Schwartz v. DNR

• Decision Date: 14 March 2005
• Docket Number: No. 94,94
• Citation: 385 Md. 534,870 A.2d 168
• Parties: Robert A. SCHWARTZ, et al. v. MARYLAND DEPARTMENT OF NATURAL RESOURCES.
• Court: Maryland Court of Appeals

870 A.2d 168

385 Md. 534

Robert A. SCHWARTZ, et al. v. MARYLAND DEPARTMENT OF NATURAL RESOURCES.

No. 94, September Term, 2004.

Court of Appeals of Maryland.

March 14, 2005.

Matthew A. Egeli (Hartman and Egeli, LLP, Anapolis, on brief), for appellants.

Rachel L. Eisenhauer, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on brief), for appellee.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA, and GREENE, JJ.

RAKER, J.

We must decide in this case whether appellants were required to pay Maryland excise tax under section 8-716(c) of the State Boat Act, Md.Code (1973, 2000 Repl. Vol), §§ 8-701 et seq. of the Natural Resources Article. We shall hold that appellants are liable for the tax, albeit for different reasons than were relied upon by the Circuit Court.

I.

On June 9, 2000, appellants Robert and Joanne Schwartz purchased a new Symbol Model 557 yacht, later named the Mahalo Hawaii IV (hereinafter "the vessel"), from The Yacht Center dealership in Edgewater, Maryland.

On June 10, 2000, appellants signed a DNR form B-110, captioned "Certification of State of Principal Use."¹ Appellants indicated on the form that the vessel would be used principally in the State of Florida, and would be kept at an address in Key Colony Beach, Florida. The reverse side of the B-110 form contains the following language:

"The Certification of State of Principal Use is a dual-purpose form used when a vessel is to be used principally outside of Maryland and is, therefore, exempt from Maryland excise tax. It serves as the certification by the dealer that the purchaser has been advised about Maryland excise tax and as the purchaser's acknowledgment of the receipt of the information. All information requested on the certification and the signature of the purchaser must be furnished. If the vessel was purchased from a Maryland licenced dealer, the dealer must also sign the certification.

State of Principal Use — The state or jurisdiction in which a vessel is used the greatest percentage of time in a calendar year.

Use — The operation, navigation, or utilization of a vessel. A vessel is considered in use whenever it is upon the water, whether it is moving, anchored, or tied up to any manner of dock or buoy. A vessel is also considered in use if it is kept in any structure in readiness for use. A vessel stored on a trailer in Maryland is considered to be in readiness for use."

Based on their execution of this form, appellants did not pay the 5% Maryland excise tax, due at the time of purchase, on the sale of a vessel in Maryland.

The record indicates that a DNR investigator observed the vessel in a slip at Mears Point Marina, in Grasonville, Maryland, on June 16, July 15, August 15, and September 28, 2000. It appeared to the investigator that no maintenance was being performed on the vessel on those dates. Because the vessel had been observed in Maryland over the summer months, DNR issued a Notification of Assessment to appellants, stating that the vessel had incurred a Maryland excise tax liability in the amount of $34,625.43, plus fees, penalties, and interest.

Appellants appealed the assessment, and on July 11, 2001, the Office of Administrative Hearings held a hearing pursuant to Md.Code (1973, 2000 Repl. Vol), § 8-716.2(e) of the Natural Resources Article.

Before the Administrative Law Judge (ALJ), appellants introduced into evidence the ship's log, which detailed twenty-four trips taken on the vessel between June 9, 2005 and October 28, 2005. Five of these trips were designated as "sea trials": one to set the autopilot, one to reset and check onboard electronics, one to calibrate compasses, one to reset the autopilot, and one to "test the ride" with respect to rolling. With the exception of this last trip, all of the designated "sea trials" were journeys of six miles or less. All five "sea trials" were journeys from the vessel's slip at Mears Point Marina to some point in the water, returning to Mears Point without another destination. The remaining journeys ranged from ten to 144 miles, involved stops at various points around Maryland, one stop in Atlantic City, New Jersey, and included overnight stays on eight occasions. With the exception of the two-day trip to Atlantic City, New Jersey, the vessel remained in Maryland from the date of its purchase until October 28, 2000. The vessel arrived in Thunderbolt, Georgia on November 5, 2000, where it remained until Mr. Schwartz took it to Florida on January 23, 2001.

Mr. Schwartz testified that he and his wife were residents of Florida, had previously been residents of Delaware, and had never been Maryland residents. Appellants offered into evidence copies of Mr. Schwartz's Florida driver's license and voter registration card to support these statements. Mr. Schwartz acknowledged that appellants owned a summer residence in Stevensville, where they typically spent the months of May through September or October. According to Mr. Schwartz, appellants purchased a waterfront house in Florida specifically to accommodate the vessel, and extensively remedied its dock in anticipation of the vessel's requirements. Appellants produced the deed to the Florida residence, dated April 19, 2000, a building permit for the Florida dock renovations dated April 18, 2000, and invoices dated April 24 and 25 for the construction work. Mr. Schwartz testified that these improvements were made with some haste, because "I wanted to have this dock ready for this boat when I purchased the boat and went back to Florida with it."

Mr. Schwartz indicated that he had purchased the vessel knowing that it had some "major" problems, but expected that the dealer would continue to correct its problems after delivery. According to Mr. Schwartz, these warranty-covered defects prevented him from removing the boat from Maryland.

Appellants offered into evidence a list compiled by Mr. Schwartz, detailing various warranty repairs performed by The Yacht Center. The list recounted the following actions:

1. Relocation of fresh water filtration units, following an incorrect installation that prohibited the filters from being changed. Accomplished August 29, 2000.

2. Replacement of defective window blinds. Required four service visits from time of purchase to eventual correction by the end of July, 2000.

3. Investigation of engine voltage drop, possibly due to incorrect wiring. Required at least one service visit on September 7, 2000. It is unclear from the exhibit whether this problem was ever remedied.

4. Replacement of incorrect compass on upper station. Accomplished prior to July 12, 2000.

5. Removal of water intake from behind underwater exhaust and reinstallation in another location (necessary to prevent air conditioning from failing while vessel underway). Required two prior service visits to diagnose. Accomplished September 19, 2000.

6. Installation of new microwave oven to replace non-functioning original. Accomplished July 14, 2000.

7. Repair of trash compactor. Problem not discovered until August 26, 2000. Accomplished approximately September 11, 2000.

8. Replacement of incorrect propellers. Date not indicated.

9. Repair of malfunctioning cable master. Required two service visits. Accomplished September 6, 2000.

10. Replacement of incorrect anchor. Required two service visits. Accomplished September 1, 2000.

11. Repair of onboard television sets. Required two service visits. Problem not satisfactorily resolved.

12. Repair and eventual replacement of defective "bimini" canvas top. Required four service visits.

13. Repair of generator. Required two service visits. Problem not satisfactorily resolved.

Appellants introduced a letter from Mark A. Schulstad, President of The Yacht Center, stating that the vessel "required warranty repairs from June 2000 through October 2000."

Mr. Schwartz also testified to a more serious warranty issue: a persistent oil leak from the vessel's transmission. According to Mr. Schwartz, the beginnings of this problem were apparent "from day one," but it was not until September that a representative of the engine manufacturer informed Mr. Schwartz that the transmission would need to be removed from the vessel, repaired, and reinstalled. This process was accomplished over the one-month period, detailed infra, that the vessel was being outfitted with aftermarket stabilizers. Appellants introduced a letter from the engine manufacturer detailing the transmission work, as well as prior service activities. These included:

"June 17, 2000 — June 22, 2000 Troubleshooting an active fault code July 17, 2000 — July 19, 2000 Troubleshooting and replacement of the Starter Motor

September 01 — September 11, 2000 Troubleshooting and repair of Charging system

September 28, 2000 — October 27, 2000 Troubleshooting and repair of oil leaks that required the removal and reinstallation of the vessel transmissions."

The most serious problem to which Mr. Schwartz testified was the vessel's tendency to roll significantly in even moderate seas. Schwartz stated that had noticed this behavior the first time he rode on the vessel, prior to his taking possession from the dealer. He recalled nine occasions over the course of the summer on which the vessel took significant rolls, several of which caused the vessel's furniture to overturn. After the third or fourth roll, Schwartz "deemed [the] boat to be totally unsafe," and felt that he could not safely take it to Florida with this problem for fear of capsizing en route. Schwartz testified that this opinion was based on his knowledge as a licensed boat captain.

The ship's log contained numerous references to the stability problem. On the occasion of his first trip with the Yacht Agency salesman, Mr. Schwartz wrote:

"Boat made a crazy roll to port upon going thru another boats heavy wake. Sea was very flat. Mike made a comment that the boat was bow steering, however, I have never seen this in flat seas. He told me I would find that

...