ACF Industries, Inc. v. Comptroller of the Treasury

Hammond, C. J., delivered the opinion of the Court. The Maryland Tax Court held ACF Industries, Inc. liable for sales taxes on tangible personal property it sold when it closed out two divisions through which it was conducting ventures in businesses different in kind from its principal businesses, and the Circuit Court affirmed. ACF, a New Jersey corporation with headquarters in New York City, manufactures and leases railroad cars and manufactures and sells carburetors, fuel pumps and valves. Some years ago it became a victim of the epidemic of corporate diversification fever — indeed, the fever began to approach the conglomerate stage — and entered the field of research, design and development of electronic detection devices for the Navy by assembling a body of engineers and scientists to operate an electrophysics laboratory at Bladensburg in Prince George’s County.

It became apparent that to remain competitive, it would be necessary to manufacture as well as develop the electronic devices and that if this were to be done, ⁵¹⁵ substantial capital would be required. Thereupon, in 1966 ACF sold the entire business to International Telephone and Telegraph Corporation, which already had conglomerate fever, for 21,000 shares of I. T. & T. stock. ACF engaged in another venture in Prince George’s County by buying the business of Engineering and Research Corporation (Erco), which was engaged in River-dale in the design and manufacture of highly sophisticated flight simulators used by the Armed Services. ACF had had no previous exposure to the flight simulators and finally wished things had remained that way, since some nine years after it began to operate the Erco division with its own manager, books and customers it accepted a Navy contract which ultimately resulted in a loss of about $7,000,000.

Foreseeing this loss was enough for ACF and it sought to sell the Erco division. General Precision Company, which was interested in acquiring technological capability and engineers experienced in the field, bought the business and leased the plant and equipment. Eventually the personal property used in the simulator operations was bought by General Precision, which continued the business at its plant at Silver Spring. The taxes imposed on the I. T. & T. sale with interest and penalties, totalled $5,923.65 and similar taxes on the General Precision lease totalled $9,100.71.

The accuracy of these amounts is not in dispute. All of the recited facts were stipulated. In addition, the head of the tax department of ACF gave testimony which the Tax Court summarized as follows: «* * * fljat during the past thirteen years, A.C.F. acquired and sold, or otherwise disposed of, five separate business activities, including the two now in question; that A.C.F. sold and still sells tangible personal property in Maryland in the regular course of its business; that from time to time, it also sells used and obsolete plant equipment and machinery; that it has retained one other diverse business activity aside ⁵¹⁶ from the five it has disposed of; that its entire business operation includes thirteen plant sites; that old plants are abandoned, from time to time and new ones are acquired; that it did not form or maintain separate corporations for either of the business activities now in question; that A.C.F. has not re-entered either of these business fields and has no present intention of doing so in the future * * The exemption provision of the sales tax statute on which ACF relies (§ 326 (e) of Art. 81) read thus in 1965 and 1966: “[Exempted are] Casual and isolated sales by a vendor who is not regularly engaged in the business of selling tangible personal property and the use of an auctioneer shall not make a sale taxable which otherwise is not taxable under this subsection * * 1 ACF argues, relying almost solely on Comptroller v. Thompson Trailer Corp., 209 Md. 490 , that the exemption applies to sales of “separate and independent businesses” of a taxpayer who remains in business after the sales and therefore the lower courts erred in holding that the sales by ACF were part of a “planned series of transactions” and therefore were not casual and isolated sales. We think ACF attempts to build on a quagmire.

First and fundamentally under § 326 (e) of Art. 81, to be exempt the sale not only has to be “casual and isolated” but made by a vendor “who is not regularly engaged in the business of selling tangible personal property.” The Tax Court found, and the finding is not challenged, that “ACF sold and still sells tangible personal ⁵¹⁷ property in Maryland in the regular course of its business,” as well as that “from time to time, it also sells used and obsolete plant equipment.” Thus, ACF lacks an essential requisite for qualifying as an exempt vendor. In his dissenting opinion in Comptroller v. Kaiser Corp., 223 Md. 384 at 393 , Chief Judge Bruñe argued that the sale there involved was casual and isolated, saying: “There are, of course, two elements to the exemption: (1) the sale must be ‘casual and isolated;’ and (2) the vendor must not be regularly engaged in the business of