Comptroller of Treasury v. Martin G. Imbach, Inc.

ALPERT, Judge. In this case, we are asked to decide whether marine-based equipment is exempt from Maryland sales and use tax. Martin G. Imbach, Inc., (“Imbach” or appellee), a Maryland corporation, is located in Baltimore City and is engaged in the business of marine and heavy construction. 1 Imbach is licensed to do business in Maryland, Virginia, and Delaware. Imbach owns several pieces of equipment, including tug boats, barges, floating and land-based cranes, pick-up trucks and a bulldozer.

It is the acquisition of some of this equipment that is the subject of this appeal. The Comptroller of the Treasury for the State of Maryland (the Sales and Use Tax Division) (“Comptroller”) conducted an audit of Imbach’s equipment acquisition for the period beginning July 1, 1987 thru June 30, 1991. The Comptroller concluded that Imbach had erred in claiming an exemption pursuant to Article 81, § 326(gg) (1957). 2 Accord ¹⁴¹ ingly, the Comptroller assessed Imbach additional sales and use tax, 3 interest, and penalty. 4 Imbach appealed the Comptroller’s decision to the Maryland Tax Court. The Tax Court held a hearing on January 13, 1993, and affirmed the Comptroller’s assessment. 5 Imbach appealed to the Circuit Court for Baltimore City and that court remanded the case to the Tax Court for further proceedings in accordance with the Court’s decision.

On appeal, the Comptroller asks: I. Did the Circuit Court improperly overturn the Tax Court’s conclusion that equipment that is not used principally in the movement of passengers or freight in interstate commerce does not qualify for the exemption formerly set forth in Article 81, § 326(gg)?

II

Did the Circuit Court improperly remand the case to the Maryland Tax Court for further evidence that is not probative of the relevant legal inquiry?

III

Did the Circuit Court err in remanding the case to the Maryland Tax Court for further evidence on a variety of miscellaneous matters, without restriction, when Imbach never applied for leave to offer additional evidence and no reasons were presented for Appellee’s failure to offer the ¹⁴² evidence on these points in the proceedings before the Maryland Tax Court, as required by § 10-215(e), State Government Article? For the reasons that follow, we conclude that the trial court erred in remanding the case to the Tax Court. I. Scope of Appellate Review of Tax Court Decisions The decisions of the Maryland Tax Court are subject to judicial review pursuant to Md.Code Ann., Tax-General Article § 13-532 (1988, 1992 Cum.Supp.). Recently, in Rossville Vending v. Comptroller, 97 Md.App. 305, 311-12 , 629 A.2d 1283 , cert. denied, 333 Md. 201 , 634 A.2d 62 (1993), we described the scope of appellate review in these matters thusly: It is well settled that judicial review of decisions of the Maryland Tax Court is severely limited.

Nevertheless, “a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law.” Where the interpretation of a statute or regulation is at issue, the substituted judgment standard is used since such an interpretation involves a question of law. (citations omitted). In other words, an appellate court will reverse a decision of the Tax Court if the agency erroneously determines or erroneously applies the law. See, e.g., State Dep’t of Assessments & Taxation v. Consumer Programs, Inc., 331 Md. 68, 71-72 , 626 A.2d 360 (1993); Baltimore Building & Construction Trades Council v. Barnes, 290 Md. 9, 14-15 , 427 A.2d 979 (1981).

II

Does the Equipment qualify for an Exemption? 1. Relevant Law In the instant case, we are required to determine the breadth of the sales and use tax exemption. Before we ¹⁴³ proceed into the substantive issues presented to us on appeal, we must clarify the applicable law because the current section has undergone three different revisions. 6 The audit encompassed July 1, 1987 thru June 30, 1991. Md.Code Ann., Article 81, § 326(gg) (1957), the relevant provision that was applicable until January 1, 1989, stated in pertinent part: Exemptions—In general.

The tax hereby levied does not apply to the following sales: jj: * # (gg) Aircraft, vessels, rolling stock and motor vehicles used in interstate and foreign commerce.—Sales of aircraft, vessels, railroad rolling stock, and motor vehicles, which will be used principally in the movement of passengers or freight, or both, in interstate and foreign commerce, and sales of replacement parts and other tangible personal property to be used physically in, on, or by them. The General Assembly enacted this section effective July 1, 1977. See H.B. 211, Chapter 394, Acts 1977. This section was subsequently recodified in 1989 at § 11-208(c) of the Tax-General Article as follows: Interstate or foreign commerce or use in another state.

(c) Conveyances.—The sales and use tax does not apply: (1) to a sale of an aircraft, motor vehicle, railroad rolling stock, or vessel that is used principally in interstate or foreign commerce; The revisor’s note states that “the former reference to use in the movement of passengers or freight, or both’ is deleted as unnecessary in light of the reference to use [in] ‘interstate or foreign commerce.’ ” This provision was effective from Janu ¹⁴⁴ ary 1, 1989 through the end of the audit period (i.e., June 30, 1991). 7 2. Statutory Interpretation In its simplest form, this case is one of statutory interpretation. Accordingly, we now examine the applicable rules. The principal rule of statutory construction is to ascertain and carry out the intent of the Legislature, see State v. Bricker, 321 Md. 86, 92 , 581 A.2d 9 (1990); Privette v. State, 320 Md 738, 744 (1990), and the primary source of such intent is the language itself.

State v. Intercontinental, Ltd., 302 Md. 132, 137 , 486 A.2d 174 (1985). In addition to the language of the statute itself, a reviewing court can scrutinize the general purpose, aim, or policy behind the statute, Kaczorowski v. City of Baltimore, 309 Md. 505, 513 , 525 A.2d 628 (1987), and the language in the context in which it was adopted. Motor Vehicle Admin. v. Mohler, 318 Md. 219, 225 , 567 A.2d 929 (1990). Finally, we can also examine the development of a statute to discern legislative intent that may not be as clear upon initial examination of the current language of the statute.

Id. at 225-27 , 567 A.2d 929 . In construing tax statutes, we are guided by the Court of Appeals’ pronouncement in Comptroller of the Treasury v. John C. Louis Co., 285 Md. 527, 539 , 404 A.2d 1045 (1979), that the established rule is “not to extend the tax statute’s provisions by implication, beyond the clear import of the language used, to cases not plainly within the statute’s language, and not to enlarge the statute’s operation so as to embrace matters not specifically pointed out.” The Court of ¹⁴⁵ Appeals has also stated in C & P Telephone v. Comptroller, 317 Md. 3, 11-12 , 561 A.2d 1034 (1989) that [i]t is fundamental that statutory tax exemptions are strictly construed in favor of the taxing authority and if any real doubt exists as to the propriety of an exemption that doubt must be resolved in favor of the State. In other words, “to doubt an exemption is to deny it.” ... [T]he State’s taxing prerogative is never presumed to be relinquished and the abandonment of this power must be proved by the party asserting the exemption. (citing Xerox Corp. v. Comptroller, 290 Md. 126, 137 , 428 A.2d 1208 (1981) (emphasis in the original).

The Plain Meaning Rule The Comptroller contends that the Tax Court was correct in affirming its assessment because the equipment at issue was not covered by any exemption. The Comptroller asserts that the “plain meaning” of the statute, the case law and policy behind the exemption support its position. Imbach’s contention primarily concerns three crawler cranes and a pedestal crane that was subsequently installed on a barge. Imbach describes the equipment as follows: Some cranes, known as derricks, float on the water and are incorporated into a hull.

The derricks never leave the water and are vessels. Other cranes, known as “crawlers”, are physically attached to barges. While it is possible to remove a crawler from a barge and use the crawler on land, such removal is time consuming, difficult, and expensive. Accordingly, crawlers are rarely, if ever, removed from barges to which they are attached.

The only practical difference between a derrick and a crawler attached to a barge is the stability of the crane. That is, a derrick is more stable and can be used for more difficult or heavier jobs. Imbach asserts that the “plain meaning” of the statute does not require the vessel to actually move or carry passengers or freight in interstate commerce. Instead, we are advised that ¹⁴⁶ our decision should be guided by the words “used principally in the movement of passengers or freight” because “interstate commerce is not limited to such activities.” In this respect, Imbach baldly asserts, that “when the Revisors deleted such phrase as surplusage, it was in recognition of the fact that all interstate commerce is involved in the movement of passengers arid freight.” Imbach cites to our decision in United Parcel Service, Inc. v. Comptroller of Treasury, 69 Md.App. 458, 471 , 518 A.2d 164 (1986), for the proposition that § 326(gg) does not “impose a line-crossing requirement and ... [that] interstate movement of packages and freight carried by the vans constituted interstate commerce and that the vans were an integral part of the nationwide interstate commerce system.” Imbach then suggests that Imbach’s vessels, which regularly construct, repair, and improve the facilities of interstate commerce, are engaged in interstate commerce to the same extent as the tugboats, stevedores, and dredges.

Interstate commerce begins when goods are picked up by a truck or a train. That trip continues when the goods are deposited on the docks and piers constructed and maintained by Imbach. It continues on the oceangoing ships which are serviced and repaired by Imbach’s floating derricks. Interstate commerce continues when the ships are unloaded onto the piers constructed and repaired by Imbach and it ends when goods are delivered by truck or rail to their final destination.

Surely, Imbach’s activities and equipment, like stevedoring operations and machinery, are an integral part of interstate commerce, without which no commerce would ever be moved. We disagree and explain. In finding for the Comptroller, the Tax Court stated: I don’t think that the fact that [Imbach] may be rendering a servicef ] to, or doing construction work for other people or companies that are engaged in interstate commerce necessarily means that their activities would be considered as those that are principally involved in the movement of passengers or freight, which is the way the law used to ¹⁴⁷ read, and now it ... describes the various items, and it says used principally in interstate or foreign commerce. The court then distinguished United Parcel Service, Inc. from the case before it because [.United Parcel Service, Inc.] was a situation where no one disagreed that UPS was involved in interstate commerce.

It’s one company that unquestionably is involved in interstate commerce ... And in effect it’s a[ ] situation where it’s the same company that is involved in everything. And that’s where the difference, or really a major difference between at least the UPS case comes in my mind, as opposed to what we are dealing with here. In effect what the [appellee] in this case is saying is that our nexus comes from the fact that we do this work for all these other different companies that are very obviously engaged in interstate commerce, and therefore because of that, we should be categorized as someone who is principally engaged in interstate commerce.

We agree with the Tax Court’s reasoning. In United Parcel Service, Inc., 69 Md.App. at 462 , 518 A.2d 164 , we held that the common carrier’s delivery vans, that were used exclusively for intra-state delivery of packages, were “integral components of [a] nationwide interstate delivery service and are thus exempt from taxation.” In so doing, we reviewed § 326(gg) and noted that the language “clearly indicates that movement of passengers or property, and not vehicles, is the linchpin of the test for determining the scope of the exemption.” Id. at 472, 518 A.2d 164 . We then reasoned that “[o]n its face, the statute does not impose a line-crossing test: nowhere does the statute differentiate between interstate carriers whose vehicles cross state borders and those whose vehicles do not cross state lines ... Reading these words literally, we hold their import to be that the freight, and not vehicles, must cross state lines.” Id.

The delivery vans were exempted because, even though the