Comptroller of Treasury v. Thompson Trailer Corp.

Hammond, J., delivered the opinion of the Court. The Comptroller appeals from an order of the Circuit Court for Baltimore County directing him to cancel a use tax assessment and a sales tax assessment against Thompson Trailer Corporation, the appellee. The questions presented are three: (1) Is personal property manufactured in another State, and brought into Maryland by the manufacturer subject to the use tax? (2) Is personal property purchased for use in, and for years used in, another State subject to the use tax in Maryland when fortuitously and unexpectedly it is brought here for use?

(3) Is the sale to Thompson by the Maryland Engineering Company of its plant and all its machinery and equipment therein a casual and isolated sale of the personal property, exempt from sales tax? ⁴⁹³ The testimony before the Comptroller showed the facts to be as follows. Thompson was incorporated in 1946 in Virginia and there began the manufacture of trailer and truck bodies in rented space at Bailey’s Crossroads, Fair-fax County. Its business grew and in 1949 it bought the plant it was renting. Then it obtained an Air Force contract and needed additional space urgently and immediately.

It inspected available plants from Richmond to Boston, looking as far west as Pittsburgh. By chance it heard of a plant in Pikesville, inspected it and on February 1, 1951, bought it, with all its machinery and equipment, from its owners, Mr. and Mrs. William F. McBride, a partnership doing business as the Maryland Engineering Company. Thompson then moved its entire operation to Pikesville, bringing with it for use there a hydraulic press it had manufactured in Virginia, and machinery which it had purchased in Virginia, having a total original cost of $48,782.25. In the contract of sale Maryland Engineering Company bargained and sold to Thompson “* * * the following fee simple property * * * together with all the structures, sidings and improvements thereon and the chattels described in Exhibit ‘A’ attached hereto * * * At and for the price of Two Hundred and Fifty Thousand Dollars ($250,000.00) * * Exhibit “A” listed all of the tangible assets of Maryland Engineering Company, with the exception of raw materials, work in progress, and finished products.

A subsequent appraisal assigned to the personal property bought by Thompson a value of $49,999.98 of the total purchase price. Mr. McBride testified that his reason for selling was to retire. He said: “I didn’t even want to take a monkey-wrench or screwdriver, because I intended to quit. * * * I had no intention of going further into business of any kind.” The Sales in Bulk Law was complied with. After the sale to Thompson, McBride completed the liquidation in 1951, disposing of the inventory on hand and completing a contract, half finished at the time of sale, for wooden cabinets for houses, making delivery as called for by the buyer as the houses were ready.

He ⁴⁹⁴ did this only after he had offered the cabinet contract to a half dozen firms and found no takers. The McBrides’ business was entirely woodworking — mainly making wooden doors for houses. Three or four months before the sale of the business, Maryland Engineering Company and a Mr. McConnel, trading as Southern Industries, of Randallstown, had bid on a Government contract for antennae masts, partly of metal and partly of wood, at a price of $368,000. The plan was for the Maryland Engineering Company to do the woodworking and to sub-contract the metal parts.

Although it had been thought that some one else got the job, in May of 1951 the Government accepted the joint bid. Mr. McBride said that “When you bid on a Government contract, if they offer it to you, you take it or you pay the difference. This contract was $368,000, and the difference could have been very substantial. Mr. McConnel did not have the cash to handle the job, so I was duty-bound to get in and help him, and I did. * * * To save our own necks, because they would have bought from the next lower bidder, or any way they could get it, and charge us up with the difference.” Mr. McBride rented space in Randallstown about the first of July and sometime in August began to do part of the metal work on the Government contract.

Some of the details of, and difficulties in, the execution of the Government contract are related in Velte v. McBride, 208 Md. 434 . After the sale to Thompson, Maryland Engineering Company reported monthly taxable sales to the Comptroller totalling $150,000 — some $75,000 under the cabinet contract, $40,000 of inventory and $35,000, in the latter months, of metal sales under the Government contract. Mr. McBride testified that the capital resulting from the 1951 liquidation was divided between him and his wife, since they were partners, although there had not been a formal dissolution of partnership. They had been equal partners in business since 1931 and had engaged in half a dozen different kinds of business.

The woodworking business had been started in 1942 and it was then that the name Maryland Engi ⁴⁹⁵ neering Company was used for the first time. The metal working business, started in August, 1951, was a completely different operation from the woodworking business. None of the employees in the metal working business at the Randallstown plant had been employed at Pikesville, and none of them were woodcutting people, the two businesses being entirely different. Our recent decision in Comptroller of the Treasury v. American Can Company, 208 Md. 203 , which held that personal property manufactured without the State and brought in by the manufacturer is not subject to the use tax, disposes of the first question.

Thompson need not pay the use tax on the value of the hydraulic press manufactured by it in Virginia and brought by it to Maryland. The Comptroller contends that all tangible personal property is subject to the use tax when brought into Maryland, no matter how long this may be after purchase, and without regard to whether the purpose was to use it here, unless it is brought in for the purpose of resale. We think the language of the statute clearly discloses that the Legislature did not go this far. The imposition section of the use tax statute, Code, 1951, Art. 81, Sec. 369, provides that: “An excise tax is hereby levied and imposed on the use, storage or consumption in this State of tangible personal property purchased from a vendor within or without this State on or after the effective date of this Act. * * * The tax imposed by this section shall be paid by the purchaser and shall be computed as follows : * * * on * * * the price * * *.” Sec. 368 (d) of Art. 81 defines “use” to be “the exercise by any person within this State of any right or power over tangible personal property purchased either within or without this State by a purchaser from a vendor * * *.” Sec. 368 (c) defines a “purchaser” as any person “* * * who shall have purchased tangible personal property for use, storage or other consumption in this State upon which a tax is imposed under Sec. 369 * * *.” Sec. 368 (b) defines a “vendor” as “every person engaging in the business of ⁴⁹⁶ making sales * * * for use, storage or consumption within this State.” (All emphasis supplied.) Sec. 373 (e) of Art. 81 requires a vendor to collect the use tax although the property is delivered directly to the purchaser outside of Maryland “if it is intended to be brought to this State for use, storage or consumption in this State.” As has often been noted — see, for example, Comptroller of the Treasury v. Crofton Co., 198 Md. 398 , and Miller Brothers Co. v. Maryland, 347 U. S. 340 — the use tax is a complement to the sales tax, designed to prevent Maryland residents from purchasing in other States and avoiding the sales tax here, and injuring local merchants.

The words of the statute lead us to conclude that the Legislature intended the use tax to be collected only when personal property was purchased with the intention of using it in Maryland. The definition sections clearly and explicitly say that the purchase must be for use within the State and spell out that the use which is taxed is that within the State of property purchased by one who intended to use it in the State. The imposition of the tax is upon the purchaser — by definition, one who had the intent at the time of purchase to use the property purchased within the State. Further evidence of the legislative will is found in the fact that the measure of the tax is the purchase price.

Obviously, this normally would be the current value of the property purchased. It must be inferred that the law-makers contemplated that the article bought would be taxed at, or reasonably near, the time of purchase, for if this were not so, the depreciation in value which time usually brings, would result in the tax being measured by a value bearing little relation to reality. Under the Comptroller’s contentions, an article brought into the State twenty years after it was bought would be taxed at cost price, although its actual value might well be but a fraction of cost. The Legislature has had no difficulty in clearly making taxable the use of property in the State, regardless of the place or time of purchase or the intent at that time.

Code, 1951, Art. 661/4, Sec. 28, imposes an excise tax on the issuance of ⁴⁹⁷ every certificate of title for a motor vehicle in the case of sales or resales “at the rate of two percentum of the fair market value”. The section requires a disclosure of the original price and other information relative to current fair market value. (It is to be noted, too, that by Chapter 332 of the Acts of 1955 the Legislature amended the use tax statutes by deleting from the definition and imposition sections the phrase “for use, storage or consumption within this State”. We express no opinion as to the meaning of the statutes as amended since the case before us is governed by the law in effect in 1951.) The parties stipulated that at the time the machinery and equipment sought to be subjected to the use tax were purchased by Thompson in Virginia, “such items were purchased with the intent of using them at the taxpayer’s plant in the State of Virginia, and said items were so used.” The evidence established the accuracy of the stipulation and went further, to show clearly that there was no intent at the time of any purchase to use the property anywhere except in Virginia.

There is lacking in the case the element essential to the imposition of the use tax, that is, the intent at the time of purchase to use the property in Maryland. Absent this element, the property is not subject to the use tax when it is unexpectedly brought into Maryland at a later date. This reading of the statutes was foreshadowed in Comptroller of the Treasury v. American Can Company, 208 Md. 203 , to which we have referred. There the Comptroller made the same contention that he does here — that all property brought into the State is subject to the use tax at the time it comes in, and the contention was rejected as to property manufactured out of the State and then brought in by the manufacturer.

Judge Henderson, for the Court, noted that: “Nor does it follow that because the use tax is complementary to the sales tax it must have a universal application. * * * It is not true, as the Comptroller states, that ‘all property which ultimately finds its way into this State is subject to the use tax with the exception of property held for sale * * *.’ ⁴⁹⁸ The use tax, in its complementary function, requires both a purchase and a use.” We add that it requires a purchase with intent to use in Maryland. The Comptroller, in the American Can Co. case, relied,- as he does here, on Code, 1951, Art. 81, Sec. 379. This says that to prevent evasion of the tax “and the duty to pay the same as herein imposed”, it shall be presumed that tangible personal property sold for delivery in this State is for use, storage or consumption in this State, and that a like presumption shall apply as to tangible personal property delivered without the State and brought into the State by the purchaser. The presumption is rebuttable if the purchaser holds a resale certificate issued by the Comptroller.

It was held in the American Can Co. case that Sec. 379 did not override the meaning of the statute, made plain by its other provisions, dealing as it does-with deliveries. We think that Sec. 379 does no more than aid the Comptroller in enforcement by the presumption that property