Maryland Glass Corp. v. Comptroller of the Treasury

Henderson, J., delivered the opinion of the Court. This appeal is from a judgment of the Baltimore City Court affirming the action of the State Comptroller in denying a claim for tax refund by the Maryland Glass Corporation. The claim arose out of an adjusted deficiency assessment in the amount of $11,743.01, which was paid by the appellant under protest. Only part of the assessment is contested, in ²⁴³ the amount of $4,309.48, plus interest of $786.48, representing use taxes claimed to be due and owing for the period from January 1, 1949 through November 30, 1954.

During that period the appellant, a Maryland corporation, engaged in the business of manufacturing glassware at its plant in Baltimore City, purchased certain machinery for manufacturing glassware from Hartford-Empire Company, a Delaware corporation, having its principal place of business at Hartford, Connecticut, for a total of $39,974.13. This machinery was already installed and in use at the Baltimore plant of the appellant. The appellant also paid to Hartford-Empire the sum of $175,500.00 in consideration of the cancellation and termination of outstanding leasing and licensing agreements covering the machinery and related patents, with release of the appellant’s obligations thereunder including the payment of royalties. The refund sought is the amount of the Maryland Use Tax payable upon the use of the property acquired by reason of said payments aggregating $215,474.13.

The appellant raises three questions: 1. Was the Maryland Use Tax inapplicable because of the exemption of “Casual and isolated sales by a vendor who is not regularly engaged in the business of selling tangible personal property,”, contained in Code (1951), Art. 81, secs. 370 (b) and 322 (e) ? (Cf. Code (1957), Art. 81, secs. 375 (b) and 326 (e).) 2.

Was the use tax inapplicable because of the exemption of “Tangible personal property not readily obtainable in Maryland * * * used * * * in this State by a person engaged in * * * manufacturing * * * if such tangible personal property enters into the processing of * * * the product * * * which is manufactured * * contained in Code (1951), Art. 81, sec. 370 (f) ? (This subsection was repealed by Chapter 332 of the Acts of 1955, but was in effect during the years to which the assessment is applicable.) 3. Was the use tax inapplicable because the cancellation and termination of the leasing and licensing agreements and release of the appellant’s obligations thereunder, did not constitute “use * * * of tangible personal property purchased from a vendor within or without this State * * under ²⁴⁴ Code (1951), Art. 81, sec. 369? (Cf.

Code (1957), Art. 81, sec. 373.) The facts are stipulated. Prior to June 1, 1947, Hartford-Empire was the sole, absolute and exclusive owner of patents covering machinery of the type in question, which machinery it did not sell or offer for sale, but manufactured and supplied to various glassware manufacturers throughout the United States under leasing and licensing agreements. For many years Maryland Glass had used such machinery in its Baltimore plant. Hartford-Empire held title to, and serviced and repaired the machinery under the leasing agreements.

Maryland Glass paid rental and Royalty fees for the use of the machinery. In 1939 an antitrust suit was filed in Ohio by the United States Department of Justice, and as a result of this litigation a final judgment was entered on May 23, 1947, in accordance with a settlement memorandum entered into by all the parties, including Maryland Glass. Under the terms of the judgment, Hartford-Empire was directed to offer for sale at any time to any lessee any of its machines then under lease, at a price representing the depreciated book value of each machine, as shown on the books of Hartford-Empire, provided the existing leasing and licensing agreements relative thereto were cancelled, and payment for the cancellation made, in accordance with a formula set forth in the schedule attached to the judgment, as a settlement and compromise of the rights and liabilities of the respective parties. Pursuant to this standing offer the appellant, at various times between January 1, 1949 and September 13, 1954, purchased the machines with which we are here concerned.

In some instances the machines had been depreciated to zero or $1.00. Payments under the proviso were made concurrently with the transfer of title in each case, as required by the terms of the judgment. In each case, the purchases were made at the option of the appellant. In 1955 the appellant still held some machines which it had not purchased and on which it still paid royalties.

There was no liquidation of the assets of Hartford-Empire. During the period in question, it sold to the appellant certain new machinery, as well as the leased machinery in question. ²⁴⁵ Treating contentions 1. and 3. together, we think it is clear that, while the judgment required Hartford-Empire to extend to the appellant the option to purchase the leased machinery, the sales in question were not “casual and isolated” sales, within the meaning of the language quoted. We see no reason to distinguish the sales of the machinery already installed from sales of new machinery, which are conceded to be not within the exemption. In Comptroller of Treas. v. Thompson Trailer Corp., 209 Md. 490, 502 , relied on by the appellant, the gravamen of the decision on the point was that the sale “was in conjunction with a complete liquidation of the only business of Maryland Engineering Company at the time of the sale,” and never to be repeated.

The property transferred in the instant case was tangible personal property, and the price paid for each transfer included not only the depreciated book value but an additional sum representing the value to the vendor of the cancellation of the outstanding agreements relative thereto. It was only by reason of such payment that the purchaser could receive the bundle of rights making up the complete and unconditional title. There was no separate sale of the patent rights as