Rockower Bros. v. Comptroller of Treasury

*394Barnes, J.,

filed the following dissenting opinion.

I would reverse the decision of the lower court in favor of the Comptroller on the ground that Towers and not Rockower was the “vendor” under the applicable provisions of the Retail Sales Act (the Act), the Regulations of the Comptroller (the Regulations), and the contemporaneous and consistently continued interpretation by the Comptroller of the Act and the Regulations as constituting Towers the “vendor” in this very situation, — until it became financially advantageous to the State to take a contrary position.

The case at bar does not involve a definition of “vendor” or of “sale” as these terms would be understood at common law, under the Uniform Commercial Code1 in force in Maryland on and after February 1, 1964 or under the Uniform Sales Act2 in force in Maryland from June 1, 1910 to January 31, 1964. These words are specially defined by the Act.

Section 324(b) of Article 81 of the Code3 defines “vendor” as “my person selling property or rendering services upon the sale of which a tax is imposed under § 325 of this subtitle.” “Sale” or “selling” is defined by Section 324(d) as “any transaction whereby title or possession, or both, of tangible personal property is or is to be transferred by any mems whatsoever for a consideration including rental, lease or license to use, or royalty, by a vendor to a purchaser, or my transaction whereby services subject to tax under §325 of this subtitle are rendered for consideration to any purchaser or to any vendor.” (Emphasis supplied).

Section 324(f) defines “Retail sale” and “sale at retail” as “the sale in any quantity or quantities of any tangible personal property or service taxable under the terms of this subtitle. * *

It will be noted that the statutory definition does not limit *395the definition of “vendor” to the person who has title or possession prior to the transfer of title or possession, or both, but for the purposes of the Act, the vendor is the person who is selling property and “selling” is defined to mean any transaction whereby the title or possession, or both, is or is to be transferred by any means whatsoever. In other words, it is the person who makes or effectuates the transfer of title or possession, or both, who is the “vendor” regardless of from, whom title is transferred, or from whom possession is transferred. This was a deliberate statutory definition to impose the tax on the person who made the transfer of title or possession, or both, and who collected the money for that transfer. The purpose of the statutory definition was practical rather than theoretical. Its purpose was to impose the tax when the money was collected for the sound practical reason that the person collecting the money would then and there put aside from that money thus collected, the retail sales tax due the State at the time of the transfer.

Section 324(q) defines “taxpayer” as “any person required by this subtitle to make returns to the Comptroller or to pay or pay over to the Comptroller the tax imposed by this subtitle.” (Emphasis supplied).

Section 327 provides after requiring a charge for the sales tax separate from the sale price, that “The tax shall be paid by the purchaser to the vendor as trustee for or on account of the State, and the vendor shall be liable for the collection thereof for and on account of the State.” (Emphasis supplied).

Section 335 requires the “vendor” to file the necessary return to the Comptroller. Section 336 provides for the form of the returns and requires, inter alia, the showing on the returns of the gross proceeds of the vendor’s business for the month for which the return is filed, the gross proceeds of the business of the vendor upon which the tax is computed, and the amount of the tax for which the vendor is liable. Section 337 requires each vendor to pay to the Comptroller at the time of filing the return, the taxes imposed by Section 325.

Section 338 (as amended, LAWS OF MARYLAND 1959, ch. 145, to reduce the 3°/o allowance to 2%) provides that:

*396“The vendor shall be entitled to apply and credit against the amount of tax payable by him, as stated in §337 of this subtitle, an amount equal to two percent (2%) of the gross tax to be remitted by him to the Comptroller, to cover the vendor’s expense in the collection and remittance of said tax; * *

Rule 3 of the Regulations provides, in part, as follows:

“The sales tax applies to the total sales pnce on all sales made on the same occasion by the same vendor to the same purchaser, without regard to the value of the sale price of the separate items aggregating the total amount of the sale. Sales made 'on the same occasion’ means the combined sales to the purchaser in any place of business, whether or not at different counters or in different departments, on any one business day.” (Emphasis supplied).

Rule 66 of the Regulations provides:

“Every factor, auctioneer, broker or agent acting for any principal, or entrusted with possession of any bill of lading, custom house permit or warehouse receipt for delivery of any tangible personal property or entrusted with possession of any personal property for the purpose of sale shall be responsible for the proper collection and remittance of the tax with respect to such sales except where such factor, auctioneer, broker or agent acts for a disclosed principal who would have been exempt under the 'casual and isolated’ exemption if such principal had made the sale himself.” (Emphasis supplied).

Into this statutory and administrative setting, the present case arose. As pointed out in the majority opinion the facts are undisputed. The statement of the facts in the majority opinion should, I think, be somewhat amplified.

Towers began operating its stores in Maryland in 1959. All interior and exterior signs, all labels, sales slips, price tags, wrappings and packaging bore the name of “Towers” only. The *397stores were known to the public by the name of “Towers.” Towers, however, licensed departments in its stores to various licensees who were not known to the public as such.

In February 1961, Rockower first became a licensee of men’s wear departments in Towers stores. At the time of the assessment involved in the case at bar, Rockower (or its wholly owned subsidiaries) was operating as licensee, in eight Towers stores.4 The “Master License Agreement — Towers License Agreement” (the Agreement) is interesting and of importance in this case. Taking the Agreement of June 27, 1961 between Towers of Brooklyn Park, Inc., a Maryland corporation (thereafter in the Agreement referred to as “Licensor”) and Rockower Bros. Inc., a Pennsylvania corporation (thereafter referred to in the Agreement as “Licensee”) as characteristic of all of the licensing agreements, one finds the following relevant provisions: Towers, the licensor, granted Rockower, the licensee, “the license and privilege of conducting a department” within the Towers store at Brooklyn Park designated as the Men’s department for the sale at retail of men’s clothing only. The space consisted of 5738 feet “assigned by the Licensor (Towers) at its sole discretion.” Towers reserved the right to relocate Rockower’s space by assigning Rockower other suitable and desirable space in the store of substantially equal size and if the volume of sales in proportion to the floor space occupied by the department did not substantially conform to the average of the proportion for the entire floor on which the department was located, Towers “within its sole discretion, based upon all of its records and all other information available to it,” within 30 days after the end of any quarter, could reduce the floor space of the licensed department in such manner as, “in *398Licensor’s discretion”, enabled the proportion of Rockower’s department to conform to the average for the entire floor.

The licensee Rockower was to pay to the licensor Towers for “the license and privilege” granted, a sum or commission equal to 7)4% of the “net sales” as defined, of “merchandise sold in or emanating from said department.” In the definition of “Net sales” the proceeds of sale are “less returns, exchanges, employee’s discounts, credits, refunds, Federal Excise Tax and State Sales Tax, if any.” (Emphasis supplied).

There was a provision-whereby Rockower was to pay to Towers 3% of the net sales for advertising, which was to be spent by Towers for promotional and institutional advertising and Rockower was forbidden to advertise the business of the department without Towers’ approval of the advertising medium and text.

The Agreement provided in paragraph 4 for the handling of sales. “All moneys from sales of merchandise in or emanating from” the department “shall be paid directly to and handled by Licensor’s cashiers.” The licensee agreed “that the receipts (including checks accepted by the Licensor) from the operation of said department — shall go through the regular channels of the business of Licensor, according to its usual and ordinary methods of doing business, in the same manner as sales made by Licensor for its account in its general business, * * (Emphasis supplied). The receipts were to be deposited daily in the account maintained by the licensee (in a bank designated by the licensor), less 10)4% (the 7)4% plus the 3% advertising charge already referred to) and the licensor was to furnish the licensee weekly a statement of these deposits with the duplicate deposit slips for the preceding week. Any credits or adjustments for merchandise returned by customers were reflected in the next succeeding deposit. All disputes with customers in regard to the merchandise “shall at all times be under the control of Licensor.” If there were shortages or overcharges by the licensor’s cashiers, these shortages or overcharges were prorated among the licensee and other licensees of the store based on the percentage of licensee’s sales at the time of the shortage or overcharge. It was further provided that “the figures recorded for each department by the cash reg*399isters shall be conclusive with respect to the volume of business by the various licensees.” (Emphasis supplied).

Paragraph 6 provides for the payment of taxes, assessments, fees, etc., and is as follows :

“6. Licensee shall pay all the taxes assessed by any taxing authority on the merchandise carried in said department and on all of the fixtures, equipment and machinery owned by Licensee and installed therein, including but not limited to sales taxes of the State of Maryland and taxes of the City of Baltimore and shall pay any license or other fee incident to the conduct of said business, whether billed directly to the Licensee or to the Licensor, and shall pay all taxes, including but not limited to Social Security and Unemployment taxes, State and Federal, which are now imposed or may hereafter be imposed on the business carried on in said department and on the Licensee as an Employer. Licensee shall become voluntarily liable for State Unemployment compensation taxes, if it engages fewer personnel than required for involuntary liability under the State laws. In the event that an unapportioned tax is assessed against Licensor which shall include Licensee’s property, Licensee agrees to pay such proportion of said tax as the value of its property at the time of assessment bears to the total value of the property assessed at the time in said store.” (Emphasis supplied).

The majority indicates that this imposes the obligation upon Rockower, as licensee, to pay Maryland sales tax, and, by inference at least, to pay the sales taxes involved in this case, but it seems clear to me that paragraph 6 only imposes liability to pay possible sales taxes on “fixtures, equipment and machinery” installed by the licensee in the department. It is apparent that no sales tax will be “assessed on the merchandise,” and the only time a possible sales tax would be imposed and payable under paragraph 6 would be upon the purchase of Rockower of fixtures, equipment and machinery not for resale and not otherwise excluded or exempted under the Retail Sales Act. The *400provision of paragraph 6 in regard to sales taxes is not a general obligation to- pay sales taxes, but only an obligation to pay those sales taxes possibly imposed upon it as purchaser of the equipment, etc. to be installed. The whole agreement indicates that all collections are to be made by Towers from the purchasers of merchandise and these collections would include the sales tax paid, as a separate item, by the purchasers of the merchandise.

The Agreement further provides in some detail the merchandising policy to be followed by the licensee and generally that “the Licensee will conduct its said department so as to protect the business reputation of Licensor’s store.”

In paragraph 10 of the Agreement, the licensee is required to maintain the department “in continuously clean and neat condition in keeping with the standards of Licensor and to the reasonable satisfaction of Licensor * * The general nature of the line of merchandise is provided for and it “shall be comparable in quality, quantity and value to the general stock of merchandise carried by the store.” It is also provided that “Li-censor reserves the right and privilege of inspecting and comparing as to prices, quality and value, the merchandise carried and services rendered by Licensee with items or services sold in Licensor’s store and other retail establishments, and Licensee shall either meet such prices, quality, and value within twelve (12) hours after oral or written notice by Licensor, or remove the merchandise concerned from display for sale.”

In paragraph 11, it was provided, that the licensee shall furnish and engage qualified and competent employees for the conduct of the department. Although all employees are hired by the licensee, the licensor has the right to' require the licensee to dismiss immediately from its employment any employee deemed unsuitable or who violates any of the rules and regulations of the licensor or who shall in any way conduct himself to the dissatisfaction of the licensor. The employees are required to conform to the rules and regulations set forth in attached Schedule B “as well as all reasonable rules and regulations as hereafter may be promulgated or put into operation by the Licensor.” Schedule B entitled “Store Policies for Employees” contains 9 minute regulations, giving the working hours, the cloth*401ing and badges to be worn, the parking of employee automobiles, the marking of merchandise, a prohibition against eating or smoking on the selling floor, etc., and there was also attached as a Schedule B a “Store Policy for Department Managers” containing 18 regulations, including the 9 employee regulations, and 9 additional ones including one prohibiting the employment of relatives in the same department.

It is quite clear to me from the Agreement that Towers, as licensor, was dominant in the operation of the business of the department; it was no mere agent of Rockower, the licensee. Even if it were an agent, Towers would “be responsible for the proper collection and remittance of the tax with respect to such sales” by virtue of Rule 66 of the Comptroller already set forth in full. In my opinion this Rule is valid, and recognizes and is consistent with the policy of the Act, i.e., to treat as the “vendor” the person who makes the transfer of title or possession, or both, and who collects the money from the purchaser, both for the merchandise and for the sales tax. The suggestion in the majority opinion that the intent of Rule 66 was “merely to supplement the legal liability of a vendor by imposing an additional liability upon a vendor’s agent,” would, in my opinion, make Rule 66 invalid as the imposition of such additional liability is indeed a legislative power and could not legally be imposed by the Comptroller.

In the operation of business under the Agreement all of the receipts were taken in through the central cashier locations maintained by Towers and operated by Towers employees, similar to the usual operation of the cashier check-out maintained at supermarkets. The Towers-operated cash registers contained a key identification for each licensed department but only had one sales tax key, which was used by Towers to identify all sales taxes collected for the cumulative total sales made in all licensed departments, without separation, even though the merchandise might come from a number of licensed departments. The funds collected by Towers for sales taxes were retained by Towers and were never paid over to Rockower.

In 1959, Towers registered with the Comptroller and obtained a sales tax license for each of its locations as a vendor. Towers filed sales tax reports as vendor for each of its loca*402tions on which all of the sales of goods from all of the departments, including those licensed to licensees, were reported on a consolidated basis and all of the sales taxes were remitted by Towers to the Comptroller on the consolidated basis.

Barton C. Layton, an auditor of the Retail Sales Tax Division of the Comptroller testified at the hearing in this case before the Comptroller that since the inception of the first two Towers stores in Dundalk and Brooklyn Park he was aware that there were licensees in each of the Towers stores and that Towers was filing a combined master sales tax return of all store sales for each store. At first he was unable to determine who the licensees were, but continuously sought to obtain registrations from the licensees, but he made no effort to have each individual licensee file individual sales tax returns because his instructions were to report the tax at each store under one account number assigned to Tozvers.

Edward F. Engelbert, Chief of the Retail Sales Tax Division, testified that in 1959 his office attempted to obtain registrations for sales tax account numbers for the licensed departments, but, with the knowledge of the Comptroller’s office, Towers continued to collect and remit all taxes for each location on a consolidated basis.

When an application for a Maryland Retail Sales and Use Tax License was applied for by one of the Rockower subsidiary corporations, at the request of Towers (using the application of Rockower-78 Corp. for the Suitland store signed on September 19, 1962 and apparently filed later in September 1962 as characteristic), on the attached “Retail Sales and Use Tax Report” the only one of the 18 items requesting information is filled in, i.e., “Net tax due and paid with return” and this has the word “None”. Above this answer appears the notation “Taxes collected and remitted by Towers.”

The remaining facts in regard to the late remittances both to Rockower and to the Comptroller for sales taxes and subsequent proceedings are sufficiently set forth in the majority opinion and need not be repeated here. It may be added, however, that even after Towers failed to file the December, 1962 report and pay the sales tax due, the Comptroller made demand upon Towers for the payment of the sales taxes and sought a bond from *403Towers through the Creditors’ committee formed to take in Towers’ receipts in early February 1963. This bond may be required by the Comptroller from a “taxpayer” to protect the revenues under § 340 and, as has already been indicated, a taxpayer is defined as “any person required by this subtitle to make returns to the Comptroller or to pay or pay over to the Comptroller the tax imposed by this subtitle,” and such a person is a “vendor.”

It is entirely correct as stated in the majority opinion, that the State may not be estopped by the acts of its officers and agents. The question presented here, however, is not primarily one of estoppel but of an interpretation of the statutes and regulations by the Comptroller that Towers was the “vendor” within the meaning of the applicable statutes and regulations.

Although in my opinion, Towers is clearly the “vendor” under the applicable statutes and regulations, if it be assumed for the argument that the statutes and regulations are at least ambiguous in this regard, then the administrative interpretation, orginally made and continued by the Comptroller after knowledge of the situation, is highly persuasive to this Court. As Judge Delaplaine, for the Court, stated in Department of Tidewater Fisheries v. Sollers, 201 Md. 603, 615; 95 A. 2d 306, 311 (1953) :

“It is true that no custom, however long and generally it has been followed by administrative officials of the State, can nullify the plain meaning and purpose of a statute. But where the language of a statute is susceptible of tzvo constructions, a long continued and unvarying construction applied by administrative officials is a persuasive influence in determining the judicial construction, and it should not be disregarded except for the strongest and most urgent reasons.” (Emphasis supplied).

See Shapiro v. City of Baltimore, 230 Md. 199, 216, 186 A. 2d 605, 614 (1962).

As I have indicated, however, the statutory definitions indicate that Towers was the “vendor.” It alone collected the money for the merchandise and for the sales tax. At the time *404of collection both title and the ultimate right to possession passed to the purchaser and not before. Prior to collection, the customer, who had taken a qualified possession of an article, could change his mind and return it to the racks or counter and take a qualified possession of another article in its place or indeed decide that he would not purchase any article of that type. It seems clear that neither title nor the ultimate right to full and complete possession passed unless and until the money was collected at the check-out cash register by Towers. This act of Towers was the act which transferred! both title and the ultimate right to possession and under the statutory definition this constituted Towers the “vendor.” Towers at the time of that act collected from the purchaser, as a separate item as required by the Act, the sales tax due from all of the merchandise presented by the purchaser — whether obtained from one or more licensed departments or from a department possibly not licensed — rang it up as an entirety on a single key on the cash register and thereafter made the return to the Comptroller and paid the sales tax as the taxpayer. All of these returns and payments were accepted by the Comptroller as a compliance with the provisions of the Act and the Regulations. None of the sales tax money was ever received by Rockower. Rockower, on any returns filed by its subsidiaries gave no details and paid no tax, but, on the contrary, noted that the tax was collected and remitted by Towers. The Comptroller knew and accepted the returns and payments by Towers under one account number. The Comptroller sought a bond from Towers as taxpayer pursuant to the provisions of the Act. Towers deducted the 2 °fo commission to cover the “vendors’ ” expense as provided by the Act and this appeared on the returns accepted by the Comptroller. When Towers failed to file the December 1962 tax and pay the sales tax, the demand for payment was made upon Towers not upon Rockower or its subsidiaries.

Then too, since under §327 the tax is collected from the purchaser by the vendor as “trustee for and on account of the State,” it seems clear to me, that this shows that it is the person who receives the purchase price and the sales tax in hand, exercises dominion and control over it, who is the vendor-trustee. Towers alone had this control, Rockower never did have *405it. As there can be no trust without a res, it follows that Towers alone was the vendor-trustee and Rockower was not. I would so hold.

If it be assumed, for the argument, that Rockower and not Towers is the “vendor,” I would agree with the rejection by the majority of the alternative contention by Rockower that as an involuntary trustee, it should not be surcharged with the funds collected and misappropriated by Towers because Rockower used reasonable care in selecting Towers and otherwise used due care with respect to the trust funds.

I much more reluctantly agree with the majority that if it be assumed, arguendo, that the Comptroller was entitled to make an assessment against Rockower at all, the Comptroller should be permitted to retain the funds obtained as a result of the unusual and vigorous collection procedure used by the-Comptroller in the case at bar and described in the majority opinion. The procedure adopted has overtones of an abuse of' process, but I cannot say that under the circumstances of this case there was an illegal action requiring reversal on this-ground. It was, however, in my opinion a course of action, which is not to be commended.

. LAWS OF MARYLAND 1963, ch. 538 (Code (1964), Art. 95B, §§ 1-101 to 2-725).

. LAWS OF MARYLAND 1910, ch. 346 (Code (1957), Art. 83, §§ 19-96).

. All section references are to Article 81 of the Annotated Code of Maryland, 1957 Ed., unless noted otherwise, with amendments through 1965.

. The names of the Rockower subsidiaries and the Towers stores in which they leased were as follows:

Rockower Subsidiary Location of Towers Stores

Rockower Bros.-Md. Corp. Dundalk, Brooklyn Park, Langley Park, Wheaton and Liberty Road

Rockower-71 Corp. Timonium

Rockower-Carrollton Carrollton

Rockower-78 Corp. Suitland