule is firmly established that when statutory language is clear and unambiguous, administrative constructions, no matter how well entrenched, are not given weight. As Chief Judge Murphy reiterated for the Court in St. Dept. of A. & T. v. Greyhound Comp., 271 Md. 575, 589, 320 A.2d 40 (1974), "the unvarying construction of a law by the agency charged with its enforcement over a long period of time ... cannot override the plain meaning of the statute or extend its provisions beyond the clear import of the language employed." See Comptroller v. A. Cyanamid Co., 240 Md. 491, 214 A.2d 596 (1965); Bouse v. Hutzler, 180 Md. 682, 26 A.2d 767 (1942). See especially Comptroller v. John C. Louis Co., 285 Md. 527, 543-545, 404 A.2d 1045, 1055-1056 (1979). Furthermore, if the administrative practice is illogical or inconsistent with the statute, it should not be followed. Ibid.

In the present case, § 372(d)(1) explicitly excludes from taxation all property bought for resale within the meaning of § 324(f)(i). Section 324(f)(i) excludes from taxation all property that is bought to be resold in the same form in which it is acquired. This Court has already taken the position that § 324(f)(i) is clear and unambiguous, and has held that administrative practice is not to be considered in its application. Comptroller v. A. Cyanamid Co., supra, 240 Md. at 498, 504-507, 214 A.2d 596.

Moreover, the Comptroller's administrative practice is clearly in conflict with the plain meaning of § 324(f)(i). Whether a food container is sold with food that will be eaten on the premises or off the premises is irrelevant to whether that item is resold to the ultimate consumer. The Comptroller attempts to justify the on/off premises distinction by analogizing on-premises consumption to the use of china, silver or glassware in restaurants. This comparison ignores the fact that a restaurant patron could not leave with the china, silver or glassware in hand, whereas the purchaser of soup in a paper bowl retains the bowl when finished eating and is entitled to make any use of it that he pleases. The relevant inquiry, disregarded by the Comptroller, is whether consideration is paid, in exchange for title and/or right to possess the item. Art. 81, § 324(d).

As the administrative practice is illogical and inconsistent with the statute, it should not have been given any weight by the Court of Special Appeals. Rather, the decision in this case depends upon whether the clear statutory requirements for the resale exclusion were satisfied.

According to the statutory scheme, all tangible personal property bought for the purpose of resale is expressly excluded from taxation. Art. 81, § 372(d)(1). Tangible personal property is bought for resale if that property is resold in the same form in which it is acquired. Art. 81, § 324(f)(i). The property is resold if its title and/or the right to its possession is transferred to the ultimate consumer in exchange for consideration. Art. 81, § 324(d).

Under the foregoing statutory provisions, the paper bowls, plates, cups and lids are excluded from the tax. The plain meaning of a "sale" is the transfer of title in exchange for consideration. Art. 81, § 324(d); Code (1975), §§ 2-106(1) and 2-401 of the Commercial Law Article; Comptroller v. John C. Louis Co., supra; Blank v. Dubin, 258 Md. 678, 267 A.2d 165 (1970); Sheeskin v. Giant Food, Inc., 20 Md.App. 611, 318 A.2d 874 (1974); 1 Squillante and Fonseca, Williston on Sales, § 2-2 (4th ed. 1973). In the present case, the ultimate consumer pays Macke for a whole item, which includes both the food and its container. Either component would be relatively valueless to the consumer without the other; thus, the consumer purchases them both as a unit. The consumer understands this. He realizes that after he eats the food, he owns the paper container and may treat it as he pleases. He can throw it away or take it home and plant flowers in it, but he need not return it to Macke. It is wholly unrealistic to state that when vendors sell soup in paper bowls or hamburgers in styrofoam containers, they have sold the edible portions but not the containers or wrappers.

Thus, Macke "sells" the products within the meaning of § 324(d). Further, the products are "resold" to the ultimate consumer in the same form as Macke acquires them, in compliance with § 324(f)(i).

The Comptroller argues that the paper products were not "sold" because no separate consideration was requested or paid for them. But the paper bowl is an integral component of the bowl of soup which Macke sells to its customers. Consequently, there is no reason why a price should be separately stated and paid for the bowl, any more than why each ingredient of the soup should have a separate price. The same is true of the paper cup containing coffee or the paper plate containing hot food. The item is offered and purchased as a whole. The Supreme Court of Pennsylvania addressed this matter in Paper Products Co. v. City of Pittsburgh, 391 Pa. 87, 93-94, 137 A.2d 253 (1958):

"[W]hile no specific charge is made for these containers, wrapping paper and packaging material, (1) they in reality are sold because the dealer in fixing a price for the goods which are contained or wrapped almost invariably includes within his mark-up the cost of the containers, etc.; and (2) it has become an accepted custom of the trade and an almost indispensable necessity for the consummation of a sale. In the practical world of today a purchaser does not go around, as the taxing authorities contend, with a paper bag, a milk pail or bucket or other container in his hand to carry home goods which he buys, since he knows the goods...