Hooks v. Comptroller of the Treasury

Singley, J., delivered the opinion of the Court. Edward W. Hooks, who leases a taxicab on a daily basis from Checker Cab Association (Checker), an association of about 86 owners, who own some 277 cabs, here seeks to recover the sales tax which was added to the rent which he and other drivers similarly situated paid. Under the rental agreement with Checker, Hooks and his colleagues paid a fixed but unspecified amount for the use of the taxicab for a 12-hour period, whether or not they operated the taxicab for the entire time, and in addition, agreed to purchase from Checker all of the gasoline consumed during the period, at a price in excess of the market price. It seems to be conceded that Checker derived its income exclusively from the amount it charged for gaso ³⁸² line. 1 In return for this, Checker provided various services, including dispatching of taxicabs and towing.

The fixed rental fee which Checker collected was remitted without deduction to the owner of the leased cab. A sales tax was collected by Checker from lessee-drivers in accordance with the provisions of the Retail Sales Tax Act (the Act), Code (1957, 1969 Repl. Vol.) Art. 81, §§ 324-371, on the fixed amount paid as rent as well as on the amount paid for gasoline. In Hooks’ case, this was $351.31 for the period not barred by limitations.

Mr. Hooks looked at all this with a jaundiced eye, and in an effort to right what he conceived to be a wrong, filed with the Comptroller a claim for refund of sales taxes paid by him and by other lessees who drove for Checker, in an aggregate amount of $141,036.38. The Comptroller’s hearing officer ruled that the only claim which could be considered was for a refund of sales tax actually paid by Hooks himself, and denied this claim. Hooks appealed to the Maryland Tax Court, which affirmed the decision of the Comptroller, and then to the Baltimore City Court, which affirmed the tax court. From a judgment absolute entered by the Baltimore City Court in favor of the Comptroller, Hooks has brought this appeal.

Hooks advances four reasons why the judgment entered below should be reversed: (i) An application for refund of sales taxes erroneously, illegally or unconstitutionally paid may be made by a claimant in a representative capacity; (ii) The lease of a taxicab by an owner to a driver for the purpose of rendering service to the public is a sale of transportation service, exempt from sales tax under § 326 (n) of the Act; (iii) Gasoline purchased from the agent of the ³⁸³ lessor of a taxicab by a lessee is exempt from sales tax by virtue of § 326(d) of the Act, and (iv) The imposition of a sales tax on a lessee who drives a taxicab when a similar tax is not imposed on an owner who drives his own taxicab, is a denial of equal protection guaranteed by the 14th Amendment to the United States Constitution. We shall consider these contentions in order. (i) Hooks’ first contention, that he was entitled to bring a class action, may be readily disposed of. It is quite clear that § 348 of the Act, which deals with applications for refund of sales taxes erroneously, illegally or unconstitutionally paid is quite specific and provides, in part: “* * * Such application may be made by the person upon whom the tax was imposed or by any vendor who collected and paid such tax to the Comptroller if the vendor establishes to the satisfaction of the Comptroller, under such regulations as he may prescribe, that the tax was paid on a sale which had been rescinded or can-celled or was erroneously, illegally or unconstitutionally collected. * * *” (Emphasis supplied) It would seem patently clear that applications for refund may be made only by the taxpayer who paid the tax or by a vendor who has collected the tax from others.

Here, it was the taxpayer, Hooks, who made the claim, and while he may act in his own behalf, there is no warrant in the Act permitting him to advance a claim in behalf of others similarly situated. The right of appeal to the Maryland Tax Court provided for by § 352 of the Act is accorded “any taxpayer” and “taxpayer,” as defined by § 324 (q) “* * * means any person required * * * to pay or pay over to the Comptroller the tax imposed * * While the definí ³⁸⁴ tion of “person” appearing in § 324(a) encompasses a person acting in a fiduciary or representative capacity, or a “group * * * of individuals acting as a unit,” the definition must be read in the context of § 348, which provides that application must be made by the person who paid the tax. Additionally, it is quite clear that Maryland Rule 209, dealing with class actions, on which Hooks relies, while made applicable to the courts of the State by Rule 1, is not applicable to either the Comptroller or the Maryland Tax Court under Rule 5 i. (ii) The Act, § 326(n), exempts from the retail sales tax: “Transportation services and newspapers.— Sales of transportation services, and the printing and sales of newspapers of any and all types.” Hooks can derive little comfort from this, however, since the exemption only relieves his passengers, who are the purchasers of transportation services, from paying a tax on the fares which they pay.

The exemption in no way relates to the rent which he pays for the taxicab which he leases, nor can it be successfully argued that the taxicab which he leases is leased again to his passengers. Hooks is the ultimate consumer, because he does not lease the taxicab for the purpose of leasing it again in an unchanged form, Comptroller of the Treasury v. American Cyanamid Co., 240 Md. 491, 498 , 214 A. 2d 596 (1965); see Hotels Statler Co. v. District of Columbia, 199 F. 2d 172 (D. C. Cir. 1952); Atlanta Americana Motor Hotel Corp. v. Undercofler, 222 Ga. 295 , 149 S.E.2d 691 (1966); Boise Bowling Center v. State, 93 Idaho 367 , 461 P. 2d 262 (1969). The crux of the matter is found in the definition of “sale” contained in § 324(d) of the Act: “ ‘Sale’ and ‘selling’ mean any transaction whereby title or possession, or both, of tangible personal property is or is to be transferred by ³⁸⁵ any means whatsoever for a consideration including rental, lease or license to use, or royalty, by a vendor to a purchaser, or any transaction whereby services subject to tax under § 325 of this subtitle are rendered for consideration to any purchaser by any vendor. * * *” It has long been settled that the sales tax reaches rentals of tangible personal property, Canton Co. v. Comptroller of the Treasury, 231 Md. 294 , 190 A. 2d 92 , appeal dismissed, 375 U. S. 58 , 84 S. Ct. 173 , 11 L.Ed.2d 122 (1963); Comptroller of the Treasury v. Pittsburgh-Des Moines Steel Co., 231 Md. 132 , 189 A. 2d 107 , cert. denied, 375 U. S. 821 , 84 S. Ct. 58 , 11 L.Ed.2d 55 (1963). (iii) It is true, as Hooks contends, that § 326(d) of the Act exempts: “Motor vehicle or liquid fuel. — Sales of motor vehicle fuel and liquid fuel upon the receipt, use, distribution or sale of which in this State a tax is imposed by the law of this State.” The difficulty here is that this is not a sale of gasoline by Checker to Hooks in the ordinary sense.

Paragraph 6 of Hooks’ lease agreement provided: “Lessee [Hooks] will pay to the Lessor [the owner of the taxicab], a fixed rental agreed upon between the parties for the operation of the taxicab for each shift, and a specified sum per gallon for all gasoline consumed on each shift. “Lessor agrees that all of his receipts for each leased period, in excess of those charges agreed upon for the fixed rental and the cost per gallon of gasoline and applicable taxes shall be retained by the Lessee and belong to him.” Judge Cullen, when called upon to consider the same lease agreement in Checker Cab Association, Inc. v. ³⁸⁶ Comptroller of the Treasury (Baltimore City Court, Docket 20 P, Folio 18, decided 4 November 1965), observed : “Normally speaking sales of