Fox v. Comptroller of Treasury

THIEME, Judge. This is an appeal from the decision of the Circuit Court for Baltimore City affirming the Maryland Tax Court’s determination that Stephen T. Fox (Fox) is liable, as an officer of The Baby Shop, Inc., t/a Crib N’ Cradle (the Corporation), for $58,510.23 in unremitted sales and use taxes that were collected by the Corporation, plus penalties and interest. The Comptroller of the Treasury (the Comptroller) levied assessments, which the Comptroller’s hearing officer affirmed. Fox appealed to the Maryland Tax Court, which affirmed the assessments.

The Circuit Court for Baltimore City affirmed the decision of the tax court. Fox then appealed to this Court. Question Presented Did the Maryland Tax Court, and the circuit court on judicial review, correctly decide under § 11 — 601(d)(l)(i) of the Tax-General Article, which holds certain specified officers of a corporation, including a vice president, personally liable for a corporation’s unpaid sales tax, that Stephen T. Fox is liable, as vice president of The Baby Shop, Inc., for payment of the sales and use taxes collected but not remitted to the Comptroller? We answer “yes.” Statement of Facts Before incorporating The Baby Shop, Inc., Fox worked for Crib N’ Cradle, Inc., a Virginia corporation, in its Baltimore ²⁸² stores.

Upon discovering that Crib N’ Cradle might close its stores, Fox and Joseph Crigger, an area district manager for Crib N’ Cradle, decided to buy the Baltimore area stores. In the spring of 1990, Fox, together with Crigger, Crigger’s wife, and his mother-in-law, formed the Corporation to acquire and operate three (3) stores, trading under the name “Crib N’ Cradle,” which would sell infant and child furniture and related products. The board of directors of the Corporation held an initial meeting of directors on March 1, 1990. The following officers were elected: Joseph Crigger: president' Rheta Crigger: secretary Rheta Ambrose (Mrs. Crigger’s mother): treasurer Stephen T. Fox: vice president The Criggers and Ms. Ambrose collectively owned sixty-six percent (66%) of the capital stock of the Corporation.

Fox and his girlfriend, Mary Wilson, each owned seventeen percent (17%). The Corporation’s by-laws provided only that the vice president should act for the president in the event that the president is unable to perform his duties and that the vice president should have the duties that “from time to time may be assigned to him by the president and the board of directors.” According to the Stock Purchase Agreement, the shares of Fox and his girlfriend were treated “as if Stephen T. Fox and Mary Wilson were the joint title holders of the shares held by each.” The Corporation proceeded to open several other stores. 1 In addition to being a stockholder, director, and vice president of the Corporation, Fox was also the store manager for the Corporation’s Towson branch store, which was the largest and served as the warehouse for merchandise for the other stores. He also filled in occasionally at other store locations. ²⁸³ Fox was involved in the financial affairs of the corporation from its beginning. Fox was apprised of all the financial aspects of the purchase of the stores, and was provided with financial statements, cash flow projections, and all settlement statements, including inventories.

Fox was jointly and severally liable on the initial promissory note for $786,761.00 for the bulk of the purchase from Crib N’ Cradle, Inc. Fox personally guaranteed the lease for the Corporation’s Towson store and was personally obligated on a promissory note for $16,312.47 to the lessor of the Corporation’s Severna Park store. Fox collected the sales receipts and sales tax receipts made at the Towson store on a daily basis. The taxes were broken out and put in a bank account in the evening. All deposit slips were taken on a daily basis to the central office located in Severna Park, which was operated by the Criggers.

From that point on, Fox had no knowledge of the sales tax. He never filled out or prepared a sales tax report. Fox was not certain how sales taxes were to be paid. Fox’s handling of funds for the Corporation was limited to two classes of activity: (1) depositing the receipts in the bank branch most convenient to the Towson store, and (2) signing checks for freight and C.O.D. charges.

Fox did not have any knowledge of what happened to the receipts he deposited in the Corporation’s account, other than the checks he drew for freight and C.O.D. charges. The Criggers never consulted him about sales taxes or other bills. Except for the lease for the Towson store, Fox never reviewed a lease for any of the premises leased by the Corporation. He never prepared, executed, or reviewed corporate tax returns prior to their filing.

Fox was, however, authorized to sign checks on the three corporate bank accounts, without any co-signature. Fox signed checks on these accounts, including the account into which he deposited the Towson store receipts. In February of 1994, Fox learned for the first time from Joseph Crigger that the Corporation was delinquent in its payment of sales taxes. Fox assumed that this meant that only one month was delinquent.

Fox had similar discussions ²⁸⁴ in March of 1994. The next discussion that he had with any of the Criggers concerning the sales tax issue occurred in May of 1994. It was only then that Fox learned the degree of the delinquency. The Corporation ceased operations shortly thereafter, in the second week of June 1994, when the last of its locations, the Towson store, closed.

On April 25, 1995, the Comptroller issued a Notice of Final Determination for unpaid sales taxes due from the Corporation against Fox as an officer of the Corporation 2 in four (4) separate cases. The total assessment of sales tax, penalties, and interest was $72,332.49. Discussion § ll-601(d) of the Tax-General Article The Comptroller assessed against Fox the unpaid sales taxes due from the Corporation pursuant to Md.Code (1988, 1997 Repl. Vol, 1998 Supp.) § 11-601 of the Tax-General (Tax-Gen.) Article.

That section provides, in pertinent part, as follows: If a buyer or vendor liable for the sales and use tax and for the interest and penalties of the tax under subsection (c) of this section is a corporation ..., personal liability for the sales and use tax and for the interest and penalties of the tax extends to: (1) in the case of a corporation: (i) the president, vice president or treasurer of the corporation; and (ii) any officer of the corporation who directly or indirectly owns more than 20% of the stock of the corporation. Id. § 11 — 601(d)(1). The circuit court correctly held that Fox, who was the vice president of The Baby Shop, Inc., was liable for the ²⁸⁵ Corporation’s unpaid sales and use taxes that were collected but not remitted pursuant to Tax-Gen. § 11-601 (d). As is often stated, the primary goal in a case requiring statutory construction is to ascertain and effectuate the intent of the General Assembly.

See Comptroller of the Treasury Income Tax Div. v. American Satellite Corp., 312 Md. 537, 544 , 540 A.2d 1146 (1988); Dean v. Pinder, 312 Md. 154, 161 , 538 A.2d 1184 (1988); Kaczorowski v. Mayor & City Council of Baltimore, 309 Md. 505, 512-13 , 525 A.2d 628 (1987); Comptroller of the Treasury v. Fairchild Indus., Inc., 303 Md. 280, 284 , 493 A.2d 341 (1985). In fulfilling this function, the reviewing court considers the language of the enactment itself in its natural and ordinary signification. When a statute is susceptible of more than one meaning, the court may consider the consequences resulting from one meaning, rather than another, and adopt the construction that promotes the most reasonable result in light of the objectives and purpose of the enactment. See Tucker v. Fireman’s Fund Ins.

Co., 308 Md. 69, 75 , 517 A.2d 730 (1986). Moreover, the legislative intent — more accurately described as legislative goal or purpose — is to be divined by considering the language of the statute in the context within which it was adopted. Kaczorowski, 309 Md. at 514 , 525 A.2d 628 . The predecessors of § 11 — 601(d) were Art. 81 §§ 331(a) and 383, which provided, in pertinent part, as follows: When any corporate vendee fails to pay the tax as provided in this section, then in addition to the liability of such corporate vendee, the officers, or any of them, of such corporation shall be personally liable for such tax.

Md.Code (1957, 1980 RepLVol.), Art. 81 § 331(a)(repealed 1988). If any corporation fails to pay the tax as hereby required, then in addition to the liability of the corporation, any officer of the corporation shall be personally liable for the tax. Id. § 383 (repealed 1988). These prior provisions imposed liability for unpaid taxes upon all corporate officers.

In ²⁸⁶ Rucker v. Comptroller of the Treasury, 315 Md. 559 , 555 A.2d 1060 (1989), in scrutinizing Art. 81 §§ 331(a) and 383, the Court of Appeals stated: Rucker argues that since this legislation does not pinpoint certain officers as being responsible for payment of taxes, the tax court should look to see who in the corporation actually is assigned the responsibility of payment of taxes. However, we find no merit in this argument.... As we see it, Rucker’s argument is specious. When he consented to and accepted election to one of the statutorily designated offices, he simultaneously became responsible for the payment of the corporation’s sales and use taxes.

Accordingly, the Comptroller properly assessed Rucker for the full amount of the delinquent taxes. Id. at 566, 555 A.2d 1060 . Even before Rucker was decided §§ 331(a) and 383 were recodified, in pertinent part, in what is now Tax-Gen. § 11-601(d)(1), which restricted liability only to individuals who either hold the offices of president, vice president, or treasurer, or are officers who “directly or indirectly” own more than twenty percent (20%) of the stock of the corporation. The statutory language of § 11 — 601(d)(1) is unambiguous; it clearly imposes liability on certain specified officers without regard to their ability to control the fiscal management of the corporation.

In the instant case, it is undisputed that Fox was the vice president of The Baby Shop, Inc. The history of § ll-601(d) demonstrates the intent of the legislature to impose liability on the specified officers without regard to their fiscal management. The General Assembly enacted the current version of § 11-601 by the passage of Senate Bill 642 in its 1992 session. The pertinent part of Senate Bill 642 reads as follows: (3) IF THE BUYER OR VENDOR LIABLE UNDER ITEM (1) OR (2) OF THIS SUBSECTION IS A CORPORATION: (I) THE PRESIDENT, VICE PRESIDENT, OR TREASURER OF THE CORPORATION; AND ²⁸⁷ (II) ANY OFFICER OF THE CORPORATION WHO X DIRECTLY OR INDIRECTLY OWNS A MAJQRI-T¥ MORE THAN 20% OF THE STOCK OF THE CORPORATION, iOS, 2.EXERCISES DIRECT CONTROL OVER ITS FISCAL MANAGEMENT--AND (III) ANY AGENT OF THE CORPORATION — WHO HAS TO COLLECT- -OR PAY THE- SALES AND--USE TAX, S. 642 § 1, 1992 Md. Laws 3176 , 3176-77. 3 As originally proposed, Senate Bill 642 would have limited the personal liability of officers to the president, an officer owning a majority of the stock, or any officer who “exercises direct control over fiscal management.” However, all reference to an officer’s control over fiscal management was deleted from Senate Bill 642 as it was finally enacted. Thus, we may conclude that the legislature intentionally imposed personal liability on specific officers, whether or not they managed the corporation’s money or paid the taxes.

By imposing liability for taxes on a corporation’s president, vice president and treasurer, the legislature has given these officers due notice of their duty to see that the State’s taxes are paid. By law, those who accept these corporate offices become “simultaneously responsible for the payment of the corporation’s sales and use taxes.” Rucker, 315 Md. at 566 , 555 A.2d 1060 . The officers thus have an inescapable statutory duty to comply with the tax law. When the legislature intended that liability be imposed only on officers with direct control over a corporation’s fiscal management, it has expressly said so.

For example, the Tax-General Article’s income tax withholding provisions provide: ²⁸⁸ If an employer or payor negligently fails to withhold or to pay income tax in accordance with subsection (a) of this section, personal liability for that income tax extends: (1) to the employer or payor; (2) if the employer or payor is a corporation, to: (i) any officer of the corporation who exercises direct control over its fiscal management .... Tax-Gen. § 10 — 906(d)(1)—(2)(i) (emphasis added). The appellant argues that the Court of Appeals in Rucker attempted to justify the appropriateness of the imposition of liability upon an entire class of individuals by stating: As we see it, there is nothing