Dun & Bradstreet Corp. v. Comptroller of the Treasury

²⁶⁰ ALPERT, Judge. We are asked to decide whether a notice of assessment intended for a subsidiary corporation was legally sufficient when the Comptroller mailed the notice in the parent corporation’s name to the parent corporation’s address to the attention of the parent’s employee who handled the subsidiary’s tax audit from which the assessment arose. FACTS Dun & Bradstreet, Inc. (D & B, Inc.) is a wholly owned subsidiary of Dun & Bradstreet Corp. (D & B Corp.). For the calendar years 1981, 1982, and 1983, the Comptroller of the Treasury (the Comptroller) audited the Maryland corporation income tax returns filed by D & B, Inc. Albert J. Franceschini, an employee of the Comptroller who worked out of the Comptroller’s New York office, conducted the audit. 1 The audited tax returns all showed the following name and address at the top of page one: 2 Dun & Bradstreet, Inc. c/o Dun & Bradstreet Corp. 299 Park Ave.

New York, NY 10171 Unlike D & B, Inc., D & B Corp. did not conduct business in Maryland, file Maryland income tax returns, or undergo an audit by the Comptroller during the time period involved in this case. ²⁶¹ D & B, Inc. did not have a tax department separate and distinct from that of its parent corporation, D & B Corp. When Franceschini audited D & B, Inc., he dealt with two D & B Corp. employees — Diane Ritucci and Joseph Hartman 3 — whose responsibilities included handling D & B, Inc.’s tax audits. Hartman twice wrote letters to Franceschini, furnishing him with information that Franceschini had requested during the audit of D & B, Inc. The D & B Corp. stationery on which Hartman wrote both these letters had the same Park Avenue address as that which appeared on D & B, Inc.’s Maryland corporation income tax forms. At trial, Hartman acknowledged that it was a common practice for the Comptroller to communicate with taxpayers at the address they placed on their tax returns. When Franceschini completed the audit, he submitted his report to Richard White, Manager of the Corporation Section of the Comptroller’s Income Tax Division.

The report indicated the disagreement that existed between Franceschini and D & B, Inc. over the losses that D & B, Inc. claimed from the safe harbor leases. A “notice of assessment” letter, dated June 19, 1986, was prepared over White’s signature and addressed as follows: Dunco Bradstreet, Inc. c/o The Dun & Bradstreet Corp. 299 Park Avenue New York, N.Y. 10171 The letter also was addressed to the attention of “Tax Department — Mr. Joseph A. Hartman.” At trial, White testified that he had no real independent knowledge of what happened to that letter. His “best guess” was that he noted the incorrect name which appeared on the letter and had it retyped. Hartman testified that he never received the letter. ²⁶² A second “notice of assessment” letter, dated June 23, 1986, was prepared over White’s signature and addressed as follows: Dun <& Bradstreet Corp. Attn: Mr. Joseph A. Hartman, Tax Dept. 299 Park Ave.

New York, NY 10171 The audit work papers that Franceschini prepared — several of which contained references to D & B, Inc. at the top of the page — were attached to the second letter. Hartman received the second letter on June 23, 1986. On July 18,1986, D & B Corp. filed a petition of appeal in the Maryland Tax Court in response to the June 23, 1986 notice of assessment, stating that “it had not engaged in any business activity and had no income allocable to the State of Maryland for the years in question.” On September 14, 1989, the Tax Court held a hearing in which it took testimony and received documentary evidence. Hartman testified that upon receipt of the assessment notice, he investigated the files and found that the State of Maryland was not auditing D & B Corp. Hartman subsequently determined, however, that the Comptroller was auditing D & B, Inc. When Hartman compared D & B, Inc.’s taxable income figures with those in the assessment notice and found that they matched, 4 he had no question that it was D <fe B, Inc., not D «fe B Corp., that “was assessed.” 5 That both D «fe B Corp. and D & B, Inc. had actual knowledge ²⁶³ that the June 23, 1986 assessment letter was intended for D & B, Inc. further is supported by the correspondence sent by Harry D. Shapiro, Esquire, D & B’s Maryland counsel, to Paul Butler, Esquire, in-house counsel with Dun & Bradstreet’s corporate tax department in New York.

That letter, dated August 13, 1986, notes that “the State [the Comptroller] has not picked up the different corporate entities.” Although the Tax Court found that D & B Corp. “had actual knowledge of the fact that the assessment made against Dun & Bradstreet Corp. was intended to have been made against its subsidiary, Dun & Bradstreet, Inc.,” the Tax Court nevertheless reversed the Comptroller’s assessment. Specifically, the Tax Court concluded that (1) the Comptroller had made the assessment against D & B Corp., (2) the Comptroller should have assessed the tax liability against D & B, Inc., not D & B Corp., and (3) the Tax Court had no authority to find D & B, Inc. liable for the tax assessed against D & B Corp. The Comptroller appealed to the Circuit Court for Baltimore City. The trial judge (Ellen M. Heller, J.) reviewed the record and heard counsel’s argument. In her comprehensive and well-reasoned memorandum opinion, the trial judge concluded that the Tax Court erred as a matter of law, and entered an order that reversed the Tax Court’s decision.

The trial judge found that the Comptroller had mailed a notice of assessment to the taxpayer, D & B, Inc.; although the invoice incorrectly referred to D & B Corp. instead of D & B, Inc., “everything else was correct: the address; the agent, Mr. Hartman; and all of the supporting documentation.” The trial judge then analyzed: (1) Maryland case law, (2) federal case law that dealt with the analogous statutory notice of deficiency, (3) service of process cases, and (4) the Uniform Commercial Code’s required notification procedures. From this, the trial judge concluded that all gave rise to the same result: (1) that the taxpayer, D & B, Inc., had received adequate notice, and (2) that the Comptroller had entered an assessment against it. ²⁶⁴ D & B Corp. appeals to us from that ruling and asks the following questions: I. Whether the circuit court improperly substituted its judgment for that of the Tax Court?

II

Assuming that the case presents solely a question of law, whether the assessment made against D & B Corp. was a valid assessment against D & B,' Iric.? I. D & B Corp. contends that the trial court improperly substituted its judgment for that of the Tax Court. It argues that the question of whether the assessment notice met the statutory requirements is a mixed question of fact and law, not purely a question of law. Thus, the trial court should have applied a more deferential standard of review.

A reviewing court must affirm an order of the Tax Court if the order is not erroneous as a matter of law and if it is supported by substantial evidence in the record. See CBS Inc. v. Comptroller, 319 Md. 687, 697-98 , 575 A.2d 324 (1990). If the Tax Court bases its decision on a factual determination, and there is no error of law, a reviewing court may not reverse the Tax Court’s order if there is substantial evidence in the record to support the agency’s decision. Ramsay, Scarlett & Co., Inc. v. Comptroller, 302 Md. 825, 834 , 490 A.2d 1296 (1985).

A reviewing court, however, is at liberty to reverse any order of the Tax Court that is based upon an erroneous conclusion of law. Id. In this case, the trial court concluded that the question of whether the assessment notice complied with statutory requirements was purely a question of law. Generally, questions of law are those that do not involve basic factfinding or agency expertise, State Dep’t of Assessments and Taxation v. Loyola Federal Savings & Loan Ass’n, 79 Md.App. 481, 489 , 558 A.2d 428 (1989), i.e., “where the knowledge and experience of the agency is of little guidance to the court or where the case concerns statutory interpretation or other analysis of legal relationships about which courts ²⁶⁵ have specialized knowledge and experience____” Ramsay, Scarlett & Co., Inc., 302 Md. at 833 , 490 A.2d 1296 .

We think that the case before us calls solely for statutory interpretation. See 58 Am.Jur.2d Notice § 44 (1989); Zotta v. Burns, 8 Conn.App. 169 , 511 A.2d 373, 376 (1986) (before submitting to a jury the question of the adequacy of notice, the trial court must first determine whether, as a matter of law, a notice “ ‘patently meets or fails to meet’ ” statutory requirements). Consequently, we agree with the trial court that the “substitution of judgment” standard is the appropriate standard of review in this case. See Ramsay, Scarlett & Co., Inc., 302 Md. at 833 , 490 A.2d 1296 .

II

D & B Corp. contends that even if the case presents solely a question of law, the notice of assessment which the Comptroller issued against D & B Corp. was not valid against D & B, Inc. Article 81, section 309(d) 6 was in effect when the Comptroller sent the notice of assessment in June 1986. Section 309(d) states that “[t]he Comptroller shall mail a notice of any assessment to the taxpayer. In the event the taxpayer is dissatisfied with his assessment, he may within thirty days from the date of notice, appeal to the Maryland Tax Court.” Md.Ann.Code. art. 81, § 309(d) (1980 & Supp.1986). Section 10-107 of the Tax-General Article, formerly Article 81, § 304(a), provides that “to the extent practicable, the Comptroller shall apply the administrative and judicial interpretations of the federal income tax law to the administration of the income tax laws of this State.” Md.Tax-Gen. ²⁶⁶ Code Ann. § 10-107 (1988); see also O’Donnell v. Comptroller, 268 Md. 412, 414 , 302 A.2d 42 (1973).

D & B Corp. asserts that section 10-107 requires us to apply interpretations of the federal income tax law in construing section 309(d). The federal tax scheme works as follows: The tax commissioner mails a notice of deficiency to the taxpayer at “his last known address.” 26 U.S.C. § 6212 (a), (b) (1988). The taxpayer then has a period of time — usually ninety days — in which to petition the U.S. Tax Court for a redetermination of the deficiency. Id. § 6213(a).

The commissioner cannot assess the taxpayer until the petition period has expired or, if the taxpayer files a petition, until the Tax Court has resolved the matter. Id. Once the Tax Court resolves the matter, the commissioner may send the taxpayer a notice of assessment. By contrast, the Marylánd statute simply directs the Comptroller to mail “a notice of any assessment to the taxpayer.” 7 Md.Ann.Code art. 81, § 309(d) (1980 & Supp. 1986).

Thus, the Maryland “notice of assessment” appears to be a hybrid of the federal provisions, i.e., the Maryland statute combines the notice of deficiency with the notice of assessment so that the taxpayer effectively receives both at once. Under Maryland law, the taxpayer has thirty days in which to petition the Tax Court for a redetermination of the deficiency. Id. Like the federal notice of deficiency, Maryland’s notice of assessment is the taxpayer’s “ticket” into the tax court.

See Estate of Yaeger v. Commissioner, 889 F.2d 29, 34 (2nd Cir.1989), cert. denied, — U.S.-, 110 S.Ct. 2205 , 109 L.Ed.2d 531 (1989). ²⁶⁷ There are two lines of federal cases: one deals with the notice of deficiency, the other deals with the notice of assessment. The trial court recognized that neither line of cases was directly on point, but concluded that those addressing the notice of deficiency were more analogous for two reasons. First, the notice of deficiency cases deal with notice to the taxpayer of the appeal process. Second, federal income tax law has specific procedures and requirements that the tax commissioner must follow in making an assessment.

See Treas.Reg. § 301.6203-1 (as amended in 1961); see also Coson v. United States, 169 F.Supp. 671, 675-76 (S.D.Cal.1958). Because Maryland has no comparable provisions, the trial court was reluctant to rely on those cases to interpret the State’s income tax laws. We agree with the trial court’s reasoning on this point. D & B Corp. asserts that section 309(d)’s requirement that “[t]he Comptroller shall mail a notice of any assessment to the taxpayer” implicitly raises two issues: (1) whether the underlying assessment was valid, and (2) whether notice of the assessment was mailed to the taxpayer.

D & B Corp. argues that the assessment itself was invalid because the Comptroller issued it against the wrong taxpayer. It further argues that even if the assessment was valid, the Comptroller did not mail it to the taxpayer as required by the statute. (1) D & B Corp. relies on Osbourne v. Comptroller, 67 Md.App. 555 , 508 A.2d 538 , cert. granted, 307 Md. 342 , 513 A.2d 911 (1986), appeal dismissed, 308 Md. 322 , 519 A.2d 206 (1987), 8 for the proposition that a notice of assessment is not valid if it fails to name the proper taxpayer. In Osbourne , the Comptroller tried to recover retail sales taxes that Osbourne should have paid as the owner and operator of a defunct sole proprietorship.

Osbourne, in the ²⁶⁸ meantime, had formed a second company. The Comptroller pursued Osbourne as ■ an officer of the second company, rather than as sole proprietor, in the mistaken belief that the second company was a successor to the defunct sole proprietorship. The Comptroller assessed Osbourne individually only after Osbourne challenged the assessment against him as an officer of the successor corporation. By • then, the four-year statute of limitations in section 342(a) of Article 81 barred the Comptroller from maintaining the action.

Osbourne is inapposite because the Comptroller never intended to assess D & B Corp. Further, the error in this case was clerical, rather than substantive, in nature and in effect. See, e.g., Mechlin v. Comptroller, 48 Md.App. 242 , 426 A.2d 1387 (1981) (four-year statute of limitations did not bar corrected notice of assessment when taxpayer had received original notice with incorrect assessment period within the statutory time limit). The address on the first letter was to: Dunco Bradstreet, Inc. c/o Dun & Bradstreet Corp. 299 Park Ave. New York, NY 10171 The letter also was directed to the attention of Joseph Hartman.

Clearly, the address followed that found on D & B, Inc.’s corporate income tax returns except that a distracted typist added “co” instead of an ampersand in the first line. The address on the second letter omitted entirely the reference to Dun & Bradstreet, Inc. This may have been an inadvertent omission or it may not have been. Because the Comptroller had corresponded with Hartman during the audit of D & B, Inc., it is conceivable that an office worker checked the audit file, saw the correspondence from Hartman to Franceschini on D & B Corp.’s stationery, and concluded that Hartman was the agent at the 299 Park Avenue address to whom the audit papers for