Schwartz v. Maryland Department of Natural Resources

RAKER, J. We must decide in this case whether appellants were required to pay Maryland excise tax under section 8-716(c) of the State Boat Act, Md.Code (1973, 2000 Repl. Vol), §§ 8-701 et seq. of the Natural Resources Article. We shall hold that appellants are liable for the tax, albeit for different reasons than were relied upon by the Circuit Court. I. On June 9, 2000, appellants Robert and Joanne Schwartz purchased a new Symbol Model 557 yacht, later named the Mahalo Hawaii IV (hereinafter “the vessel”), from The Yacht Center dealership in Edgewater, Maryland.

On June 10, 2000, appellants signed a DNR form B-110, captioned “Certification of State of Principal Use.” 1 Appellants indicated on the form that the vessel would be used principally in the State of Florida, and would be kept at an address in Key Colony Beach, Florida. The reverse side of the B-110 form contains the following language: “The Certification of State of Principal Use is a dual-purpose form used when a vessel is to be used principally outside of Maryland and is, therefore, exempt from Maryland excise tax. It serves as the certification by the dealer that the purchaser has been advised about Maryland excise tax and as the purchaser’s acknowledgment of the receipt of the information. All information requested on the certifica ⁵³⁸ tion and the signature of the purchaser must be furnished.

If the vessel was purchased from a Maryland licenced dealer, the dealer must also sign the certification. State of Principal Use — The state or jurisdiction in which a vessel is used the greatest percentage of time in a calendar year. Use — The operation, navigation, or utilization of a vessel. A vessel is considered in use whenever it is upon the water, whether it is moving, anchored, or tied up to any manner of dock or buoy.

A vessel is also considered in use if it is kept in any structure in readiness for use. A vessel stored on a trailer in Maryland is considered to be in readiness for use.” Based on their execution of this form, appellants did not pay the 5% Maryland excise tax, due at the time of purchase, on the sale of a vessel in Maryland. The record indicates that a DNR investigator observed the vessel in a slip at Mears Point Marina, in Grasonville, Maryland, on June 16, July 15, August 15, and September 28, 2000. It appeared to the investigator that no maintenance was being performed on the vessel on those dates.

Because the vessel had been observed in Maryland over the summer months, DNR issued a Notification of Assessment to appellants, stating that the vessel had incurred a Maryland excise tax liability in the amount of $84,625.43, plus fees, penalties, and interest. Appellants appealed the assessment, and on July 11, 2001, the Office of Administrative Hearings held a hearing pursuant to Md.Code (1973, 2000 Repl. Vol), § 8-716.2(e) of the Natural Resources Article. Before the Administrative Law Judge (ALJ), appellants introduced into evidence the ship’s log, which detailed twenty-four trips taken on the vessel between June 9, 2005 and October 28, 2005.

Five of these trips were designated as “sea trials”: one to set the autopilot, one to reset and check onboard electronics, one to calibrate compasses, one to reset the autopilot, and one to “test the ride” with respect to rolling. With the exception of this last trip, all of the designated “sea trials” were journeys of six miles or less. All five “sea trials” ⁵³⁹ were journeys from the vessel’s slip at Mears Point Marina to some point in the water, returning to Mears Point without another destination. The remaining journeys ranged from ten to 144 miles, involved stops at various points around Maryland, one stop in Atlantic City, New Jersey, and included overnight stays on eight occasions.

With the exception of the two-day trip to Atlantic City, New Jersey, the vessel remained in Maryland from the date of its purchase until October 28, 2000. The vessel arrived in Thunderbolt, Georgia on November 5, 2000, where it remained until Mr. Schwartz took it to Florida on January 23, 2001. Mr. Schwartz testified that he and his wife were residents of Florida, had previously been residents of Delaware, and had never been Maryland residents. Appellants offered into evidence copies of Mr. Schwartz’s Florida driver’s license and voter registration card to support these statements.

Mr 1 . Schwartz acknowledged that appellants owned a summer residence in Stevensville, where they typically spent the months of May through September or October. According to Mr. Schwartz, appellants purchased a waterfront house in Florida specifically to accommodate the vessel, and extensively remedied its dock in anticipation of the vessel’s requirements. Appellants produced the deed to the Florida residence, dated April 19, 2000, a building permit for the Florida dock renovations dated April 18, 2000, and invoices dated April 24 and 25 for the construction work.

Mr. Schwartz testified that these improvements were made with some haste, because “I wanted to have this dock ready for this boat when I purchased the boat and went back to Florida with it.” Mr. Schwartz indicated that he had purchased the vessel knowing that it had some “major” problems, but expected that the dealer would continue to correct its problems after delivery. According to Mr. Schwartz, these warranty-covered 1 defects prevented him from removing the boat from’ Maryland. Appellants offered into evidence a list compiled by Mr. Schwartz, detailing various warranty repairs performed by The Yacht Center. The list recounted the following actions: ⁵⁴⁰ 1.

Relocation of fresh water filtration units, following an incorrect installation that prohibited the filters from being changed. Accomplished August 29, 2000. 2. Replacement of defective window blinds. Required four service visits from time of purchase to eventual correction by the end of July, 2000. 3.

Investigation of engine voltage drop, possibly due to incorrect wiring. Required at least one service visit on September 7, 2000. It is unclear from the exhibit whether this problem was ever remedied. 4. Replacement of incorrect compass on upper station.

Accomplished prior to July 12, 2000. 5. Removal of water intake from behind underwater exhaust and reinstallation in another location (necessary to prevent air conditioning from failing while vessel underway). Required two prior service visits to diagnose. Accomplished September 19, 2000. 6.

Installation of new microwave oven to replace non-functioning original. Accomplished July 14, 2000. 7. Repair of trash compactor. Problem not discovered until August 26, 2000.

Accomplished approximately September 11, 2000. 8. Replacement of incorrect propellers. Date not indicated. 9. Repair of malfunctioning cable master.

Required two service visits. Accomplished September 6, 2000. 10. Replacement of incorrect anchor. Required two service visits.

Accomplished September 1, 2000. 11. Repair of onboard television sets. Required two service visits. Problem not satisfactorily resolved. 12.

Repair and eventual replacement of defective “bimini” canvas top. Required four service visits. 13. Repair of generator. Required two service visits.

Problem not satisfactorily resolved. ⁵⁴¹ Appellants introduced a letter from Mark A. Schulstad, President of The Yacht Center, stating that the vessel “required warranty repairs from June 2000 through October 2000.” Mr. Schwartz also testified to a more serious warranty issue: a persistent oil leak from the vessel’s transmission. According to Mr. Schwartz, the beginnings of this problem were apparent “from day one,” but it was not until September that a representative of the engine manufacturer informed Mr. Schwartz that the transmission would need to be removed from the vessel, repaired, and reinstalled. This process was accomplished over the one-month period, detailed infra, that the vessel was being outfitted with aftermarket stabilizers. Appellants introduced a letter from the engine manufacturer detailing the transmission work, as well as prior service activities.

These included: “June 17, 2000 — June 22, 2000 Troubleshooting an active fault code July 17, 2000 — July 19, 2000 Troubleshooting and replacement of the Starter Motor September 01 — September 11, 2000 Troubleshooting and repair of Charging system September 28, 2000 — October 27, 2000 Troubleshooting and repair of oil leaks that required the removal and reinstallation of the vessel transmissions.” The most serious problem to which Mr. Schwartz testified was the vessel’s tendency to roll significantly in even moderate seas. Schwartz stated that had noticed this behavior the first time he rode on the vessel, prior to his taking possession from the dealer. He recalled nine occasions over the course of the summer on which the vessel took significant rolls, several of which caused the vessel’s furniture to overturn. After the third or fourth roll, Schwartz “deemed [the] boat to be totally unsafe,” and felt that he could not safely take it to Florida with this problem for fear of capsizing en route.

Schwartz testified that this opinion was based on his knowledge as a licensed boat captain. ⁵⁴² The ship’s log contained numerous references to the stability problem. On the occasion of his first trip with the Yacht Agency salesman, Mr. Schwartz wrote: “Boat made a crazy roll to port upon going thru another boats heavy wake. Sea was very flat. Mike made a comment that the boat was bow steering, however, I have never seen this in flat seas.

He told me I would find that the boat steered somewhat different than what I had experienced in other boats. I didn’t question him because this was the 1st time that I had ridden in the boat but I was uncomfortable.” Additional log entries indicate as follows: “6-11-00 ... The boat made another crazy roll to starboard in moderate seas. Was not sure what caused this. 7-1-00 ...

Got another crazy roll to port but not as bad as previous rolls. Sea was very flat. This seems to happen when the sea is from the beam. 7- 8-00 ... Encountered app. 1 foot seas to the starboard beam.

Boat took a hard roll to port when turning into the beam sea. Furniture & tables turned over due to this hard roll. Feel the boat has something wrong with it but I am still trying to adjust to the steering because of what Mike P had told me. 8- 11-00 ... Seas were moderate but the boat rolled again when turning into a beam sea.

Very dangerous roll. 8-19-00 ... 1 to 2 ft seas.... Boat took another hard roll to port when turning into the beam sea. Furniture rolled all over inside the boat. There is definitely something wrong with this boat. ⁵⁴³ 8- 27-00 ...

App. 2’ waves from the beam port side coming up the bay. Made a 90 degree turn to starboard putting the seas to the port beam. I thought the boat was going to turn over. The boat rolled hard to port & starboard all the way up the bay.

Wife got sick and had to go below. Chairs, tables & etc. flew all over the interior and put bad scratches in the beautiful cherry/holly pilothouse door. THIS BOAT IS NOT SAFE TO RIDE IN. * * * 9- 16-00 ... Atlantic City to Mears.

Atlantic ocean had beam seas of app. 2/3’. Boat took several hard rolls to port and starboard. Wife got sick. Ran the boat app. \k miles off shore so we were sure to ride in the beam rollers going to shore to see if I could figure out what was wrong with this boat.

Was forced to go out several miles to get out of the rollers to get away from the hard rolls. Upon entering the Delaware Bay, we had a head sea and the boat ran wonderful as it always has in head seas. Made the decision that something had to be done about these hard rolls as this boat is definitely UNSAFE. I am sure this boat will roll completely over someday in a heavy beam sea or entering a rough inlet.

Something must be done ASAP as this boat is not seaworthy. 9-23-00 ... Sea trial for hard rolling. The wind was blowing hard with app. 3’ waves. A good time to test the ride.

Boat rolled beyond an acceptable ride.” Mr. Schwartz testified that he contacted Jim Booth, sales manager for Holiday Marine Sales, LLC, “one of the largest Symbol dealers in the United States.” Appellants introduced an affidavit from Booth, who described himself as “extremely familiar with the operating characteristics of Symbol Yachts, including the 557 model.” Booth averred that it is the practice of Holiday Marine Sales to install Wesmar RS600 aftermarket stabilizers on all Symbol Model 557 yachts, to correct that model’s tendency to roll excessively. Mr. Schwartz testified that he contracted with the Oxford Yacht Agency to install the stabilizers. Appellants introduced ⁵⁴⁴ a written estimate from Oxford Yacht Agency, in the amount of $83, 930, and stating “Work to commence week of October 1st. Please allow two weeks for job to be accomplished.” Mr. Schwartz explained that a delay in obtaining parts had caused the installation to last until October 26th.

During this period, he stated, the vessel was out of the water and kept within a building. It was also during this period that the transmission work, detañed supra, was accomplished. Schwartz testified that he took the vessel on a sea trial on October 26th, and was satisfied that the stabilizers were having the desired effect. During this sea trial, however, an electronic problem developed which prevented him from transferring control of the vessel among its three piloting stations.

In order to fix this problem, a part needed to be air-freighted from the State of Washington. The vessel was fully operational by October 28th, and then appellants departed Maryland waters. Appellants introduced into evidence a bill for the electronics work. With respect to the vessel’s fañure to reach Florida before the end of 2000, Mr. Schwartz testified that the vessel broke down twice en route, once in North Carolina and once in South Carolina, the latter incident requiring a three-day stop for repairs.

According to Mr. Schwartz, appellants left the vessel in Georgia in favor of a rental car because they wished to vote in the 2000 presidential elections and could not reach their home county in time by sea. He indicated that they did not return to the vessel after the election because they took a previously scheduled two-week vacation in Australia. Upon his return from Australia, Mr. Schwarz testified, he proceeded to Delaware for year-end accounting at his automobüe dealership and to spend the holidays with his chüdren and grandchildren. He claimed that a serious computer malfunction required his presence at the dealership for six weeks, preventing him from collecting the boat until late January.

DNR called Robert Wüson, general manager of the Mears Point Marina. Wilson produced and authenticated Marina records showing Mr. Schwartz’s slip rental contracts for the ⁵⁴⁵ periods May 1, 2000 to October 15, 2000 and May 1, 2001 to October 1, 2001. Wilson also authenticated a letter he had written to DNR, stating “Mr. Schwartz is a long-time slipholder at Mears Point Marina and has always brought his previous vessels from Florida to Mears Point Marina in mid-May and departed in early October. Mr. Schwartz is a very knowledgeable captain and maintains meticulous records in his ship’s log.” Wilson acknowledged on cross-examination that some slipholders do not keep their boats at the Marina for their entire rental periods.

He also testified that he had frequently observed maintenance and repair work being performed on the vessel. Francis Keller, an investigator for DNR’s Boat Tax Enforcement unit testified that he had observed the vessel in its slip at Mears Point on June 16, 2000, July 5, 2000, August 15, 2000, and September 28, 2000, and that the boat appeared “ready for use” on each occasion. He clarified that he considered the vessel “ready for use” because he “didn’t see anyone working on it,” and the vessel “was in the water like it was ready for use.” On cross-examination he estimated that he had spent two to three minutes observing the boat on each occasion, for a total of twelve minutes. He acknowledged that he did not know whether the vessel’s transmissions or generators had been working, or whether the boat had been suffering from stability problems.

David Van Dyke, Program Director of the Tax Enforcement Unit of the Natural Resources Police, also testified for DNR. He indicated that he considered himself to be experienced in the mechanics and operability of boats, based on twenty-five years’ boating experience and on having passed the Master Exam Coast Guard for 100 ton vessels. Mr. Van Dyke testified that, in his opinion, removal of both transmissions would have rendered the vessel inoperable, that removal of a single transmission would have rendered the vessel difficult to operate, but not inoperable, and that work performed on the starter motors likely had rendered the vessel inoperable for approximately twenty hours. But he testified that, from his examina ⁵⁴⁶ tion of the other repair documentation, it could not be established that such repairs had rendered the vessel inoperable.

On cross-examination, Mr. Van Dyke stated that he had never operated a fifty-seven foot boat, that he had never taken a boat to Florida, that he had no knowledge about Mr. Schwartz’s competency as a captain, and that he was not a mechanic. He also stated his opinion that installation of the aftermarket stabilizers had been “by choice,” and not essential to the vessel’s seaworthiness. Before the ALJ, both parties agreed that Md.Code (1973, 2000 RepLVol.), § 8-716(c) of the Natural Resources Article 2 imposes a 5% excise tax upon the titling or sale of any vessel within the State of Maryland. The parties further agreed that a purchaser who certifies on form B-110 that a vessel will be “used principally” in a state other than Maryland is not required to pay the tax.

The parties agreed implicitly that, rather than the definition set forth on the reverse of form B- ⁵⁴⁷ 110, “used principally” should have the meaning assigned in § 8 — 716(a)(3): “ ‘Used principally in this State’ means that this State is the state of principal use as defined in § 8-701(n)[ 3 ] of this subtitle, except that in calculating where the vessel is used or used most, a vessel is not considered to be in use for any period of time that it is held for maintenance or repair for 30 consecutive days or more.” Appellants argued that the vessel had been “held for maintenance or repair for 30 consecutive days or more” during its entire stay in Maryland, and that none of this time should count towards the calculation of principal use. In particular, they drew attention to the fact that most of the work done on the vessel consisted of warranty repairs performed by the Maryland dealer. They also contended that the vessel had not been safe for the ocean voyage to Florida until completion of the stabilizer installation on October 26, 2000. They further argued that, even if the vessel had not been “held for maintenance or repair,” it should not be considered “used principally” in Maryland because it had been used in the State for less than six months.

DNR argued that, regardless of the state of principal use, a vessel purchased in Maryland must be removed from Maryland within 30 days to qualify for the exemption. Assuming that principal use was an issue, DNR argued that the vessel should only be considered “held for maintenance or repair” during periods when it was completely inoperable. In any event, it contended, the evidence did not support appellants’ contention that the vessel had remained in Maryland solely because of its maintenance requirements. It also argued that ⁵⁴⁸ DNR’s longstanding policy was to base principal use calculations on calendar years ending December 31.

Because the vessel had not been “used” by appellants anywhere prior to its purchase, DNR contended that principal use therefore turned on whether the boat had been used more in Maryland than in any other state from June 9 to December 31, 2000. ⁵⁴⁷ Section 8-701 (p) provides: “ ‘Use’ means to operate, navigate, or employ a vessel. A vessel is in use whenever it is upon the water, whether it is moving, anchored, or tied up to any manner of dock or buoy. A vessel is also in use if it is kept in any structure in readiness for use.” ⁵⁴⁸ On September 5, 2001, the ALJ found that the vessel had been in Maryland 140 days in 2000 from the time of purchase to the time of departure. She credited appellants with time “held for maintenance or repair for 30 consecutive days or more” only for those times she found the vessel to have been actually inoperable or unusable.

Further, she found four periods of inoperability: June 17-22, July 17-19, September 19, and September 28 to October 27. Only the final period lasted thirty days or longer, and the ALJ accordingly subtracted thirty days from the vessel’s use in Maryland, leaving 110 days. In making this determination, the ALJ noted that only five of the vessel’s summer voyages were logged as “sea trials,” and that “the vast majority of the trips appear to be for'pleasure to various destinations.” The ALJ held that principal use should be calculated from the date of purchase to the end of the calendar year, because the excise tax liability does not arise until the time of purchase. She determined that the vessel had spent fifty-seven days in Georgia, and less than ten days total in Virginia and the Carolinas in 2000.

She thus held that the vessel’s 110 days of use in Maryland made this State the state of principal use. Accordingly, the ALJ concluded that DNR’s assessment was proper and not subject to revision. Appellants noted exceptions to the Secretary of Natural Resources. They argued that the language of § 8-716(a)(3) did not support a reading that a vessel must be completely inoperable to qualify as “held for maintenance or repair.” They again argued that “principal use” requires use for more than six months in a calendar year.

The Secretary issued the final decision on January 31, 2002. With regard to “maintenance or repair,” the Secretary stated as follows: ⁵⁴⁹ “Whether a vessel is ‘held for maintenance and repair’ depends on the facts. The vessel does not need to be ‘totally inoperable,’ as the Department argued to the ALJ. Rather, the vessel must, in fact, have been held for maintenance and repair ‘for 30 consecutive days or more.’ In this case, the ALJ ... specifically found that ‘not all of [the repair] problems prevented the Appellants from using the vessel.... ’ For example, the Appellants made 24 voyages on their vessel from June 11 through September 28, only five of which were for sea trials.

She concluded and I agree that the vessel was ‘in use’ in Maryland for this period of time. The only time it was not in use — held for maintenance or repair for 30 consecutive days or more — was from September 29 through October 27. The ALJ properly excluded this time from the calculation of “use” in Maryland.” With regard to the calculation of principal use, the Secretary held: “there is no six-month requirement in the law.... A tax is due upon the sale or transfer of a vessel, or upon the movement of a vessel into Maryland waters.

Here, Appellants purchased the vessel on June 9 in Maryland, and a tax was due. Appellants did not pay this tax because they certified that they were going to move the vessel to Florida. But as the ALJ noted, from the date of purchase until the end of the 2000 calendar year, ‘the vessel did not spend a single day in the State of Florida.’ ” Appellants filed a petition for judicial review in the Circuit Court for Queen Anne’s County. The primary focus of both sides’ arguments before the Circuit Court was whether appellants qualified for an exemption of the excise tax based on a factual determination of whether the vessel was “held for maintenance or repair” in Maryland.

Appellants argued that “[although the Secretary correctly construed the ‘maintenance or repair’ exemption, [his] Final Decision was erroneous because it failed to consider the Petitioners’ extensive maintenance or repair evidence in light of the exemption.” DNR argued that the Secretary’s factual findings with respect to ⁵⁵⁰ the duration of “use” versus “maintenance or repair” periods were supported by substantial evidence. Appellants also challenged the Secretary’s legal conclusion that a vessel may be used principally in Maryland even if it spends less than six months in the State. DNR argued that its construction of the statutory term “used principally in this state” as containing no six-month requirement was entitled to deference. To the surprise (and dismay) of both parties, the Circuit Court decided the case not on a factual basis but rather on legal grounds: that no exemption exists under the statute, and that the court could not “invent an exemption.” Because the court held the “exemption” found by the ALJ and the Secretary did not exist, it reversed the decision of the Secretary of Natural Resources and remanded the case to the Secretary, with instructions to dismiss the appeal.

Appellants noted a timely appeal to the Court of Special Appeals. We issued a Writ of Certiorari on our own initiative before consideration by that court. Schwartz v. DNR, 383 Md. 569 , 861 A.2d 60 (2004).

II

Before this Court, both parties argue that the Circuit Court erred in concluding that there is no exemption to the excise tax provision of the State Boat Act. DNR argues that since the 1989 addition of a sales and use tax to the State Boat Act, it has interpreted the Act as not requiring dealers to collect the excise tax from buyers of vessels who certify under penalty of perjury that the vessel will be used principally outside of Maryland. DNR supports its argument with the longstanding principle that an agency’s interpretation and administration of its statute is entitled to deference. In support of its argument, DNR points to The Boat Dealers Manual, a published DNR document, containing the B110 form, “Certification of State of Principal Use,” and the specific instructions for dealers in reference to persons who make the required certification.

In addition, DNR relies on the inaction of the General Assembly, which has neither ⁵⁵¹ legislatively revoked nor modified DNR’s published practice despite having amended the State Boat Act several times in the eighteen years that Act has provided for the tax. See, e.g., Md.Code (1973, 2000 RepLVol., 2002 Cum.Supp.), § 8-716(e)(8) of the Natural Resources Article (amending statute to permit non-residents to bring vessels into Maryland for up to ninety days without incurring an excise tax); Md.Code (1973, 2000 RepLVol., 2002 Cum.Supp.), § 8-716(a)(4) of the Natural Resources Article (amending statute to exclude sea trials of vessels from calculations of principal use under certain conditions); Md.Code (1973, 2000 RepLVol., 2004 Cum. Supp.), § 8-716(k) of the Natural Resources Article (amending statute to provide definition of “held for maintenance or repair.”) Appellants essentially join in DNR’s legal construction of the Act. Appellants argue that “[ajlthough the Secretary correctly construed the ‘maintenance or repair’ exemption, [his] Final Decision was erroneous because it failed to consider the Petitioners’ extensive maintenance or repair evidence in light of the