Comptroller of the Treasury v. Maryland National Bank

Moore, J., delivered the opinion of the Court. This dispute is another chapter in the conflict between State and federal power that began in the early years of the Republic. It originated when the appellant, Comptroller of the Treasury (Comptroller), levied a retail sales tax on rental payments under electronic equipment leases entered into by the appellee, Maryland National Bank (taxpayer), prior to September 1, 1969. Specifically, the parties’ dispute turns upon the construction of the words “contract of purchase” found in a “temporary” federal statute dealing with the immunity from State taxation previously enjoyed by national banks.

Act of December 24,1969, Pub. L. No. 91-156, 83 Stat. 434 (current version at 12 U.S.C. § 548 (1976)). 1 The statutory language which has generated the instant litigation is § 5(c), found in § 1 of the Act: “No sales tax or use tax complementary thereto shall be imposed pursuant to this paragraph 5 upon purchases, sales, and use within the taxing jurisdiction of tangible personal property which is the subject matter of a written contract of purchase entered into by a national bank prior to September 1, 1969.” (Emphasis added.) [hereinafter referred to as § 5(c)]. It is the Comptroller’s position that federal law must control the interpretation to be given this provision, and that by applying settled principles of statutory construction, ³⁶⁸ payments for the rental of tangible personal property by national banks are taxable by the State because they do not involve “written contracts of purchase.” The taxpayer argues that State law must guide the application of the statute, that under Maryland law “contract of purchase” includes a lease, and thus, the taxation of the rental payments involved herein is barred by § 5(c). 2 Md. Code Ann., art. 81, § 324(d) (1975). See also COMAR 03.06.01.73.

I. The Facts The facts are undisputed and are summarized in a Stipulation of Facts received into evidence by the Maryland Tax Court. Between June 1,1961 and September 1,1969, the taxpayer entered into written lease agreements with Burroughs Corporation and the National Cash Register Company for computers, data and document processors, and bookkeeping systems. The Comptroller, believing that the Act of December 24,1969, to which we have adverted, permitted the State to begin taxing those rental payments falling due after the date of the Act, assessed the taxpayer for the 4% retail sales tax. Md. Code Ann., art. 81, § 324 et seq.

(1975). The Retail Sales Tax Division claimed a total tax due of $119,193.80. The taxpayer filed an application for a revision of the assessment with the Comptroller’s office; this application was denied on July 3,1972. Subsequently, the taxpayer requested and was given a formal hearing before a Hearing Officer appointed by the Comptroller.

On November 18, 1974, the Hearing Officer held the lease transaction to be taxable. Following that decision, the taxpayer took an appeal to the Maryland Tax Court which found in its favor holding that the ³⁶⁹ “leases are exempt from taxation..pursuant to § 5(c). The Comptroller appealed to the Baltimore City Court. The Honorable Martin J. Greenfeld affirmed the decision of the Maryland Tax Court, and the Comptroller has appealed that adverse ruling to this Court.

We, too, shall affirm.

II

National Banks’ Immunity from State Taxation On April 10,1816, Congress created the Bank of the United States, the first national bank. Act of April 10, 1816, 3 Stat. 266 . One year later, the General Assembly of Maryland passed an Act which imposed a tax on the Maryland operations of the Bank of the United States. 1817 Md. Laws, ch. 156. In 1819, the Supreme Court, speaking through Chief Justice Marshall, upheld the constitutionality of the Act creating the Bank of the United States, and ruled also that the States could not impose taxes upon “the operation of an instrument employed by the government of the Union...” M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 436 (1819).

Thus was created the doctrine of immunity from State taxation of federal instrumentalities. During the Civil War, the need to stabilize currency and provide national uniformity in banking led Congress to pass the 1863 Currency Act. Act of February 25, 1863, ch. 58, 12 Stat. 665 . The Act did not permit any State taxation of national banks.

The following year, however, Congress delineated four permitted methods of taxation of national banks by the States. Act of June 3,1864, ch. 106, § 41, 13 Stat. 111 . That Act, together with subsequent amendments in 1868, 3 1923, 4 and 1926, 5 marked “the outer limit within which States can tax national banks.” First Agricultural National Bank of Berkshire County v. State Tax Commission, 392 U.S. 339, 345 (1968). As codified in 12 U.S.C. § 548 (1964), the statute was construed in First Agricultural Bank to exclude the imposition of sales and use taxes on national banks.

Congress, responding to the outcry by State taxing ³⁷⁰ authorities following First Agricultural Bank, 6 passed the Act of December 24,1969, supra, Pub. L. No. 91-156, 83 Stat. 434, which had two important components. First, a “temporary amendment” to § 548 allowed certain additional State taxes to be imposed on national banks during an interim period ending on January 1, 1972 (later extended to January 1,1973 by Act of December 22, 1971, Pub. L. No. 92-213, 85 Stat. 775); Section 5(c), quoted above, is part of that amendment.

Second, after the interim period, § 548 was superseded by a permanent § 548 which provided that “a national bank shall be treated as a bank organized and existing under the laws of the State____” 12 U.S.C. § 548 (1976). This provision effected a total elimination of the immunity from State taxation which national banks had previously enjoyed. We are here concerned only with the interpretation of § 5(c) of the superseded § 548 pertaining to sales or use taxes.

III

The Applicable Law: State or Federal Both lower courts held that State law controlled the interpretation to be given the phrase “written contract of purchase.” In his brief, the Comptroller argues that: “The Supreme Court has stated plainly that federal law [,] not state law [,] should be used to interpret whether, within the meaning of Public Law No. 91-156, a state tax law is applicable. Thus, the word “purchase” as used in Section 5(c) should be analyzed according to federal law and the meaning of Public Law No. 91-156. ” 7 ³⁷¹ We find it unnecessary to address this issue. In our view, the application of either State or federal law to § 5(c) results in immunity from State taxation for the lease transactions involved herein. A. State Law If State law does control the scope of the interpretation to be given to the words “contract of purchase,” then the leases involved herein are clearly immune from the Maryland tax for the period here in dispute. 8 Even the Comptroller does not dispute this finding of the Baltimore City Court and the Maryland Tax Court in his appeal.

The Maryland Retail Sales Tax Act in effect at the time defined “sale” to include the “rental, lease, or license to use ... by a vendor to a purchaser.” Md. Code Ann., art. 81, § 324(d) (1975). In addition, the Maryland Use Tax in effect at the time defined “purchase” to include a “lease, rental or grant of a license to use ..., store or consume the tangible personal property.” Md. Code Ann., art. 81, § 372(f)(2) (1975). See also COMAR 03.06.01.73(A). There can be no doubt that a “contract of purchase” under the applicable Maryland statutes includes the taxpayer’s lease of tangible personal property.

Applying Maryland’s definition of “contract of purchase,” to § 5(c) results in immunity for the taxpayer from the Maryland Sales and Use Taxes for the lease payments made prior to January 1, 1973, the date on which the immunity was finally and fully abrogated. 12 U.S.C. § 548 (1976).' ³⁷² B. Federal Law In construing § 5(c) as a matter of federal law, the Comptroller essentially urges that we isolate the words “contract of purchase” from the remainder of the statute and interpret them under a strict definition to include only a transaction “where title and possession is transferred, i.e., a traditional sale, and not... a lease whep only possession is transferred.” This argument ignores a basic rule of statutory construction that the statute is to be read as a whole: “In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy.” United States v. Heirs of Boisdoré, 49 U.S. (8 How.) 113, 122 (1849), quoted in Philbrook v. Glodgett, 421 U.S. 707, 713 (1975). Of course, the paramount concern in construing a statute is to give effect to the intent of the legislature. Id. It is also true that superficial “plain meaning” does not preclude a resort to other useful and viable tools of statutory construction.

Train v. Colorado Public Interest Research Group, Inc., 426 U.S. 1, 10 (1976). We begin with the naked language of § 5(c): “No sales tax or use tax complementary thereto shall be imposed pursuant to this paragraph 5 upon purchases, sales, and use within the taxing jurisdiction of tangible personal property which is the subject matter of a written contract of purchase entered into by a national bank prior to September 1, 1969.” (Emphasis added.) The statute purports to bar any “sales tax or use tax complementary thereto . . . upon purchases, sales, and use. . . .” But, there is also the additional requirement that the transaction exempted from sales or use taxation be a product of a “written contract of purchase entered into ... prior to September 1, 1969.” Some confusion results from this language. In the same section the statute applies only to “purchases, sales, and use” that are the subject of a “contract ³⁷³ of purchase.” Either the latter term was intended to restrict the scope of § 5(c) as the Comptroller urges, 9 or the term is merely descriptive of those written contracts subject to State sales and use taxes, as the taxpayer urges. In construing § 5(c) and particularly the meaning to be given to the words “contract of purchase,” we recall the admonition given by Chief Justice Marshall in M'Culloch: “Almost all compositions