MacKe Co. v. Comptroller of Treasury

MURPHY, Chief Judge,

dissenting:

I dissent from that part of the majority’s holding that the paper plates, cups, bowls, hot food cups and lids (the paper products) are exempt from the use tax imposed by Maryland Code (1957, 1980 Repl.Vol.) Article 81, § 373(a).1

The Maryland Use Tax Act, codified as §§ ,372-401 of Art. 81, imposes

“[a]n excise tax ... on the use, storage or consumption in this State of tangible personal property ... purchased within or without this State____” (§ 373(a)).

The phrase “use, storage, or consumption” is defined in § 372(d) to mean

“the exercise by any person within this State of any right or power over tangible personal property, or any keeping or retention in this State for any purpose of tangible personal property purchased either 'within or without this State. This term does not include the following:
(1) The purchase of tangible personal property by any vendor, or the keeping or retention of possession in this *30State of tangible personal property, for the purpose of resale within the meaning of§ 324(f)(i) of this article." (Emphasis supplied.)

Section 324(f)(i) provides:

‘Retail sale ’ and ‘sale at retail ’ means the sale in any quantity or quantities of any tangible personal property or service taxable under the terms of this subtitle. The term shall mean all sales of tangible personal property to any person for any purpose other than those in which the purpose of the purchaser is (i) to resell the property so transferred in the form in which the same is, or is to be, received by him.” (Emphasis supplied.)

The terms “sale” and “selling” are defined in § 324(d) as “any transaction whereby title or possession, or both, of tangible personal property is or is to be transferred by any means whatsoever for a consideration ... by a vendor to a purchaser____”

In claiming exemption from use tax on its purchases of the paper products, Macke contended that the purchases qualified for the resale exclusion because the ultimate transaction constituted a “sale” within the meaning of § 324(d), i.e., title or possession was transferred to the consumer for a consideration. Macke argued that title and possession of all such products were ultimately transferred to its customers for consideration as a separate cost for the paper products was factored into the total cost of each food item. Macke maintained that any other standard or requirement necessary for qualification as a purchase for “resale” was irrelevant because the terms of the statute were clear and unambiguous, thus precluding any need to resort to other interpretive aids.

The Tax Court affirmed the Comptroller’s assessment, concluding that Macke’s purchase of paper products did not qualify for resale exclusion under § 324(f), despite its finding that some of the transfers, i.e., the paper containers but not the condiment table items, constituted a “sale” within *31the meaning of § 324(d). In denying the resale exclusion, the Tax Court reasoned that Macke’s purchase of paper products was “induced by the Taxpayer’s desire to facilitate sales of other items, and thus are normal overhead expenses.”

Macke appealed to the Circuit Court for Baltimore City. That court expressed the view that the transfers of the paper products at issue to the customer for on the premises use were not supported by valid consideration, and thus failed to meet the definitional requirement of a “sale” under § 324(d). The court reasoned that

“[s]uch paper and plastic products offered to consumers as an item of convenience were not inseparably connected to the food and beverages sold by Appellants to constitute a resale of such products. Such paper and plastic products did not become physical component parts of the food and drink which were sold to Macke customers. The aforementioned paper and plastic products are not supported by bargained-for consideration and as such are normal overhead expenses.”

In affirming the Maryland Tax Court, the circuit court concluded:

“The absence of any consideration received by Appellants in exchange for the transfer of the paper products to the consumers of the food and drink products precludes the occurrence of a sale of such retail property. Substantial evidence exists in the record to support the factual findings of the Maryland Tax Court that the paper products purchased by Appellants for use in their business do not qualify for the purchase for resale use tax exclusion provided by § 324(f).”

Macke appealed to the Court of Special Appeals, which affirmed the assessment in an unreported opinion. Attributing great weight to the long standing administrative construction of the relevant tax provisions, that court held that Macke’s primary purpose in using paper products for *32on the premises use by its customers was for its own convenience and not for the purpose of resale. It said:

“Macke uses paper products, presumably for sanitary purposes and to avoid the cost of washing the containers---- From the customer’s point of view, it matters not what type of container the food is served in; he is buying food, not paper containers that are of no value except for the initial convenience in transferring the food to the customer. The fact that the provider, Macke, may include the cost of the container in setting the price of the food does not require a different conclusion. Macke is engaged in the business of selling food and beverages, not disposable containers.”

The Court of Special Appeals also held that the transfers of the paper products were not supported by consideration.

Shortly after the enactment in 1947 of the sales and use tax acts, the Comptroller—who was authorized by § -334 to make rules and regulations in connection with the imposition and collection of the tax—interpreted the governing statutes to mean that paper products like those here involved, purchased by a retail vendor serving food and drink for on the premises consumption, were not entitled to the resale exclusion from tax provided in § 324(f)(i). This interpretation was subsequently published and reissued without change in at least four official bulletins in 1954, 1963, 1965 and 1970; it has remained unchanged for thirty-four years. The Comptroller’s position appears premised on the rationale that the paper products are purchased by the vendor solely to facilitate the retail sale of food for consumption on the premises in the same manner as china and silver eating utensils facilitate the serving of food at other restaurants and thus are not acquired for the purpose of resale.

It is elementary that the unvarying construction placed upon a statute of uncertain application by administrative officials charged with its enforcement soon after its enactment, and over a long period of time, should not be disregarded except for the strongest and most cogent reasons. See St. Dept. of A. & T. v. Greyhound Comp., 271 Md. 575, *33320 A.2d 40 (1974); Comptroller v. Rockhill, Inc., 205 Md. 226, 107 A.2d 93 (1954). I think that rule is applicable in this case and, accordingly, the Comptroller’s construction is entitled to great weight. See Comptroller v. Joseph F. Hughes, 209 Md. 141, 120 A.2d 343 (1956).2

The validity of the Comptroller’s administrative interpretation is supported by the preamble to ch. 3 of the Acts of 1957, which explicitly stated that a purchase of personal property must be solely for the purpose of resale to qualify for the resale exclusion from tax. That enactment, in amending the sales and use tax acts, specified in its preamble:

“WHEREAS, it is and has always been the intent of the General Assembly of Maryland that the definition of ‘Retail Sale’ and ‘Sale at Retail’ should include all sales, except sales in which the sole purpose of the purchaser is to resell the tangible personal property or services which he purchases either in the form in which the same is received by him; or to use or incorporate the property as a material or part of other tangible personal property, to be produced for sale, by manufacturing, assembling, processing or refining; and
“WHEREAS, it is and always has been the intent of the General Assembly of Maryland that the definition of ‘Use’ in the Maryland Use Tax should exclude only such property or service which is held solely for resale in the regular course of business or which is to be incorporated as a material or part of other tangible personal property to be produced for sale by manufacturing, assembling, processing or refining; and
*34“WHEREAS, the uniform administrative interpretation and enforcement by the Comptroller of the Treasury since the inception of the Retail Sales Tax Act and the Maryland Use Tax has been in conformity with the provisions of this act.” (Emphasis supplied.)

The 1957 Act was enacted to nullify the effect of two earlier decisions of this Court, Balto. Foundry v. Comptroller, 211 Md. 316, 217 A.2d 368 (1956) and Comptroller v. Aerial Products, 210 Md. 627, 124 A.2d 805 (1955). See Washington Nat’l Arena v. Pr. Geo’s Co., 287 Md. 38, 53, 410 A.2d 1060, cert. denied, 449 U.S. 834, 101 S.Ct. 106, 66 L.Ed.2d 40 (1980). The Baltimore Foundry and Aerial Products cases excluded from taxation tangible personal property, such as tools and other equipment, which, although used by the purchaser, was ultimately transferred to another. These cases stood for the proposition that “the purpose of the purchaser to resell the property need not be his sole purpose in making the purchase in order to make the exclusion operative.” Comptroller v. Glenn L. Martin Co., 216 Md. 235, 243, 140 A.2d 288, cert. denied, 358 U.S. 820, 79 S.Ct. 34, 3 L.Ed.2d 62 (1958). Readily ascertainable from the preamble to the 1957 Act is the legislative intention to confirm the Comptroller’s administrative construction that the resale exclusion from tax is available only if the purchase was made solely for the purpose of resale.3

The record discloses that Macke did not separately charge its customers for the paper products here involved. I think it apparent that Macke supplied such products to facilitate the serving of food and drink to its customers which constituted a use inuring to Macke’s benefit in the conduct of its operations. It did not acquire the paper products for the *35sole and only purpose of reselling them to its customers within the contemplation of 5 324(f)(1) and § 372(d)(1).

The precise question in Sta-Ru Corp. v. Mahin, 64 Ill.2d 330, 1 Ill.Dec. 67, 356 N.E.2d 67 (1976) was whether purchases by a retail food vendor of paper and plastic containers used to contain food and beverages consumed by its customers on the premises were entitled to the resale exclusion from tax as having been acquired “for the purpose of resale.” Id., 1 Ill.Dec. at 67-68, 356 N.E.2d at 67-68. The contentions of the parties were similar to those raised in the present case. In concluding that the purchases were not made for the purpose of resale, the Illinois Supreme Court said:

“No separate charge is made by Sta-Ru for the disposable containers furnished its customers. Obviously, Sta-Ru is in the business of selling food and beverages, not disposable containers, and it is the food or beverage which its customers come to purchase____ Sta Ru provides the plastic and paper containers as a part of its standard method of doing business. There is no resale of the containers to the customers within the meaning of the ROTA. Rather, the cost of the containers used to serve food on its premises is a cost of doing business as would be the cost of permanent dinnerware.
“Sta-Ru’s contention that the containers are resold since their ownership is transferred to the customer with no right in Sta-Ru to reclaim possession is hardly convincing. Beyond the fact that no separate consideration is paid for the containers, it is conceded that the containers are not reusable. The customer acquires nothing of permanent benefit. The containers are consumed or used by Sta-Ru in a business sense when it serves the food or beverage.” Id., 1 Ill.Dec. at 70, 356 N.E.2d at 70.

The majority’s characterization of Sta-Ru Corp. as a minority view is simply wrong. So is the Court’s holding that “the overwhelming majority of jurisdictions have rejected the position taken by the Comptroller in this case.” Except for Burger King, Inc. v. State Tax Comm’r, 51 *36N.Y.2d 614, 435 N.Y.S.2d 689, 416 N.E.2d 1024 (1980), the cases cited by the court are distinguishable from the present case and from Sta-Ru Corp.4 In fact, they are consistent with the Comptroller’s administrative interpretation of the statute. In general, these cases held that shipping containers, cardboard cartons, paper cups used in vending machines, wooden cases and other wrapping or packaging materials purchased by grocery producers, beverage manufacturers, grocers, and sugar refiners were items sold for “resale” and thus were not taxable. These holdings are entirely consistent with the Comptroller’s administrative regulation, COMAR 03.06.01.42, which excludes from use tax containers, shipping cartons, bottles, boxes, excelsiors, bale binding, etc. if they “[are] purchased for resale with other tangible personal property sold by the purchaser.” Under this administrative regulation, paper products used in connection with take-out or off-premises consumption qualify for tax exclusion whereas the purchase of paper products used for Macke’s on-premises food operations does not qualify for use tax exclusion.

Several of the cases relied upon by the majority, as I read them, actually support the Comptroller’s position in this case. District of Columbia v. Seven-Up Washington, 214 F.2d 197 (D.C.Cir.), cert. denied, 347 U.S. 989, 74 S.Ct. 851, 98 L.Ed.2d 1123 (1954) held that returnable, reusable soda bottles were taxable since the bottles were used by the beverage companies and because the companies were “not in the business of selling bottles or cases but of using them as a means of marketing their soft drinks.” Id. at 200. Arkansas Beverage Company v. Heath, 257 Ark. 991, 521 *37S.W.2d 835 (1975) is to the same effect. In Paper Products Company v. City of Pittsburgh, 391 Pa. 37, 130 A.2d 219 (1957), the paper napkins, and other items sold to dealers or vendors, were held to constitute retail sales since such products were “used by the purchasers” just as paper products are “used” by Macke for its on-premises food services.

And in Hervey v. Southern Wooden Box, Inc., 253 Ark. 290, 486 S.W.2d 65 (1972), the Supreme Court of Arkansas held the Coca Cola Company, a seller of carbonated drinks, to be liable for use tax upon its purchases of wooden cases since the company failed to meet its burden of proving that the returnable wooden cases were for resale. Here, the court stated

“We hold that Coca Cola must prove that it buys the wooden cases for the purpose of reselling them. We do not interpret the broad statutory definition of a sale to include every transaction in which there is a transfer of possession, for a consideration____ The statute must be read as a whole. If the reference to a transfer of possession were applied literally in every instance, absurd results would follow.” Id., 486 S.W.2d, at 68.

Giving due consideration to the Comptroller’s longstanding administrative construction, the statutory provisions and the decided cases, I conclude that the legislature did not intend to extend the resale exclusion to the paper products involved in this case, as they were not acquired by Macke for the sole purpose of reselling them to its customers within the contemplation of §§ 324(f)(i) and 372(d)(1). This is so without regard to whether Macke factored the cost of its paper products into the price exacted from the customer for the food and beverages. No separate consideration having been paid by the customer for Macke’s paper products, there is, moreover, an absence of consideration for the transfer, as found by the courts below.

In concluding that the assessment was proper in this case, I take no issue with the majority’s general view concerning the avoidance of double taxation. The short *38answer, as I see it, is that no unlawful pyramiding of taxes is here involved, since we are dealing with two distinct and separate taxable events imposed upon different consumers—it is not a taxing twice for the same purpose. As we said in Wilkens Co. v. Baltimore City, 103 Md. 293, 312, 63 A. 562 (1906), citing U.S. Elec. P’w’r & L’g’t Co. v. State, 79 Md. 63, 71-72, 28 A. 768 (1894):

“ ‘[WJhen the same property represents distinct values belonging to different persons, be those persons natural or artificial, both persons may be lawfully taxed, and the amounts of their separate contributions would be fixed by values which the same property represented in the hands of each respectively. And this would not be double taxation in the sense in which it is obnoxious to the organic law.’ ”

See also Crown Cork & Seal Co. v. State, 87 Md. 687, 40 A. 1074 (1898), app. dismissed, 20 S.Ct. 1026, 44 L.Ed. 1220-21 (1900); U.S: Elec. P’w’r & L’g’t Co. v. State, supra.

I am authorized to state that Judge MORTON concurs in the views herein expressed.

. The Maryland Use Tax Act is complementary to the Retail Sales Tax Act, codified as Article 81, §§ 324-371, in that the former applies only to those transactions subject to sales tax, but on which no tax has been paid. Article 81, § 375(a) and (b). See also Comptroller v. Glenn L. Martin Co., 216 Md. 235, 140 A.2d 288 (1958), cert. denied, 358 U.S. 820, 79 S.Ct. 34, 3 L.Ed.2d 62 (1958); Comp. of Treas. v. Thompson Tr. Corp., 209 Md. 490, 121 A.2d 850 (1956); Compt. of Treasury v. Crofton Co., 198 Md. 398, 84 A.2d 86 (1951).

. Inapplicable in this case is the rule that an administrative interpretation contrary to the clear and unambiguous meaning of a statute will in no event be given effect by the courts. See Atlantic, Gulf v. Dep't of Assess. & T., 252 Md. 173, 249 A.2d 180 (1969); Bouse v. Hutzler, 180 Md. 682, 26 A.2d 767 (1942). While the words of § 324(f)(1) and 372(d) giving rise to the resale exclusion are themselves clear, the extent of their operative application is by no means free of doubt.

. That the legislative recitals set forth in a preamble to an enactment may be resorted to as an aid in the interpretation of a statute is well settled. See McAlear v. McAlear, 298 Md. 320, 469 A.2d 1256 (1984); Dillon v. State, 277 Md. 571, 357 A.2d 360 (1976); National Can Corp. v. Tax Comm., 220 Md. 418, 153 A.2d 287 (1959), appeal dismissed, 361 U.S. 534, 80 S.Ct. 586, 4 L.Ed.2d 538 (1960).

. Burger King involved paper products used to package food, such as hamburger wrappers, beverage cups and french fry sleeves, in a fast-food facility. The New York Court of Appeals held that these products qualified for resale exclusion under a provision similar to that now before us. In so holding, the court emphasized the nature of Burger King as a fast-food restaurant chain, where the “key" to the operation is speed, sanitation and portability. It found the packaging in these circumstances to be “a critical element of the final product sold to customers.” 435 N.Y.S.2d 618, 416 N.E.2d at 1028.