John McShain, Inc. v. Comptroller

Henderson, J., delivered the opinion of the Court. This appeal is from an order of the Circuit Court for Montgomery County affirming the Comptroller’s denial of a claim for refund of sales and use taxes. The appeal was duly taken under Section 348, Article 81, Code of 1951, on a question of law only. The facts are undisputed.

Between August, 1935 and March, 1942, two residents of Montgomery County, Mr. and Mrs. Wilson, donated to the United States of America valuable tracts of land in Bethesda, Montgomery County, Maryland, for the erection thereon of buildings for the use of the National Institute of Health. The gifts were duly accepted and adjoining land was acquired by the United States by condemnation. Under Title 42, Sections 23a-23e, U. S. C. A., the National Institute of Health had been established, and the Secretary of the Treasury (later the Federal Security Administrator) was authorized to accept gifts ‘•‘for study, investigation, and research in the fundamental problems of the diseases of man and matters pertaining thereto, and for the acquisition of grounds or for the erection, equipment and maintenance of buildings and premises”. It was also provided that “the facilities of the institute shall from time to time be made available to bona fide health authorities of States, counties, or municipalities for purposes of instruction and investigation.” In 1949, the appellant, a builder, entered into a lump-sum contract with the United States of America, through ⁷¹ the Public Buildings Administration, for the erection of a clinical building on the lands so acquired, to be operated by the National Institute of Health.

The State Comptroller demanded payment by the appellant of sales and use taxes on materials and supplies incorporated in the building, and refused to grant refund thereof. Section 320(f)(3), Article 81, Code of 1951, defines a sale at retail to include “The sale of building materials to contractors, builders, or landowners for use or resale in the form of real estate.” Section 368(d) of the same Article defines use to include “the receipt, storage, keeping or retention for any length of time of any building materials by any contractor, builder, or property owner.” Clearly these sections are broad enough to cover the materials and supplies in the instant case, but the appellant relies upon the exemption contained in Section 322 (i), Article 81, Code of 1951, which provides that the tax shall not apply to “Sales to any person operating a non-profit religious, charitable, scientific, literary or educational institution or organization situated in this State when such tangible personal property is purchased for use in carrying on the work of such institution or organization.” Section 370(b) adopts the same exemption for the use tax by reference. “In this State” is defined in Section 368(1) to include territory within the exterior limits of the State owned by the United States of America. The appellant also relies upon Rule 70, promulgated by the Comptroller on June 1, 1949, pursuant to the power, conferred by Section 361(a) of the Article, “to make, adopt and amend such rules and regulations as he shall deem necessary to carry out the provisions of this sub-title and to define any terms used herein.” Rule 70 reads: “Contractors who are performing jobs for the State of Maryland or any of its political subdivisions or a non-profit religious, charitable, scientific, literary or educational institution or organization on a lump-sum basis are not required to pay the tax on materials and supplies which will be incorporated into the job. No ⁷² exemption certificates will be issued by the Comptroller to cover such purchases.

The contractor shall present to his supplier the contract designation or number as his authority for making tax free purchases of materials and supplies to complete such contracts. “The contractor must pay the tax on all equipment which he purchases even though it may be used on a job for one of the aforementioned persons. “Contractors who are working on lump-sum, cost plus a fixed fee, or cost plus contracts containing an upset or guarantee clame with the Federal Government must pay the tax on all personal property which they purchase in fulfilling such contracts.” The words in italics were added by amendment effective June 15,1950. We think it is clear that the National Institute of Health, although an agency or arm of the Government, may fairly be described as “operating a non-profit * * * charitable, scientific * * * or educational institution or organization situated in this State.” We also think that tangible personal property purchased by a person operating such an