Comptroller of Treasury v. Digi-Data Corp.

RODOWSKY, Judge. A sales tax has been continuously in effect in Maryland for more than forty years. Throughout that time the statute has provided that “[a]n action may be brought” by the Comptroller within a specified number of years from the time the tax is due in order to recover sales taxes. See, ²¹⁴ e.g., Md.Code (1957, 1980 Repl.Vol.), Art. 81, § 342(a). 1 The Comptroller asserts that the quoted words are satisfied by a deficiency assessment.

The appellee submits that nothing short of the filing in court of an action of assumpsit or of a tax lien will do. The Comptroller primarily bases his construction on the tax statutes as a whole and on a long-standing administrative interpretation which is consistent with opinions of this Court. The vendor rests on the ordinary meaning of the quoted words and on an opinion of the Court of Special Appeals which directly addresses the question. For the reasons hereinafter set forth we apply the Comptroller’s construction.

This case began as a garden variety administrative appeal of a sales tax deficiency assessment. Appellee, Digi-Data Corporation (Taxpayer), is a manufacturer of computer peripherals. An audit by the Retail Sales and Use Tax Division resulted in the Comptroller’s levying, on October 4, 1982, a deficiency assessment against Taxpayer for the period May 3, 1979, through July 13, 1982. The Taxpayer timely applied for revision and proceeded through the informal conference and formal hearing administrative levels of review.

See Md.Regs.Code tit. 03, § 06.01.80A(2) and .80C(1) (1987). In October 1985, Taxpayer timely appealed to the Maryland Tax Court which remanded to the Comptroller. While Taxpayer was administratively litigating the deficiency assessment, the Comptroller neither sued Taxpayer nor liened its property. While the matter was on remand before the Comptroller, the Court of Special Appeals decided Osborne v. Comptroller, 67 Md.App. 555 , 508 ²¹⁵ A.2d 538, cert. granted, 307 Md. 342 , 513 A.2d 911 (1986), appeal dismissed, 308 Md. 322 , 519 A.2d 206 (1987).

Osborne involved the construction of § 342(a). It reads: “The tax imposed by this [Retail Sales Tax] subtitle and all increases, interests and penalties thereon shall become, from the time due and payable, a personal debt of the person liable to pay the same to the State of Maryland. An action may be brought at any time within four (4) years from the time the tax shall be due and payable by the Comptroller in the name of the State to recover the amount of any taxes, penalties and interest due under the provisions of this subtitle, but if there is proof of fraud or gross negligence, there shall be no limitation of the period in which the action may be brought. Proof of negligence amounting to twenty-five percent (25%) or more of the tax due shall be prima facie evidence of gross negligence.” The parties in Osborne agreed, as do the parties here, that sales taxes become due and are payable to the Comptroller before the twenty-first day of each calendar month by any vendor who, in the preceding calendar month, made any taxable sale at retail.

See §§ 335, 337 and 339. Osborne had conducted business as a sole proprietor and, in September 1977, transferred the assets of that business to a corporation of which he was a ninety-six percent owner. In July 1978, the Comptroller assessed the corporation for the period August 1, 1975, through August 31, 1977, on the theory that the corporation had successor liability for taxes due by the sole proprietorship. That assessment became final against the corporation which was bankrupt.

In January 1979, the Comptroller assessed Osborne as a principal officer of the successor corporation, thereby asserting a double derivative theory of liability for the tax due prior to September 1977 by Osborne as a sole proprietor. Osborne challenged the assessment and claimed that, since liability was being asserted against him as an officer, he had been entitled to notice at the same time as the corporation. Eventually that assessment reached the Court of Special Appeals which in an unreported opinion of January 1983 ²¹⁶ held that Osborne should have been given an opportunity to be heard on the merits concerning the assessment levied against the corporation. Following remand, the Comptroller, in December 1983, for the first time assessed Osborne, individually, on the theory that he, as sole proprietor, was the vendor.

It is the December 1983 assessment which was before the Court of Special Appeals in the reported version of Osborne. While the parties in Osborne were climbing up, and being knocked back down, the procedural ladder, the Comptroller had neither sued nor liened to collect from Osborne individually. The Court of Special Appeals held that the four-year period set forth in § 342(a), during which “[a]n action may be brought at any time,” is satisfied only by an action of assumpsit, which is expressly recognized as a tax collection remedy in § 206(a), or by establishing the lien which is authorized by § 342(b). 2 In explaining its conclusion that a ²¹⁷ deficiency assessment did not stop the running of the four-year period, the court said: “Fairly read, we think that the ‘action’ referred to in § 342(a)—the one that must be brought within four years—can include either the assumpsit action provided for in § 206 or the filing of a lien under § 342(b). Both of those proceedings are peculiarly directed at actually ‘recovering] the amount of any taxes, penalties and interest due under the provisions of this subtitle,’ which is the sole focus of § 342(a), and both are routinely brought ‘in the name of the State,’ as required by the statute.

We do not, however, regard the mere ‘filing,’ ‘levying,’ or ‘recording’ of an assessment as the equivalent of an ‘action’ to ‘recover’ the taxes, notwithstanding that the Comptroller has long adopted that approach. Although a longstanding construction of a statute by executive or administrative officials charged with implementing it is ‘a strong, persuasive influence in determining the judicial construction ... “[n]o custom, however venerable, can nullify the plain meaning and purpose of a statute.” ’ ... Given the contextual meaning of ‘assessment’ in the Retail Sales Tax Act, we see nothing in the law reasonably supporting the Comptroller’s view that the recording of an assessment constitutes an ‘action’ under § 342(a). The assessment, as we said, is merely the Comptroller’s ascertainment of what is due, and, while that is certainly a prerequisite to the recovery of the tax, the assessment is not, itself, directed at recovery or collection.” 67 Md.App. at 564-65 , 508 A.2d at 543 (citations omitted).

The court then rejected the argument that its construction was “absurd” or created administrative hardships. In significant part that rejection reads: “The delay in this case strikes us as an extraordinary one, nearly all of which was due to the Comptroller’s initial attempt to pursue Osborne solely in his double-derivative capacity as an officer of a ‘successor to vendor’ rather than as the person directly responsible. Moreover, we see no reason why, in the unusual case, the Comptroller ²¹⁸ cannot protect himself by filing either a lien or a lawsuit pending judicial review of the assessment. The lien, it would seem from § 342(b), can be filed ‘from and after the time when notice has been given that such tax has become due and payable as provided herein’; that means any time after the Comptroller issues his final decision as to the assessment pursuant to § 351.

That such a procedure may, in some instances, work to the disadvantage of the taxpayer would be unfortunate, but the law, we think, is clear.” Id. at 565 n. 6, 508 A.2d at 544 n. 6. As an alternative ground of decision the Court of Special Appeals pointed out that the Comptroller had not assessed Osborne within four years from September 21, 1977, because the assessment of January 1979 was limited to Osborne’s capacity as a principal officer of the successor corporation. We granted certiorari in Osborne only to learn at oral argument that the Comptroller had acquiesced in the distinction made by the Court of Special Appeals between Osborne as a principal officer of the successor and as a sole proprietor and that the Comptroller had abated the assessment. Thus, the Comptroller was attempting to appeal from the portion of the Osborne opinion dealing with the construction of § 342(a).

We dismissed the appeal. Comptroller v. Osborne, 308 Md. 322 , 519 A.2d 206 (1987). Meanwhile, the parties to this appeal agreed upon the amount of the deficiency assessment and agreed that the sole issue between them was Taxpayer’s contention, rejected by the Comptroller, that the Osborne construction of § 342 was correct and time barred Taxpayer’s liability. Taxpayer again appealed to the Maryland Tax Court.

In an oral opinion by acting Chief Judge William B. Calvert, that agency viewed Osborne’s construction of § 342(a) to be ²¹⁹ dicta. 3 The agency held that a deficiency assessment was an “action ... brought” because “from a practical standpoint ... as basically real estate lawyers, [the Osborne construction] would become a very harrowing experience for property owners.” Joint Record Extract at 75. In the agency’s view the General Assembly intended that the Comptroller would obtain a lien when there was “a known figure that the Comptroller is in fact pursuing.” Id. at 76. Taxpayer appealed from the order of the Maryland Tax Court to the Circuit Court for Howard County. That court considered Osborne’s construction of § 342(a) to be dicta but agreed with the rationale and reversed the Maryland Tax Court.

The Comptroller appealed to the Court of Special Appeals. We issued the writ of certiorari on our own motion prior to consideration of the case by the intermediate appellate court. Fully articulated, the Comptroller’s position is that, although a deficiency assessment alone satisfies § 342(a), that official must nevertheless collect the tax “by an action at law or a suit in equity” within seven years from the assessment pursuant to proviso (c) of § 212. That section reads in its entirety as follows: “All State, county or city taxes of every kind for which no other period of limitation is prescribed by this article shall be collected within 7 years after they shall have become due, or else shall be utterly barred; and no such taxes shall be collected after said period; provided (a) that when collectors shall have failed to collect such taxes and receivers or trustees have within said period been appointed to complete the collection thereof, the period ²²⁰ for collection thereof shall be extended for two years from the time of the appointment of such receivers or trustees, and (b) that any action at law or suit in equity for collection of such taxes or for sale of property to pay the same or for the enforcement of any lien therefor, may, if instituted within the period hereinabove prescribed be prosecuted as if this section had never been passed, and any judgment or decree therein may be enforced or renewed as other judgments or decrees, and (c) that where the assessment of any tax imposed by this article has been made within the period of limitation properly applicable to such assessment, such tax may be collected by an action at law or suit in equity if commenced within 7 years after the assessment of the tax.” Appellee, in addition to embracing all of the reasons advanced in Osborne, submits that the taxpayer who does not wish to have a lien imposed on the taxpayer’s property or defend a collection suit in court, while the taxpayer is pursuing administrative review of an assessment, can give the Comptroller a waiver of limitations which the Comptroller should be willing to accept.

Taxpayer also contends that § 212 has no application because the sales tax is not a tax “for which no other period of limitation is prescribed by [Art. 81].” § 212. Since 1982 the § 212 limitations period has been seven years while the period under § 342(a) has remained four years. The answer to the question presented in this case lies in the legislative, administrative and judicial history of §§ 342(a) and 212. The Retail Sales Tax Act was enacted by Ch. 281 of the Acts of 1947.

The model for § 342(a) (then codified at Md.Code (1939), Art. 81, § 278(a)) seems to have been a provision of the Emergency Gross Receipts Tax, enacted by Ch. 188 of the Acts of 1935, which was operative from April 1, 1935, through March 31, 1936. That tax statute added to Md.Code (1924, 1935 Cum.Supp.), Art. 56, title, “Licenses,” a number of new sections one of which, § 72-J, read: ²²¹ “Every tax imposed by this Act and all increases, interest and penalties thereon shall become, from the time due and payable, a personal debt from the person liable to pay the same to the State of Maryland, and action may be brought at any time by the Comptroller in the name of the State to recover the amount of any taxes, penalties and interest due under the provisions of this Act.” In cases of tax delinquency, § 72-G of the Emergency Gross Receipts Tax permitted the Comptroller to compute the tax “from the best information available” and the Comptroller’s determination was prima facie correct. Under § 72-H any tax due became a lien, without notice by a public filing. 4 The 1947 Retail Sales Tax Act took the format of the 1935 enactment concerning an “action,” inserted a six-year period of limitations, and combined that provision with an automatic lien. 5 The precursor of § 342, Md.Code (1939), ²²² Art. 81, § 278, as enacted by Ch. 281 of the Acts of 1947, read in toto: “(a) The tax imposed by this sub-title and all increases, interests and penalties thereon shall become, from the time due and payable, a personal debt of the person liable to pay the same to the State of Maryland. An action may be brought at any time within six (6) years from the time the tax shall be due-and payable by the Comptroller in the name of the State to recover the amount of any taxes, penalties and interest due under the provisions of this sub-title, but such actions shall be utterly barred after the expiration of the aforesaid six (6) years. “(b) The tax, and all increases, interests and penalties thereon shall be a lien upon the property of any person liable to pay the same to the State for a period of four (4) years from and after the time when such tax becomes due and payable as provided herein.” In that 1947 tax statute § 281(a) provided that the Comptroller “shall levy a deficiency assessment” against a taxpayer who had “paid less than the amount of tax due.” We can now test for the 1947 legislative intent with respect to the meaning of “action” in terms of the contentions of the parties to this case.

Literally the lien contem- ■ plated by former § 278(b) arose automatically whenever there was a deficiency and even if the deficiency had not been alleged by the Comptroller in an assessment. In the 1947 form of the statute the Comptroller did not have to file a lien to satisfy the “action” requirement because the lien, at least in statutory terms, arose whenever the taxpayer failed to pay all of the taxes that were due. In 1947, § 212 (then codified at Md.Code (1939), Art. 81, § 160) contained a four-year statute of limitations and also contained proviso (c) which had been added by Ch. 701 of the Acts of 1941 to ²²³ provide an additional four years for the bringing of a collection action “where the assessment of any tax imposed by this Article has been made within the period of limitation properly applicable to such assessment. ...” When we apply the Comptroller’s theory to the 1947 laws, the sales tax collector, under § 342’s predecessor, had six years from the tax due date within which to assess and had four years from assessment, under § 212’s predecessor, within which to have the assessment become final and to file a suit at law. At that same time, under the Taxpayer’s theory, the Comptroller always satisfied the six-year limitations period because the deficiency gave rise to a lien, without further action by the sales tax collector.

Thereafter, there would be no period of limitations on a suit to collect because the predecessor to § 212, including its proviso (c), did not apply. From an original intent standpoint, the Comptroller’s construction is more reasonable. Section 342(b)’s requirement of a public filing for the attachment of a sales tax lien was added in 1949 by Ch. 465 of the Acts of that year. The last sentence of § 342(b), protecting innocent purchasers of personalty, was added by Ch. 91 of the Acts of 1958.

In 1957 Topps Garment Mfg. Corp. v. State, 212 Md. 23 , 128 A.2d 595 , came before this Court. The appeal was from a judgment of condemnation on a writ of attachment by way of garnishment under which credits had been seized that were owing to a nonresident manufacturer of uniforms who mailed goods ordered by Maryland residents directly to the purchasers. In stating the facts Judge Hammond said for the Court: “In 1954 the Comptroller of Maryland wrote several times to Topps, requesting an audit of all Maryland sales during the previous six years—the statutory period of limitations is six years—so that he would have a basis for a use tax assessment.” 6 Id. at 25 , 128 A.2d at 596-97 . ²²⁴ In 1960 the Comptroller audited Atlas General Industries (Atlas) and levied a deficiency assessment covering six years beginning with a date in 1954.

The basis for the assessment was the absence of statutorily required resale certificates. Atlas pursued administrative review contending that the lack of resale certificates created only a rebut-table presumption of sales at retail and contending that the Comptroller was estopped because tax auditors had not enforced the statutory requirement with comparable vigor in an earlier audit. The matter reached this Court which upheld the assessment. Comptroller v. Atlas Gen.

Indus., 234 Md. 77 , 198 A.2d 86 (1964). In rejecting the estoppel argument Judge Prescott said for the Court: “By ... Section 342(a), the Comptroller is specifically granted authority to bring an action for failure to pay sales taxes at any time within six years from the time such taxes shall be due and payable.” Id. at 84 , 198 A.2d at 90 . This Court then held: “We hold that the State is not estopped from asserting its claim for the payment of the taxes herein involved, and, as the action was brought within the time prescribed by statute, the judgment [of the circuit court setting aside the Comptroller’s assessment] must be reversed.” Id. at 86-87 , 198 A.2d at 91 .

Neither the opinion nor the appellate record in Atlas Gen. Indus, indicate that any lien had been filed or assumpsit action instituted within six years from the date in 1954 when the earliest of the taxes assessed would have become due. The reference in Atlas Gen. Indus, to the “action ... brought” necessarily refers to the deficiency assessment. ²²⁵ Atlas Gen.

Indus, cited favorably an opinion in the Eighth Judicial Circuit by the late Judge J. Gilbert Prendergast, Bagby Furniture Co. v. Comptroller, Balto. Daily Record, May 10, 1961, at 3, col. 1 (Balto. City Ct. Mar. 16, 1961). Bagby was an appeal from a deficiency assessment covering the period October 1, 1952 through October 31, 1958.

The issue involved resale certificates, the assessment was sustained and there is no indication in the opinion that the Comptroller had ever sued or liened. During the week of September 20-25, 1965, the Comptroller audited a liquor store in Salisbury and then levied a deficiency assessment covering six years beginning September 1, 1959, and ending August 31, 1965. That taxpayer appealed to the Maryland Tax Court contending that the Comptroller was estopped because the audit had not been made at an earlier date. The agency, quoting § 342(a), said that the statute provided a six-year period of limitations and that annual or periodic audits were not required.

See Boulevard Beer Delivery, Inc. v. Comptroller, Sales Tax No. 1 (Md.Tax Ct. May 31, 1967). There is no indication in Boulevard Beer that a suit or lien had been filed, in addition to the assessment’s having been levied, within six years following the due date for taxes on sales made in September 1959. House Joint Resolution No. 66 of the 1968 General Assembly called for appointment of a special committee to study the sales tax, among others. The reduction from six to four years in the limitations period of § 342(a) resulted from legislation recommended by that special committee.

See Report of the Special Joint Legislative Council—Executive Committee on the Maryland Sales, Use, and Admissions Taxes—An In-Depth Study (1968) (the Report). The Chamber of Commerce of Metropolitan Baltimore had submitted to the special committee that “[t]he statute of limitations for assessment, audit and collection should be reduced from 6 to 3 years” in order to “reduce the expensive and burdensome record-keeping requirements of the present statute.” Report at 39. The special committee recommended that both § 342(a) and the companion use tax ²²⁶ provision, § 393(a), be reduced to four years, to coincide with the limitations period of § 212, except in cases of fraud or gross negligence. Id. at 18.

The recommended bill also deleted from §