Controller v. Pleasure Cove Yacht Club, Inc.

ELDRIDGE, Judge. The dispositive issue in this case concerns the scope of Maryland Code (1957, 1990 Repl.Vol.), Art. 24, § 9-602, authorizing Anne Arundel County to tax “space rentals.” ⁴⁵² I. Ch. 302 of the Acts of 1971 provided that “[t]he County Council for Anne Arundel is hereby empowered and authorized, by ordinance, enacted from time to time pursuant to its legislative procedure, to levy, impose, and collect a sales or use tax upon ... space rentals.” Although the statute has been amended several times, the pertinent part has remained essentially unchanged. In its present form, the statute provides that “Anne Arundel County may impose, by ordinance, and collect a sales or use tax on ... space rentals.” Art. 24, § 9-602(a). Pursuant to this authorization, the County enacted Article 6, § 7-405(b), of the Anne Arundel County Code levying “a tax of 10% of any charges or other consideration paid or received in exchange for the use of services or facilities for the purpose of docking or storing boats, including marina or boat slip facilities, space rentals, and docking and storage areas.

If the services or facilities are offered in conjunction with other services or facilities, the tax applies only to the portion of consideration derived from space rental, docking, or storage.” The tax is usually referred to as the “boat slip tax.” The county ordinance also requires that any person offering “services or facilities for the storage or docking of boats shall collect the tax from the user of the services or facilities, file a return, and remit the tax directly to the collecting authority.” Anne Arundel County Code, Articie 6, § 7-405(c)(l). The Anne Arundel County Controller promulgated regulations to assist in the administration of the boat slip tax levied by § 7-405(b). Specifically, section IIA of the regulations explains: “The rate of tax is 10% and is effective July 1, 1975. The tax is levied on money received for space rental, docking or storage.

In the event that there are other charges, i.e., charges for crane rental, hauling or the like, included with the charge for space rent, storage or docking, such amounts are to be excluded from the taxable amount and the bill for ⁴⁵³ the charge must indicate the proportionate amount charged for each specific service.” In addition, the Sales Tax Division of the Controller’s Office issued internal guidelines related to the administration of the boat slip tax. The guidelines were drafted by a county attorney who was apparently assigned to the Sales Tax Division. These guidelines provide in part: “In the case of ‘boatel’ storage .... [a]s to when a crane is in actual use in lifting a given customer’s boat in and out of storage, this service, only if separately invoiced, may be charged to a given customer as a separate non-taxable service.” II. Pleasure Cove Yacht Club, Inc., is an Anne Arundel County Yacht Club which, in exchange for annual dues, grants members the use of its swimming pool, tennis courts, picnic area, and clubhouse.

Pleasure Cove also operates a marina and rents wet slips, outside storage racks, and boatel spaces to yacht club members only. 1 Before 1989, members seeking to rent a slip, outside storage rack, or boatel space would enter a rental contract with the marina to pay, in addition to membership dues, a rental fee for the slip or space. The entire rental fee was subject to the boat slip tax, even though the amount paid included the cost of marina services. Among the marina services covered by the rental fee were forklift services, 2 ice ⁴⁵⁴ eater, 3 electricity, trash removal, assistance to members getting on and off the boats, assistance with canvassing boats, boat cleaning services, security, snow removal, and periodic checking of bilge pumps. After being told by other managers that marina services were not taxable, Ed Sealing, Pleasure Cove’s general manager, revised the manner in which members were charged under the rental contracts.

In the 1989 rental agreements, Pleasure Cove reduced by one-half the previous cost of the space rental and charged members separately for marina services, usually in the amount of the abated rental fee. 4 Pleasure Cove only applied the boat slip tax to the reduced amount separately stated for the space rental. Pleasure Cove then requested a $10,000 refund from the County for overpayment of the boat tax for the years prior to 1989. This request precipitated an audit by the County. While examining Pleasure Cove’s records, Tracy Cabral, an auditor with the Sales Tax Division of the County Controller’s office, noticed the difference between the tax amount collected on the space rentals in 1988 and the amount collected in 1989.

She also discovered that the 1989 rental contracts contained a new charge for marina services to which the boat sales tax had not been applied. After receiving what she regarded as an unsatisfactory explanation of the marina services charge, Ms. Cabral concluded that the cost of marina services should have been subject to the county boat slip tax. Pleasure Cove was ⁴⁵⁵ assessed $7,736.16 for the tax deficiency and $773.62 in penalties. Pleasure Cove requested a review of the assessment by the Maryland Tax Court.

At the Tax Court hearing, Mr. Sealing testified as to the services that were provided for by the marina service fee. He also testified that the need for certain services depended on whether the rental was for a slip or a boatel. He explained that, although the slip renters are permitted to store their boats temporarily in a boatel space and may make use of the forklift to do so, the forklift is primarily used by boatel renters to remove their boats from the space and to return the boats to the boatel. Slip renters, on the other hand, make primary use of the ice eater because their boats remain in the water throughout the winter.

Mr. Sealing further testified that, unless a renter intended to store his boat for the year without making use of it, every renter would pay some amount for marina services. He explained that there was no set formula for determining the marina services fee, 5 but that the cost of the space rental generally equalled the cost of marina services. According to Mr. Sealing, “[t]he amount of the service is corresponding, in most cases, to the length of the vessel that we are handling.... Different length vessels require special handling, strain upon the equipment.

Larger,vessels, heavier vessels produce more strain, more wear and tear on the equipment and the operators. Some vessels even require multiple operators, where you have people on the ground we call spotting the vessel at both ends of it, while the equipment operator is moving it.” Since members with larger boats typically were charged higher rental fees, a comparable charge for marina services would ⁴⁵⁶ take into account the greater wear and tear on equipment caused by rendering services for the larger boats. Frederick Mershon, a marina owner, testified as to the rental practices at the two county marinas with which he is associated. He explained that, like Pleasure Cove, London Towne Marina rents slips, boatel spaces, and outside storage racks.

In 1989, according to Mr. Mershon, the marina charged $180 per year for a boatel rental, $60 per year for an outside rack, and $1,232 for “in and out service” or handling the boat. 6 The tax was collected only for the $180 boatel space or the $60 outside rack. Mr. Mershon also disclosed that London Towne Marina had been audited in the past by Ms. Cabral and that no objections had been raised as to how London Towne applied the boat slip tax. As to Holiday Point Marina, which rents wet slips only, Mr. Mershon testified that slip rental customers were not, and are not, separately charged for the limited services offered by that marina. Ms. Cabral testified that a typical marina in Anne Arundel County charges for the rental space and includes the services as part of that charge.

She further stated that if London Towne were charging for the space rental and services in the manner testified to by Mr. Mershon, then it was not complying with the requirements of the county boat slip tax. On cross examination she admitted that Pasadena Boatel, another county marina which Ms. Cabral had audited, treats some of ⁴⁵⁷ its marina services as non-taxable items. According to Ms. Cabral’s testimony, she relied upon § 7- 405(b) and the administrative regulations in calculating the boat slip tax. She admitted that she was familiar with the Sales Tax Division’s guidelines drafted by a county attorney and that they did not contradict county policy.

She also maintained that the county no longer relies upon them. There was, however, some evidence indicating that Ms. Cabral may have relied upon the guidelines in auditing Pleasure Cove. 7 The Tax Court affirmed the County assessment but vacated the penalty that had been imposed. In its opinion, the Tax Court first appeared to say that, if the cost of hauling a boat to and from storage and other services were separately charged, the services would be non-taxable. The court explained: “It’s the Court’s opinion that really what the ordinance is talking about, as far as the exclusions go, is that if it costs you X numbers a year for a ... boatel ..., and then they say in addition to that we charge you a hundred dollars to put your boat ... in in the spring and a hundred dollars to pull it out in the fall, so it’s really going to cost you X dollars plus the two hundred for the in and out, then this Court feels that this is what the language of that ordinance is addressing; is that when that kind of charge is made, then you shouldn’t impose the tax on that. “And again the law says that it has to be broken out.

So you would really have a space rental, and a cost of hauling and putting the boat back in and out.” ⁴⁵⁸ Later the Tax Court referred to Pleasure Cove’s change in practices and stated, somewhat inconsistently, that, even with the separate charge for marina services, this case would be governed by Baltimore Country Club v. Comptroller, 272 Md. 65 , 321 A.2d 308 (1974). According to the Tax Court, “we do feel that the [Baltimore Country Club] case ... is very close to the situation we have here; where ... it was some type of business organization, that they were charging for the food and then there was a fifteen percent service charge put on top of it. And they were saying that that should not be taxable, and the appeals court said yes that it would be taxable.” Finally, the Tax Court criticized the County for its inconsistent administration of the tax: “So it’s a circumstance here where this Court truly believes that ... Anne Arundel County is primarily responsible for the pickle that this taxpayer finds himself in at this particular point. ****** “But this really looks to me like a situation where Anne Arundel County, although they can charge this tax in the manner that they have already, and which this Court is affirming, but under the circumstances with a lack of a consistent pattern of collecting this tax from these various marinas over the years, and in light of the fact that Pleasure Cove is in a position now where apparently they will not only have ’89, but ’90 and even ’91 to deal with as far as this deficiency goes, it may be a good time to say you know what, we may have led these people down the wrong, road with some of the things that we have been doing.” The Tax Court stated in its Order that the amounts charged by Pleasure Cove for marina services “constitute taxable consideration paid or received in exchange for the use of services or facilities for the purpose of storing and docking boats under § 7-405(b) of the Anne Arundel County Code....” ⁴⁵⁹ Pleasure Cove sought review of the agency decision in the Circuit Court for Anne Arundel County.

The circuit court, treating the issue as entirely one of statutory construction, reversed based upon its interpretation of § 7-405(b). The circuit court held that, under the plain meaning of the county ordinance, forklift and other marina services were not taxable. The circuit court analyzed the ordinance as follows: “[T]his Court finds the statutory language of § 7-405 to unambiguously state which services or facilities are taxable under § 7-405. This finding is best understood by reading each clause of § 7-405 independently. “The first clause of the first sentence reads ‘There is a tax ... for the use of services or facilities....’ This clause standing alone is somewhat ambiguous.

However, the second clause of the first sentence, modifying the first clause, describes what ‘services or facilities’ are taxable. Taxable ‘services or facilities’ are those which are used ‘... for the purpose of docking and storing boats.... ’ From a plain reading of these two clauses this Court finds the clear intention of the County Council by enacting the Boat Tax was to tax only those services or facilities which are used for the purpose of docking and storing of boats. “Nevertheless, there may be confusion over whether forklift services are ‘used for the purpose of docking and storing boats.’ However, any confusion in this regard is removed by the third clause of the first sentence which itemizes the types of ‘services or facilities’ which are used for ‘the purpose of docking and storing boats’ and thus taxable under the Boat Tax. According to the statute these items include ‘... marina or boat slip facilities, space rentals, and docking and storage areas.’ This Court does not find in this first sentence a reasonable interpretation which would include fork-lift services as a taxable item. “This Court has applied the same analysis to the second sentence of the Boat Tax and in doing so does not find a reasonable interpretation which would include fork-lift services as a taxable service. The first clause of this sentence reads ‘If the services or facilities are offered in conjunction ⁴⁶⁰ with other services or facilities,.... ’ This Court interprets this clause as referring to the services or facilities which are delineated in the first sentence, i.e. marina or boat slip facilities, space rentals, and docking and storage areas.

Additionally, this clause sets up the conditional situation when these particular services are commingled with other services. This leads us to the second clause of the second sentence which explains, ‘the tax applies only to the portion of consideration derived from space rental, docking, or storage.’ Again a plain reading of this clause does not include fork-lift services as an item which must be separated as a taxable item.” Anne Arundel County appealed to the Court of Special Appeals. Before the case was heard by the Court of Special Appeals, Pleasure Cove filed in this Court a petition for a writ of certiorari which we granted.

III

Pleasure Cove in its petition and brief argues that the circuit court correctly interpreted the county ordinance. Alternatively, Pleasure Cove argues that, “if the county boat slip tax does apply to services, Anne Arundel County has exceeded its authority under state law” by imposing the boat slip tax on marina services. In addition, Pleasure Cove complains about certain evidentiary rulings by the Tax Court. The County argues that § 7-4050?) of the Anne Arundel County Code permits the County to tax marina services and that the ordinance is within the authority delegated to the County by the State statute, Art. 24, § 9-602.

Specifically, the County argues that, because the marina services are a mandatory, integral part of the space rental, they are subject to the boat slip tax. 8 Like the Tax Court, the County primari ⁴⁶¹ ly relies upon Baltimore Country Club v. Comptroller, supra, 272 Md. 65 , 321 A.2d 308 , to support its position. The County further argues that the Tax Court properly applied the correct legal principles, and that its decision was supported by substantial evidence. In our view, when the General Assembly in Art. 24, § 9-602, authorized Anne Arundel County to levy a tax on “space rentals,” it did not authorize the County to levy a tax on other marina services, such as involved in this case, when the charge for the space rental, reasonably reflecting the space rental, is set forth separately from the charge for the other marina services. Consequently, we do not reach the other challenges to the Tax Court’s decision which have been made by Pleasure Cove.

As indicated above, the thrust of the County’s statutory construction argument, with respect to both the state enabling statute and the county ordinance, is that the tax in