Montgomery County v. Maryland Soft Drink Ass'n

Levine, J., delivered the opinion of the Court. The central issue presented in this case is whether a tax imposed upon non-returnable beverage containers by Montgomery County (the County) is a sales tax which the County was prohibited from enacting by state law. A group of plaintiffs consisting of trade associations, bottling companies and retail beverage dealers successfully challenged the tax by obtaining declaratory and injunctive relief in their favor in the Circuit Court for Montgomery County. The County appealed to the Court of Special Appeals, but we granted certiorari before the case was heard by that court.

Since we disagree with the circuit court, we now reverse and remand. To gain complete perspective in viewing this case, it is necessary that we begin, not with the enactment of the tax law in question, but with its predecessor, which also failed to survive a test in the circuit court. In 1975 the Montgomery County Council, after overriding a veto of the County Executive, enacted Bill No. 30-75, which imposed a “Beverage Container Tax” upon “every distributor who sells ... beverages in non-reusable beverage containers ...” at the rate of four cents for each container with a normal capacity up to and including 16 fluid ounces and nine cents for each container with a normal capacity in excess of 16 fluid ounces, (emphasis added.) The avowed purpose of that tax was “to derive from a major source of solid waste some of the revenue needed to fund public expenditures for the collection and disposal of solid waste.” The tax was to become effective on March 1, 1976, and by its own terms was to expire on December 31, 1977; thereafter, apparently, it ¹¹⁹ was to be supplanted by a law imposing a deposit on non-reusable containers. Although Bill No. 30-75 was challenged on several grounds in an equity suit seeking injunctive and declaratory relief, the primary ground for the challenge there, as is also the case regarding the tax in controversy here, was that Bill No. 30-75 established a sales tax which the County was prohibited from imposing by state law.

In striking down that tax, the chancellor rested his decision on that ground. Within a matter of weeks, the County Council responded with Bill No. 14-76, imposing a tax upon “every distributor who supplies to a dealer in Montgomery County non-reusable beverage containers containing beverages” at the rate of two cents for each container with a normal capacity up to and including 16 fluid ounces and four cents for each container with a normal capacity in excess of 16 ounces, (emphasis added.) 1 “Dealer” is defined, in part, as a person engaging in “a retail business” and “Distributor” as one who, in part, “supplies beverages in beverage containers to a dealer in Montgomery County.” The term “Beverage” is defined as “any beer, ale or other malt beverages, soft drinks, carbonated water and iced tea in liquid form intended for human consumption.” The verb “supplies” is defined as the act of “providing, furnishing, delivering, distributing or transmitting non-reusable beverage containers by a distributor to a dealer in Montgomery County.” Criminal penalties are provided for violators. Unlike its precursor, the tax in question here has no fixed expiration date; nor is its purpose expressly declared by the County Council. Again, a court challenge followed in which injunctive and declaratory relief was sought.

The plaintiffs, who are ¹²⁰ appellees here, attacked Bill No. 14-76 on the following grounds: 1. That Bill No. 14-76 imposed a sales tax, which the County was prohibited by state law from enacting. 2. That Bill No. 14-76, as amended by Bill No. 22-76 to become effective on September 1, 1976, violated § 52-1 of the Montgomery County Code (1972, 1975 Cum. Supp.i, which provides that “all ... taxes shall be levied for a taxable year beginning on July 1. ...” 3.

That Montgomery County had not been granted valid authority by the General Assembly to enact the tax imposed by Bill No. 14-76. 4. That the beverage container tax constituted a tax on alcoholic beverages, which state law prohibits the County from imposing. 5. That Bill No. 14-76 imposed a burden on interstate commerce and thereby violated the Commerce Clause of the Federal Constitution. 6. That Bill No. 14-76 violated the Federal Constitution for the further reason that it was void for vagueness. 7.

That Bills No. 14-76 and 22-76 violated Article XI-A, § 3 of the Maryland Constitution, which prohibits charter counties from enacting laws for any incorporated municipality within their boundaries on any matters covered by the powers lawfully granted to the municipality. This issue was injected into the case by the City of Rockville (the City I, which was granted leave by the circuit court to intervene as a party plaintiff, and which is also an appellee here. Subsequent to the filing of its answer to the bill of complaint, the County filed a motion for summary judgment. The plaintiffs countered with an answer to the motion in which they alleged that there was “a dispute” as to issues 1, 5, 6 and 7.

The City, in an answer to the motion for summary judgment, also claimed that a “genuine dispute” existed in regard to issue 7. 2 In striking down the tax, the ¹²¹ chancellor not only rejected the County’s motion, but entered summary judgment for appellees pursuant to Maryland Rule 610 d 1. The chancellor rested his decision solely on the ground that Bill No. 14-76 imposed a prohibited sales tax, and did not reach the remaining issues. Though noting the changes in Bill No. 14-76 as opposed to its predecessor, particularly the substitution of the word “supplies” for “sells,” the chancellor observed that the County Council was merely “attempting to do indirectly that which [it is] prohibited from doing directly.” He concluded, relying upon the ruling in the first case, that the tax in this case was also one imposed on sales, which the County was expressly prohibited from imposing by state law. Thus, he issued a decree declaring the tax “void and of no effect,” and enjoined its enforcement.

I In this Court, the County not only argues that the chancellor erred in ruling that the tax in question was a sales tax prohibited by state law, but also urges that we pass on the remaining questions raised by the bill of complaint. Accordingly, it has briefed and argued each of those issues. Appellees take the position that even if we should reverse the chancellor on the first issue, we must then remand the case to the circuit court for a determination of the remaining questions, since factual disputes are involved which would require the presentation of evidence. We have carefully reviewed the record in light of the points raised by appellees in the circuit court, and addressed here by the County, and we conclude that all but the federal constitutional questions presented by issues 5 and 6 can and should now be decided by this Court.

The factual disputes in respect to those constitutional questions are not framed with precision, to say the least, but in an excess of caution we shall remand the case solely for a determination of those two questions. As to ¹²² those questions, therefore, we carefully refrain from expressing any opinion. As we shall demonstrate, the remaining points raise purely legal issues and by no stretch of the imagination turn on any factual disputes. Appellees argue, however, that the remaining issues are not properly before us in light of Rule 885, which provides that this Court “will not ordinarily decide any point or question which does not plainly appear by the record to have been tried and decided by the circuit court.” Thus, appellees maintain, were we to reach those questions, we would be departing from our appellate role, and would be improperly engaging in original fact-finding.

This argument is without substance. We cannot, of course, make a factual finding, Hartley v. State, 238 Md. 165, 168 , 208 A. 2d 72 (1965), but, as we have already stated, no factual dispute exists in respect to these questions, which are purely of a legal nature. Rule 885 also provides: “. . . [B]ut when a point or question of law had [sic] been presented to the court and a decision of that point or question of law by this Court is necessary or desirable for the guidance of the circuit court, or to avoid the expense and delay of another appeal to this Court, the point or question of law may be decided by this Court even though it was not decided by the circuit court.. . .” Although the oral argument before the chancellor was not made part of the record, apparently because it was not transcribed, it is evident that all of the issues were “presented” to him. This is apparent from the extensive legal memoranda filed below.

That the chancellor chose to rest his decision on one of several alternative grounds presented to him, and found it unnecessary to decide the remainder, does not preclude us from reaching them. Panamerican Co. v. Broun, 238 Md. 438, 447 , 209 A. 2d 575 (1965); Kent v. Mer.-Safe Dep. & Tr. Co., 225 Md. 590, 593 , 171 A. 2d 723 (1961); Heat Exchangers v. Map Constr., 34 Md. App. 679, 681-82 , 368 A. 2d 1088 (1977); Sanitary Facilities II v. Blum, ¹²³ 22 Md. App. 90, 101 , 322 A. 2d 228 , cert. denied, 272 Md. 748 (1974); see Montgomery County v. Glassman, 245 Md. 192, 198 , 225 A. 2d 448 (1967). Not only were the issues presented below, but also they have been thoroughly briefed here; moreover, we think a decision here may reduce, if not eliminate, the expense and delay of another appeal.

We hold that all but the federal constitutional questions are properly before us and are ripe for appellate review. We turn first to the question whether Bill No. 14-76 enacted a sales tax which the County is prohibited from imposing by state law. II Our determination of whether the tax in controversy here is a sales tax which the County is prohibited from imposing necessarily begins with a reference to the pertinent state statutes. We recognize at the outset that the statewide sales tax provided in Maryland Code (1957, 1975 Repl.

Vol.) Art. 81, §§ 324-371 is by express definition a retail sales tax. 3 This is clearly established not only by both its inclusion in Article 81 under the subtitle “Retail Sales Tax Act” and number of definitions in § 324 which mention the word “retail,” but also by § 325 which, in relevant part, provides: “For the privilege of selling certain tangible personal property at retail as defined [in § 324] and for the privilege of dispensing certain selected services defined as sales at retail by § 324 (fl of this subtitle a vendor shall collect from the purchaser a tax at the rate specified in this section on the price of each separate retail sale made in this State .... The tax imposed by this section shall be paid by the purchaser . ...” (emphasis added.) ¹²⁴ We draw closer to the problem at hand, however, when we consider the subtitle “Local Sales Tax” in Article 81, which encompasses §§ 411A, 411B and 411C. Section 411A authorizes Baltimore City, Anne Arundel County and Baltimore County to impose “a retail sales tax” within their respective jurisdictions, the administration of which is to be conducted by the State Comptroller. By its own various terms, the tax authorized by § 411A is closely meshed with the statewide retail sales act.

Section 411C authorizes Anne Arundel County to impose “a sales or use tax upon fuels and utilities used by commercial and industrial businesses; residential, commercial and industrial telephone service; and space rentals.” It is § 411B, however, that becomes the focal point for the contention that Montgomery County is prohibited by state law from imposing the tax in question. In relevant part, § 411B provides: “From and after July 1, 1971, no county, municipality or any other political subdivision within this State shall have the power to levy or impose a sales tax or use tax, or any excise tax on the issuance of motor vehicle certificates of title. .. .” At first glance, an issue arises which might suggest a simple answer to the argument that the County was prohibited from imposing the beverage container tax. Arguably, the sales tax which is denied the political subdivisions of this state by § 411B is limited to the retail variety. Under this theory, the “sales tax” prohibited by § 411B partakes of the character of the retail sales tax established by various preceding provisions in Article 81, particularly § 411A.

Thus, § 411A, although expressly providing for a “retail sales tax,” uses that term interchangeably with “sales tax.” In its brief, the County asserted this position and argued that the beverage container tax, even if deemed a sales tax, was not a retail sales tax; consequently, it was not proscribed by § 411B, which, under this theory, would prohibit only retail sales taxes. At oral argument, however, the County retreated ¹²⁵ from this position and conceded, correctly in our view, that it was prohibited by § 411B from imposing any sales tax, whether of the retail genre or not. The decisive issue, then, is whether the beverage container tax in question is a sales tax. In considering this question, we shall make limited reference to those definitions contained in § 325 which we regard as relevant here, even though that section deals with the retail sales tax.

The nature of any sales tax can best be determined by a reference to the particular statute creating it. Moreover, few if any sales tax laws are alike. Consequently, it is not possible to formulate a general definition of the term “sales tax,” or even to identify with any uniformity the elements of such a tax. Two ingredients, however, are commonly found in most sales taxes.

The first and most obvious attribute of a sales tax is the taxable event which triggers payment of the tax —■ the sale. Due, The Nature and Structure of Sales Taxation, 9 Vand. L. Rev. 123 (1956). See generally Ball, What Is A Sale for Sales Tax Purposes?, 9 Vand.

L. Rev. 227 (1956). The tax here, as Bill No. 14-76 clearly states, is imposed upon the distributor “who supplies to a dealer in Montgomery County non-reusable beverage containers.” The pivotal event occurs when the distributor “supplies,” rather than sells, the containers to a dealer. “Supplies” is defined as “the act of providing, furnishing, delivering, distributing or transmitting” the containers; nowhere is a sale mentioned or required. The chancellor dismissed the language of the act with the implication that the County was merely imposing a prohibited sales tax under the guise of another label. Or, as the chancellor observed, the County was “attempting to do indirectly” what it was “prohibited from doing directly.” Appellees take the same position here, but we do not agree.

Not only does Bill No. 14-76 carefully exclude the word “sale” from the definition of “supplies,” but also the definition of “distributor” includes “any multiple outlet retail chain store which supplies beverages in beverage containers to its individual outlets in Montgomery County.” Thus, the tax is imposed regardless of the method by which ¹²⁶ the central distributor distributes the beverages to its own individual outlets. For purposes of the tax here, it matters only that the distributor supplies the beverages. This demonstrates, then, that the taxable event need not, and frequently will not, be a sale. Consequently, there is no justification for the bald conclusion that the tax is dependent upon the occurrence of a sale.

A second identifying characteristic of a sales tax is the standard by which it is measured. Under Art. 81, § 325, the state retail sales tax is imposed by applying the tax rate to the purchase price of the commodity. Lane Corp. v. Comptroller, 228 Md. 90, 94 , 178 A. 2d 904 (1962); see Balto. Country Club v. Comptroller, 272 Md. 65, 73 , 321 A. 2d 308 (1974) ; cf. Szabo Food Service, Inc. of Cal. v. State Bd. of Equal., 46 Cal.

App. 3d 268 , 119 Cal. Rptr. 911, 913 (1975) (employer subsidized cafeteria; held, subsidy payments were not subject to sales tax); Penton Publishing Co. v. Kosydar, 45 Ohio St.2d 16 , 340 N.E.2d 396, 398 (1976) (free distribution of magazine held to be a sale, where entire cost of distribution and printing was borne by advertisers; thus, sales of materials to publisher were tax-exempt); Coca-Cola Bottling Corp. v. Kosydar, 43 Ohio St.2d 186 , 331 N.E.2d 440 (1975) (dispensing equipment loaned to retailers was not acquired for a consideration and thus was not taxable). In one form or another, then, sales taxes are measured by the purchase price or consideration paid for the items. The beverage container tax, however, is measured by neither.

Rather, it is the number and capacity of the non-reusable containers supplied by a distributor to a dealer which determines the amount of the tax. In sum, the beverage container tax imposed by Bill No. 14-76, not arising from sale and not being measured by purchase price or consideration, is lacking the two most vital identifying characteristics of a sales tax. We therefore hold that the tax was not a sales tax and, consequently, was not prohibited by Article 81, § 411B. ¹²⁷ Ill Appellees contend that Bill No. 14-76, as amended by Bill No. 22-76 to become effective on September 1, 1976, is in conflict with § 52-1 of the Montgomery County Code (1972, 1975 Cum. Supp.'i, which, in relevant part, provides: “In the county ... all ... taxes shall be levied for a taxable year beginning on July 1 and ending on June 30 in the next calendar year . ...” 4 A short answer to this contention is that Bills No. 14-76 and 22-76 were enacted, not upon the authority of § 52-1, but upon § 52-17, which contains no requirement that a tax imposed thereunder become effective as of any particular date. 5 Furthermore, § 52-1 is limited in its application to taxes on property, both real and personal, and appellees concede that the beverage container tax is not a property tax, but a form of excise tax.

Unlike a property tax, an excise tax is not based on the valuation of property. Herman v. M. & C. C. of Baltimore, 189 Md. 191, 197 , 55 A. 2d 491 (1947); Blaustein v. Tax Commn., 176 Md. 423, 426 , 4 A. 2d 861 (1939). The terms ¹²⁸ “date of finality” “semiannual date of finality,” and “taxable year,” as used in § 52-1, have no meaning except when considered in the context of property taxes. See State Tax Commission v. Armco, 226 Md. 533, 540, 174 A. 2d 327 (1961).

See also St. Dep’t of A. & T. v. Greyhound Comp., 271 Md. 575, 597 , 320 A. 2d 40 (1974). Section 52-1 was originally enacted by the