Comptroller of the Treasury v. Jason Pharmaceuticals, Inc., Case No. 1952, September 

Term, 2016, filed February 27, 2018.

HEADNOTE 

TAX -- INTEREST ON TAX REFUND CLAIM -- ERROR “ATTRIBUTABLE TO 

THE STATE” 

Where the erroneous overpayment was completely within the knowledge and control of 

the taxpayer, and no law, regulation, or policy of the State led to the taxpayer’s error, the 

Comptroller may not pay interest in addition to the refund. 
REPORTED 

IN THE COURT OF SPECIAL APPEALS

OF MARYLAND 

No. 1952 

September Term, 2016 

______________________________________ 

COMPTROLLER OF THE TREASURY, 

v. 

JASON PHARMACEUTICALS, INC. 

______________________________________ 

Nazarian,

 Arthur, 

Zarnoch, Robert A.

 (Senior Judge, Specially Assigned), 

 JJ.

______________________________________ 

Opinion by Zarnoch, J. 

______________________________________ 

 

 Filed: March 1, 2018 

Circuit Court for Anne Arundel County

Case No. C-02-CV-16-000895
This appeal arises from a decision of the Tax Court requiring the Comptroller to pay 

interest on two refunds of sales taxes for which the taxpayer was exempt under Maryland 

law. The Comptroller petitioned the Circuit Court for Anne Arundel County for review of 

the Tax Court’s decision, and the circuit court upheld the Tax Court. The issue before us 

is whether there was substantial evidence in the record before the tax court to support its 

conclusion that the taxpayer’s error in paying the tax was “attributable to the State,” and 

therefore, that the Comptroller was required to pay interest on the refund claim. 

BACKGROUND AND PROCEDURAL HISTORY 

 Jason Pharmaceuticals, Inc. (“JPI”) is a Maryland corporation, with its headquarters 

in Owings Mills, in Baltimore County. It is a subsidiary of Medifast, which is a weightloss and weight-management program. JPI sells and distributes weight-management and 

other health-related products, and it prints paper materials and sells them to customers at 

Medifast’s weight-loss centers. JPI operates a printing shop on Maryland’s Eastern Shore, 

where it leases four large printing machines from Xerox Corporation (“Xerox”). JPI paid 

sales tax with each lease payment to Xerox from November 2007 through January 2013. 

 In August 2011, JPI and Medifast hired Gabriel Massuda (“Massuda”) as its Tax 

Director. Massuda observed the printers at the Eastern Shore printing facility soon after, 

and he began looking into whether the printers could meet the criteria for a sales tax 

exemption on personal property used in manufacturing. 

 On May 10, 2012, after Massuda determined that JPI’s printing activities might 

meet the exemption, he filed a refund claim with the Comptroller’s Office, seeking a refund 

of $332,365 in sales tax overpayments for the preceding four years -- from 2008 to April 
2

10, 2012. Even after JPI filed its first refund claim, however, it continued to pay sales tax 

to Xerox, because Massuda had not been able to confirm whether JPI’s production 

activities met the threshold set by the statute to qualify for an exemption. Thereafter, on 

September 4, 2012, JPI filed another refund claim seeking $22,863 for the period of March 

10, 2012 through August 1, 2012. Again, JPI continued paying sales tax to Xerox after 

filing its claim while Massuda continued to evaluate JPI’s records. 

 An auditor in the Comptroller’s Business Tax Audits Section was assigned both 

refund claims. Between July 2012 and May 2013, the auditor reviewed JPI’s tax returns, 

general ledger, invoices, and samples of materials printed on the printers, and visited the 

Eastern Shore printing facility. In January 2013, after Massuda became confident that JPI 

had the records to back up its claim that the printing machines met the criteria for the 

exemption, but prior to the auditor concluding his field audit, JPI finally stopped paying 

sales tax to Xerox on the printers. 

 The auditor concluded his audit and the Refund Supervisor at the Comptroller’s 

Office issued a denial letter for both refund claims on May 15, 2013. The letter stated the 

following: 

The . . . application for a refund of sales and use tax has been 

denied due to the fact that the use of the . . . equipment and 

materials does not satisfy the State’s determination of “used 

directly and predominantly in a production activity” because 

most of the materials being produced are not for resale. 

The letter further informed JPI of its right to request an informal hearing with the 

Comptroller. 
3

 On May 23, 2013, JPI requested an informal hearing with the Comptroller, which 

was held before a hearing officer. The hearing officer reversed the auditor’s decision on 

both refund claims, finding that JPI’s use of the printers met the criteria for the exemption 

and that JPI was entitled to a refund of the sales tax. On September 17, 2013 JPI received 

a check for the first refund claim in the amount of $314,655.83 for the first four years of 

sales tax, and on October 11, 2013, a check for the second claim in the amount of $22,863 

for the period of March 2012 to August 2012. No interest was paid on the sales tax refunds. 

Later, the hearing officer issued two Notices of Final Determination which concluded that, 

although the Comptroller had approved the refund claims, JPI was not entitled to recover 

interest from the State. 

 Soon after, JPI appealed the Comptroller’s final determination on the issue of 

interest to the Maryland Tax Court (“Tax Court”), and on August 19, 2015 the court held 

a hearing. The Tax Court issued its final determination and memorandum opinion on 

February 18, 2016, requiring the Comptroller to pay interest on the refunds, which we 

review in detail below. The Comptroller filed a petition for judicial review with the Circuit 

Court for Anne Arundel County. Following arguments from both parties on November 14, 

2016, the circuit court affirmed the Tax Court’s decision. The Comptroller appealed to 

this Court. 

DISCUSSION 

 The issue before us on appeal is whether there was substantial evidence in the record 

before the Tax Court to support its conclusion that JPI is entitled to interest on its refund 

of sales tax. Whether JPI’s use of the printers met the criteria for exemption involved 
4

measuring what proportion of its printed materials were for sale or resale1 based on sample 

materials and JPI’s own records. There is no dispute that JPI’s use of the printers met the 

exemption and that it was entitled to a refund of the sales tax it paid during the relevant 

time periods. The paramount question at stake is whether JPI’s error in paying the tax was 

“attributable to the State.” For the reasons discussed below, we hold that no substantial 

evidence in the record before the Tax Court supported its conclusion that JPI’s error in 

paying the tax was attributable to the State, and therefore, we reverse. 

We review decisions of administrative agencies directly, looking “through” the 

circuit court’s decision. Kor-Ko Ltd. v. Md. Dep’t of the Env’t, 451 Md. 401, 409 (2017) 

(quoting People’s Counsel for Baltimore Cnty. v. Surina, 400 Md. 662, 681 (2007); see 

also Comptroller of Treasury v. Sci. Apps. Int’l Corp., 405 Md. 185, 192 (2008) (Citation 

omitted) [hereinafter SAIC]. Because the Tax Court is “an adjudicatory administrative 

agency,” “decisions of the Tax Court receive the same judicial review as other 

administrative agencies. Gore Ent. Holdings, 437 Md. at 503 (citing Frey, 422 Md. at 

136)). “When the Tax Court interprets Maryland tax law, we accord that agency a degree 

of deference as the agency that administers and interprets those statutes.” Comptroller of 

the Treasury v. Wynne, 431 Md. 147, 160 (2013) (citing Comptroller v. Blanton, 390 Md. 

at 533–35 (2006)). 

 

1 To allay any confusion, we refer simply to printed materials that are “for sale” and 

not “for resale” in the context of JPI’s request for a sales tax exemption. 
5

The Court of Appeals in Kor-Ko Ltd. provided three areas of inquiry for appellate 

courts in reviewing administrative agency decisions: (1) whether “the findings of fact made 

by the agency are supported by substantial evidence in the record made before the agency;” 

(2) whether the agency “commit[ed] any substantial error of . . . substantive law in . . . 

formulating its decision;” and (3) whether the agency act[ed] arbitrarily or capriciously in 

applying the law to the facts.”2 Kor-Ko Ltd., 451 Md. at 411-12 (quoting Md. Bd. of Pub. 

Works v. K. Hovnanian’s Four Seasons at Kent Island, LLC, 425 Md. 482, 514 n. 15 

(2012)). We treat an administrative agency’s decision as “prima facie correct” and “review 

the evidence in the light most favorable to the agency.” SAIC, 405 Md. at 192-93 (Citation 

omitted). Additionally, the Court in SAIC reiterated the standard that “[w]hen we review 

an agency decision that is a mixed question of law and fact, we apply ‘the substantial 

evidence test, that is, the same standard of review it would apply to an agency factual 

finding.’” 405 Md. at 193 (quoting Longshore v. State, 399 Md. 486, 522 n. 8 (2007)) 

(Internal quotation marks omitted). 

 

II. The Sales Tax Exemption and Exception to the Comptroller’s Duty to Pay 

Interest 

Pursuant to § 11-102(a)(1)-(2) of the Tax-General Article (“TGA”), Md. Code 

(Repl. Vol. 2016), “[e]xcept as otherwise provided in [Title 11], a tax is imposed on . . . a 

 

2 This standard of review applies when we review a “proto-typical quasi-judicial 

agency decision.” Kor-Ko Ltd., 451 Md. at 423 n. 9 (2017). An agency’s action is “quasijudicial” when “the act or decision is reached on individual, as opposed to general, 

grounds” and “there is a deliberative fact-finding process with testimony and the weighing 

of evidence.” Id. at 409 (quoting K. Hovnanian’s Four Seasons at Kent Island, LLC, 425 

Md. at 515). 
6

retail sale in the State; and . . . a use, in the State, of tangible personal property or a taxable 

service.” One exception to the requirement to pay sales tax is in § 11-210(b): 

The sales and use tax does not apply to a sale of: (1) tangible 

personal property used directly and predominantly in a 

production activity at any stage of operation on the 

production activity site from the handling of raw material or 

components to the movement of the finished product, if the 

tangible personal property is not installed so that it becomes 

real property . . . .

TGA § 11-210(b) (Emphasis added). The Code of Maryland Regulations (“COMAR”) 

defines “production activity” as -- “[a]ssembling, manufacturing, processing, or refining 

tangible personal property for sale or resale.”3

 COMAR 03.06.01.32-2(B)(1)(a)(i). 

Personal property items are “used directly and predominantly in a production activity” if: 

(a) [the] [u]se of the property is integral and essential to the 

production activity, occurs where the production activity is 

carried on, and occurs during the production activity; and 

(b) [p]roperty used both in production activities and 

administrative, managerial, sales, or any other operational or 

nonoperational activities is used more than 50 percent of the 

time directly in production activities. 

COMAR 09.06.01.32-2(B)(2) (Emphasis added). Accordingly, under the circumstances 

of the present case, JPI could meet the criteria for the exemption if JPI used the printers 

“more than 50 percent of the time” to manufacture printed materials that were “for sale or 

resale.” See TGA § 11-210(b); COMAR 03.06.01.32-2(B)(1)(a)(i) and (2). 

 

3

 The term “production activity” is also defined under TGA § 11-101(f)(1) as 

“assembling, manufacturing, processing, or refining tangible personal property for resale 

. . . .” 
7

 When a taxpayer “erroneously pays to the State a greater amount of tax, fee, charge, 

interest, or penalty than is properly and legally payable,” the taxpayer may file a claim for 

refund “with the tax collector who collects the tax.” TGA § 13-901(a)(1). Further, the 

taxpayer may be entitled to interest on the amount of the refund under certain 

circumstances, as provided in § 13-603(a):

Except as otherwise provided in this section, if a claim for 

refund under § 13-901(a)(1) or (2) or (d)(1)(i) or (2) of this title 

is approved, the tax collector shall pay interest on the refund 

from the 45th day after the claim is filed in the manner required 

in Subtitle 9 of this title to the date on which the refund is paid. 

TGA § 13-603(a). 

 A significant exception to the State agency’s obligation to pay interest is that “[a] 

tax collector may not pay interest on a refund if the claim for refund is: . . . based on . . . an 

error or mistake of the claimant not attributable to the State or a unit of the State 

government . . . .” TGA § 13-603(b)(2)(i) (Emphasis added). JPI paid sales tax on the 

printers when it claimed it was not due, but argued before the Tax Court that it was entitled 

to interest on the refund because the error was “attributable to the State.”

III. The Circuit Court Erred in Upholding the Tax Court’s Decision to Require the 

Comptroller to Pay Interest to JPI. 

The Tax Court provided the following findings of fact: 

[JPI] was aware of the exception but determined that equipment 

was not used directly and predominantly in a production 

activity. However, [JPI] knew or should have known whether 

the machines were used directly and predominantly in the 

manufacturing of the brochures. The [Comptroller] was not in 
8

a position to make any determination until after a field audit.[4] 

[. . . ] 

There was no convincing evidence that the various exhibits 

introduced during the informal hearing were any different than 

what was provided to [the auditor] during the course of the sales 

tax audit. Apparently, after reviewing the same documentation 

and information, the Hearing Officer decided that the printing 

equipment did qualify as a production activity within the 

meaning of COMAR 03.06.01-32-2C, and was therefore, not 

subject to sales tax. 

In issuing its final determination, the Tax Court’s rationale was as follows:

The auditor determined, after numerous material and papers 

were reviewed, that the leased equipment was not used directly 

or indirectly in a production activity. This determination by the 

field auditor supports [JPI’s] position that its error or mistake 

in paying the tax was reasonable. Moreover, it is important to 

note that the Hearing Officer who granted the refund also 

reviewed the same material considered by the field auditor. 

The Court agrees with [JPI] that based on its understanding of 

the law, the Petitioner properly paid the tax in order to avoid 

penalty and not run afoul of the [State’s] regulation. 

The fact that the field auditor and his supervisor agreed with 

[JPI], that the tax was due, supports [JPI’s] view that the 

mistake of [JPI] in paying the tax was attributable to the State. 

[JPI] exercised reasonable judgment and should not be 

penalized when the auditors of the State wrongly concluded 

that the tax was due. [ . . . ]

The Court of Appeals in Comptroller v. SAIC, 405 Md. 185 

(2008) adopted the Tax Court’s standard [articulated in DeBois 

Textiles Int’l v. Comptroller, Income Tax No. 1630 (Md. Tax 

Aug. 23, 1985)] for determining “what makes an error or 

mistake ‘attributable to the State’” . . . : 

 

4

Initially, the Tax Court’s findings of fact appeared to acknowledge that the error in 

paying the sales tax was attributable only to JPI. Based on the different findings of the 

auditor and the hearing examiner, however, the Tax Court found the error to be 

“attributable to the State.” 
9

“The Tax Court stated that ‘[a]n error is 

attributable to the State when a taxpayer using 

reasonable judgment under the circumstances is 

led by the laws, regulations, or policies 

expressed by the State to the mistaken 

conclusion that the tax is owed.’” 

* * * 

In the present case, the Respondent denied the claims after it 

had been provided with significant documentation and 

examples of the products produced at the Petitioner’s printing 

facility. [ . . . ] Just as in SAIC case, it is illogical that a 

taxpayer could be said to have made an error not attributable 

to the State where the State took the position that the taxpayer 

was not entitled to a refund after spending months considering 

the taxpayer’s claim for refund. 

The Court finds that the Petitioner used reasonable judgment 

under the circumstances, and was led by the laws, regulations 

or policies expressed by the State to the mistaken conclusion 

that the tax was owed. 

 The Tax Court’s decision in this case relied principally on the holding in SAIC in 

which the Court held that the Comptroller’s final determination letter provided substantial 

evidence that the error was “attributable to the State” -- the second prong of the exception 

to the Comptroller’s obligation to pay interest on tax refunds. See TGA § 12-603(b)(2)(i). 

Based on SAIC and the DeBois standard, the Tax Court reversed the Comptroller’s decision 

to deny interest on the two refund claims and required that interest be paid. 

A. The DeBois Standard and the Holding of SAIC on Error that is 

“Attributable to the State” 

The DeBois standard arose out of a Tax Court decision in which the taxpayer, a 

domestic international sales corporation (DISC), was entitled to apportion part of its 
10 

income outside of the State of Maryland, but erroneously paid tax on 100 percent of its 

income. See id. At the time DeBois paid the tax, the state of the law in Maryland on 

whether DISCs were permitted to apportion income outside of the State was uncertain. 

Once our courts settled the issue, DeBois filed an amended return requesting a refund. 

After initially denying the request, the Comptroller settled with DeBois, agreeing to pay a 

partial refund of $44,728.36, but refused to pay interest. Interpreting the meaning of 

“attributable to the State” in a predecessor to TGA § 13-603(b)(2),5 the Tax Court 

articulated what we refer to as the DeBois standard: “[A]n error is attributable to the State 

when a taxpayer using reasonable judgment under the circumstances is led by the laws, 

regulations, or policies expressed by the State to the mistaken conclusion that tax is owed.” 

SAIC, 405 Md. at 201 (quoting DeBois, 1985 WL 6117, at *1). The Tax Court in DeBois 

then applied that standard in its decision: 

In the instant case, Petitioner’s error consisted of its belief that 

DISCs filing Maryland income tax returns must report and pay 

tax on 100% of their income. This false impression was a 

reasonable interpretation of the State law and policy because 

the issue of whether or not DISCs could apportion part of their 

income outside the State had not been decided by the courts at 

the time Petitioner filed its returns and paid the tax. During 

that time the Comptroller insisted that DISCs report 100% of 

their income on their Maryland returns and any DISC which 

failed to comply was appropriately assessed. It was not until 

1983 that this Court rendered a decision which held that DISCs 

are entitled to apportion part of their income outside the 

State. Thus Petitioner’s mistake was attributable to the State 

and Section 310(c) mandates that interest be paid on the 

resultant refund.

 

5 See Md. Code, Article 81, § 310(c) (1957, 1980 Repl. Vol.). 
11 

SAIC, 405 Md. at 201-02 (quoting DeBois, 1985 WL 6117, at *1). 

 Because the Tax Court found that DeBois was “led by the laws, regulations, or 

policies expressed by the State to the mistaken conclusion that tax was owed,” the error in 

paying the tax on all of its income, and the basis of the refund claim, was “attributable to 

the State.” See id. at 202 (citing DeBois, 1985 WL 6117, at *1). A critical finding in 

DeBois was that, at the time DeBois paid the tax, the State’s policy and its application of 

the law on the issue was erroneous. Before the new Tax Court ruling that settled the issue, 

therefore, it was reasonable for DeBois to assume that the State would continue to apply 

the same erroneous policy to DeBois, despite its own knowledge of its status as a DISC. 

 The Court of Appeals in SAIC reviewed a decision of the Tax Court in which it had 

applied the DeBois standard. SAIC, 405 Md. at 202. Similar to DeBois, the Tax Court 

focused its findings of fact on what prompted SAIC’s erroneous payment of the tax. In 

1995, SAIC -- a research and engineering firm incorporated in Delaware and headquartered 

in California -- purchased 100 percent of shares of stock in National Solutions, Inc. (NSI). 

SAIC reincorporated NSI in Delaware and left its principal headquarters in Virginia. NSI 

provided internet domain registration services worldwide and held valuable rights to act as 

the exclusive registrar for internet domain names with “.com” and other common endings. 

After selling almost a quarter of its NSI shares in 1997, SAIC sold another 9,000,000 of its 

NSI shares in 1999, which resulted in a $715,850,753 capital gain. 

 In 2000, SAIC reported the capital gain on its Maryland income tax return for the 

1999 tax period and paid $4,274,519 in taxes to the State. In 2003, SAIC amended its 1999 

return, seeking a total refund of the taxes paid on the capital gain, asserting that the stock 
12 

“lacked a sufficient nexus to Maryland for the gain to be taxable under the United States 

Constitution and Maryland law.”6

Id. at 189. The Comptroller denied the claim for refund 

on December 18, 2003 in a final determination letter stating, in part, “The State of 

Maryland does not allow a subtraction for the exclusion of capital gain from the sale of 

NSI shares so we are unable to allow the requested adjustment.” 

 The Court of Appeals in Hercules provided that “Maryland may not tax income 

earned outside its borders, even on a proportional basis, unless there is a ‘rational 

relationship between the income attributed to the State and the intrastate values of the 

enterprise.’” Hercules, 351 Md. at 112 (quoting Container Corp. of Am. v. Franchise Tax 

Bd., 463 U.S. 159, 166 (1983)). The Court in Hercules provided that the necessary nexus 

“usually is satisfied by demonstrating the existence of unitary business, part of which is 

carried on in the taxing state to demonstrate the existence of a unitary business.” Hercules, 

351 Md. at 109. The U.S. Supreme Court, in Allied Signal, Inc. v. Dir., Div. of Taxation, 

held that an investment in a subsidiary does not render it part of a “unitary business” where 

it served only as an “investment,” as opposed to an “operational,” function. 504 U.S. 768, 

784 (1992). In a decision on SAIC’s refund claim only, the Tax Court determined, based 

on the Supreme Court’s guidance in Allied-Signal, that “there was no nexus linking the 

gain realized through the sale of NSI stock to any of [SAIC’s] activities in Maryland.” 

 

6

 See Hercules v. Comptroller, 351 Md. 101, 109 (1998), holding that “to levy a tax 

upon [an entity’s] capital gain from the sale of stock, there must be some nexus linking this 

income to activities within the state.” 
13 

SAIC v. Comptroller of the Treasury, No. 04-IN-OO-0632, 2006 WL 2507134 (Md. Tax, 

May 11, 2006). 

 In the Tax Court’s subsequent decision on the issue of whether interest had to be 

paid on the refund, the court found that at the time of SAIC’s erroneous payment of the 

tax, the Comptroller had maintained a policy that was inconsistent with the law. As 

evidence that the Comptroller had applied an erroneous policy when SAIC paid the tax, 

the Tax Court pointed to the Comptroller’s final determination letter, in which the reason 

asserted for the denial was that “[t]he State of Maryland does not allow a subtraction for 

the exclusion of capital gain.” 

 The Court of Appeals affirmed the Tax Court’s decision to reverse the 

Comptroller’s denial of interest on SAIC’s refund claim. SAIC, 405 Md. at 206. The Court 

set out the proper interpretation of the exception in TGA § 13-603(b): 

For this exception to apply to a refund claim, the claim must 

satisfy two elements: 1) it must be an error or mistake of the 

claimant, and 2) it must not be attributable to the State or a unit 

of the State government. If a claim does not meet one of those 

two elements, i.e., it is not an error of the claimant or it is an 

error attributable to the State, interest on the refund must be 

paid. 

Id. at 199. On appeal, the Comptroller had argued that “an error or mistake cannot be 

‘attributable’ to the State unless it was caused by an assessment or other direct action taken 

by the State during the claimant’s original tax filing process.” Id. at 203. The Court pointed 

out, however, that the holdings of Fairchild and Davidson demonstrate that “if the State 

requires a taxpayer to pay some amount by assessment, and the taxpayer faces penalties 
14 

for non-compliance, the taxpayer cannot be said to have made a mistake when it pays the 

required amount.” Id. at 204. The Court continued, 

If the only scenario in which a taxpayer action is attributable 

to the State is when the State actively requires the taxpayer to 

pay a certain amount of taxes, . . . § 13-603(b) would, 

effectively, allow interest on the refund only where no taxpayer 

mistake was made. This interpretation renders the phrase 

“attributable to the State” surplusage, and we therefore reject 

it.

Id.

 Regarding the DeBois standard, the Court looked to dictionary definitions of 

“attributable” as guidance and held the following: 

The commonsense understanding of the phrase “attributable to 

the State” as used in § 13-603(b) means that the mistake or 

error can be said to be caused by the State. The Tax Court’s 

DeBois standard is an articulation of the factual circumstances 

that signify that an error or mistake could be “set down or 

th[ought] of as belonging to, produced by, or resulting from; 

assign[ed] or ascrib[ed] to” the State. The interpretation of 

“attributable” used by the Tax Court is in keeping with an 

“ordinary, popular understanding of the English language.” 

[Bowen v. Cty. of Annapolis, 402 Md. 587, 613 (2007)]. 

Id. at 203. 

 The Court of Appeals held that the Tax Court had relied on substantial evidence 

that, at the time SAIC paid the tax, the Comptroller applied an erroneous policy -- i.e., “the 

Comptroller’s stated position” on whether the State “allow[s] a subtraction for the 

exclusion of capital gain.” See id. at 205-06. Recognizing that Hercules was decided one 

year prior to SAIC’s erroneous payment of the tax, the Court noted that SAIC’s sale of NSI 

stock differed from the taxpayer’s circumstances in Hercules and, therefore, the Tax Court 
15 

was in a better position to determine whether Hercules would have given notice to SAIC 

that the law did not require it to pay the tax. The Court added that “[t]he Comptroller never 

pointed to, and upon an independent examination we do not find, any evidence to contradict 

the Tax Court’s inference” that the Comptroller applied the erroneous policy stated in the 

denial letter when SAIC paid the tax. Id. at 206. 

B. No Substantive Evidence in the Record that JPI was “Led by” a Law, 

Regulation or Policy to Pay the Tax

 The Tax Court’s decision to reverse the Comptroller’s denial of interest to JPI, as 

well as JPI’s argument before the Tax Court and before this Court, is based on the holding 

in SAIC affirming the DeBois standard as a correct interpretation of the phrase “attributable 

to the State.” See TGA § 13-603(b)(2)(i). In addition to affirming this standard, the SAIC

Court held that the Comptroller’s final determination letter denying the refund, which 

stated a position inconsistent with the law, provided substantial evidence that the 

Comptroller applied this erroneous policy at the time SAIC paid the tax. 

 As in SAIC, our decision must be based principally on the plain language of TGA § 

13-603(b)(2)(i). The issue in this case is whether JPI’s refund claim was based on an error 

or mistake of JPI that was “not attributable to the State.” Neither party disputes that JPI’s 

payment of sales tax on the printers to Xerox was a mistake. The Tax Court’s focus, 

therefore, was whether JPI’s mistaken belief that the tax was owed when it paid the tax was 

“attributable to the State.” See SAIC, 405 Md. at 199 (“If a claim . . . is not an error of the 

claimant or it is an error attributable to the State, interest on the refund must be paid”). 

Based on the DeBois standard, the erroneous payment of the tax would be “attributable to 
16 

the State” if JPI, “using reasonable judgment under the circumstances [was] led by the 

laws, regulations, or policies expressed by the State to the mistaken conclusion that tax was 

owed.” Id. at 201. That standard emphasizes the cause of, or what led to, the taxpayer’s 

erroneous payment of the tax. 

 Because the DeBois standard is derived from the requirement that the taxpayer’s 

error be “attributable to the State,” a foundational question for the Tax Court was what was 

the relevant law, regulation, or policy expressed by the State that led to or caused JPI’s 

erroneous payment. Only after the law or policy that led to the error is identified does it 

become relevant whether the taxpayer used “reasonable judgment under the 

circumstances.” See SAIC, 405 Md. at 201. Again, for a taxpayer who mistakenly pays a 

tax that was not owed to be entitled to interest in addition to a refund, there must be some 

reason to attribute fault to the State for the taxpayer’s error. 

 The Tax Court relied on or referred to the following undisputed facts in determining 

that JPI’s error in paying the tax through January 2012 was attributable to the State: (1) JPI 

paid the tax despite knowing of the exemption; (2) JPI “knew or should have known 

whether the machines were used directly and predominantly in the manufacturing of the 

brochures”; (3) JPI “paid the tax in order to avoid penalty and not run afoul of the [State’s] 

regulation”; (4) “[t]he [Comptroller’s Office] was not in a position to make any 

determination until after a field audit,” which occurred after JPI stopped paying sales tax; 

(5) the auditor reviewed a considerable amount of documents and information over a period 

of many months and determined that JPI’s use of the printers did not meet the exemption; 

(6) the auditor continued to maintain his position in his testimony that the use of the printers 
17 

did not satisfy the criteria for exemption -- i.e., that less than fifty percent of the materials 

printed were “for sale or resale”; (7) after the field audit, the Comptroller’s Office denied 

the refund claim based on its conclusion that the majority of items were not for sale; (8) 

JPI disagreed and requested an informal hearing; (9) “[t]here was no convincing evidence 

that the various exhibits introduced during the informal hearing” differed from the 

documentation and information the auditor reviewed; and (10) after an informal hearing, 

the hearing examiner concluded that a majority of the materials were for sale and that JPI 

was entitled to a refund pursuant to the statutory exemption.

 Assuming the Tax Court’s findings of fact were correct and viewing the evidence 

in the record in a light most favorable to the Tax Court’s decision, see SAIC, 405 Md. at 

192-93, we can find no substantial evidence to support the conclusion that JPI was led by 

any law, regulation or policy to its mistaken belief that the tax was due when it paid the 

sales tax. Put differently, we cannot identify what law, regulation or policy JPI could have 

reasonably relied on in reaching its mistaken belief that the tax was owed. Once JPI was 

aware of the exemption, the only uncertainty or mistaken belief we can find in the record 

that prompted JPI’s payment of the tax related only to whether JPI could show -- through 

its own invoices, samples, or other internal records -- what proportion of the materials 

printed during the relevant time period were for sale. See COMAR 03.06.01.32-

2(B)(1)(a)(i). 

 The similarity between this case and SAIC is limited to the fact that, in both cases, 

the Comptroller’s Office initially denied the taxpayer’s claim for a refund. In SAIC, 

however, the letter referenced by the Tax Court was the Comptroller’s final determination 
18 

of whether SAIC was entitled to a refund. Here, the Refund Supervisor within the 

Comptroller’s Office initially notified JPI that it was going to deny JPI’s refund request, 

but that JPI had the opportunity to request an informal hearing. The Comptroller’s Office’s 

final determination, however, after the informal hearing, agreed that JPI was entitled to a 

refund. 

In SAIC, the relevant law at issue related to the constitutional question of whether 

Maryland could require SAIC to pay a tax on a capital gain, even if it had no connection to 

the taxpayer’s activities in Maryland. The taxpayer’s uncertainty when it paid the tax 

related to the Comptroller’s policy for exempting capital gains and whether the sale of NSI 

stock served an “investment” or “operational” function. Id. at 189. There, the Tax Court 

found that the Comptroller’s Office had applied an erroneous policy to whether it permitted 

an exemption under those circumstances at the time that SAIC paid the tax. The Tax Court 

concluded, therefore, that SAIC had used reasonable judgment in erroneously paying the 

tax, despite knowing its own circumstances and that the capital gain had no connection to 

its activities in Maryland. 

 The Court of Appeals held that the Comptroller’s letter, stating an erroneous policy 

for applying the relevant law, was sufficient evidence of the Comptroller’s incorrect 

position on the issue when SAIC paid the tax. Id. at 205-06. This was particularly salient 

evidence of the Comptroller’s policy given the fact that the Comptroller provided no 

evidence, and the Court of Appeals could find none in the record, to contradict the court’s 

conclusion. See id. at 206. Similarly, in DeBois, our courts clarified the relevant law after 
19 

DeBois had already paid the tax; therefore, DeBois’s uncertainty regarding whether the tax 

was due at the time of payment was “attributable to the State.” Id. at 202. 

 In this case, however, neither party’s view of the meaning and application of TGA 

§ 11-210(b) changed from the time that JPI mistakenly paid the tax throughout the 

proceedings before the Tax Court. Nor did JPI express any uncertainty about how the 

exemption would apply to the printers it leased from Xerox. The plain language of the 

statute and its pertinent regulations were clear. JPI never argued that, when it paid the sales 

tax, it believed the Comptroller would apply the requirement that the property be “used 

directly and predominantly in a production activity” in an erroneous way. See TGA § 11-

210(b)(1). Once it was aware of the exemption, JPI clearly understood that the law 

provided a quantifiable measure for making that determination -- i.e., the printers must 

have been “used more than 50 percent of the time directly in production activities.” See

COMAR 03.06.01.32-2(B)(2). JPI knew -- at least, after hiring Massuda -- the criteria it 

needed to satisfy to show that the printers were exempt from sales tax. In fact, JPI 

apparently convinced the hearing examiner that more than fifty percent of the materials it 

printed on the printers were “for sale or resale.” There is no indication in the record that 

any law, regulation, or policy of the State led JPI to conclude that the Comptroller would 

apply the law any differently at the time it paid the tax. 

 More specifically, unlike in SAIC, the letter that notified JPI that its refund was 

being denied provided no support for the conclusion that the Comptroller’s Office’s policy 

for applying TGA § 11-210(b)(2)(i) was inconsistent with the law when JPI paid the tax. 

In SAIC, the significance of the Comptroller’s final determination letter was that the letter 
20 

provided substantial evidence of the Comptroller’s policy, which was an erroneous 

application of the law. See SAIC, 405 Md. at 205-06. In the absence of any evidence to the 

contrary, the Tax Court in SAIC concluded the Comptroller had maintained and applied the 

same position stated in the letter at the time SAIC paid the tax. 

 In this case, the letter at issue was sent by the Refund Supervisor, prior to the 

informal hearing and subsequent final determination, and indicated that it had applied a 

policy that was consistent with TGA § 11-210(b)(2)(i). The letter stated that JPI’s use of 

the printers “[did] not satisfy the state’s determination of ‘used directly and predominately 

in a production activity’ because most of the materials being produced are not for resale.” 

(Emphasis added). Indeed, the policy provided in the letter to JPI relied on exactly the 

same criteria that JPI continues to acknowledge that it was required to satisfy. In other 

words, the dispute that was later settled at the informal hearing, prior to the Comptroller’s 

final determination, related only to the underlying facts and not how the Comptroller’s 

Office applied the law.7

 After requesting an informal hearing, JPI had the opportunity to show the 

Comptroller’s Office that more of the printed materials were “for sale or resale” than the 

 

7

 In addition, unlike the record before the Tax Court in SAIC, there was evidence 

before the Tax Court in this case that the Comptroller had made public its policy for 

applying the sales tax exemption. The Comptroller presented evidence that it had 

published “Business Tax Tip No. 9,” which explained what items were exempt. Regarding 

items that are “used for both taxable and exempt purposes,” the publication explained that 

“the exemption may apply if it is used at least 50 percent of the time, i.e. predominantly, 

in a production activity.” In defining “directly and predominantly,” it provided that “[t]he 

‘predominantly’ test is met if the property is used more than 50 percent of the time directly 

in production activities.” 
21 

auditor initially counted during his field audit and that its use of the printers met the fiftypercent threshold. See COMAR 03.06.01.32-2(B)(1)(a)(i). The hearing examiner 

apparently agreed that more materials were “for sale” than the auditor previously 

determined, that the proportion of printed materials exceeded fifty percent of JPI’s use of 

the printers, and, therefore, that the printers were “used directly and predominantly in a 

production activity.” See TGA § 11-210(b)(1). Pursuant to TGA § 11-210(b)(1), the 

hearing examiner concluded that the printers were exempt from sales tax. Accordingly, the 

Comptroller issued a final determination approving the refund, sent refund checks totaling 

$332,365.00, and did not appeal the hearing examiner’s determination before the Tax 

Court. Particularly where the review of the application included samples representing 

31,000,000 pages of printed materials over the course of more than four years of using the 

printers, it is unsurprising that an informal hearing may have been necessary for JPI to 

clarify to the Comptroller what materials were for sale and should have been counted 

towards the fifty percent threshold. 

 On the issue of interest, the Tax Court’s decision that JPI’s error in paying the tax 

was attributable to the State was based primarily on the fact that the hearing examiner was 

not given any documentation that the auditor had not already had the opportunity to review, 

and yet, the hearing examiner reached a different conclusion. Additionally, the circuit 

court upheld the Tax Court’s decision, finding the fact that the auditor and hearing 

examiner reached different conclusions from the same documents to be substantial 

evidence that the error was “attributable to the State.” The auditor’s and the hearing 

examiner’s differing calculations of the proportion of printed materials that were for sale, 
22 

however, bore no relationship to any expressed policy maintained by the Comptroller in 

applying the exemption in TGA § 11-210(b)(2)(i). That fact certainly did not identify what 

law, regulation or policy could have reasonably led JPI to the mistaken belief that sales tax 

was owed at the time JPI paid the sales tax to Xerox. 

 JPI’s error cannot be “attributable to the State” on the sole basis that the hearing 

examiner, after an informal hearing, counted more materials as “for sale or resale” than the 

auditor did. This is particularly so where JPI’s payment of the sales tax to Xerox occurred 

prior to the initial decision to deny the refund claim and the Office’s stated position for 

doing so reiterated a proper application of the exemption in TGA § 11-210(b)(1). Both the 

auditor and the hearing examiner applied the law the same way – some evidence that more 

than fifty percent of the materials printed were for sale. That they both reviewed the same 

documents and information provided no evidence that the Comptroller had expressed, 

maintained, or applied a policy inconsistent with the law during the period when JPI paid 

the sales tax. 

 Finally, it is important to clarify the element of “using reasonable judgment under 

the circumstances” included in the DeBois standard for attributing the taxpayer’s error to 

the State. See SAIC, 405 Md. at 201. The Tax Court relied on the auditor’s initial 

determination that JPI’s use of the printers did not meet the exemption as evidence and 

provided that “[t]his determination by the field auditor supports [JPI’s] position that its 

error or mistake in paying the tax was reasonable.” Further, the Tax Court explained, “[JPI] 

exercised reasonable judgment and should not be penalized when the auditors of the State 

wrongly concluded that the tax was due.” 
23 

 The phrase “using reasonable judgment under the circumstances” in the DeBois 

standard refers to the taxpayer’s mistaken conclusion based on a law, regulation, or policy. 

In reaching its conclusion that the taxpayer’s error was attributable to the State, the Tax 

Court in DeBois explained, “[the taxpayer’s] false impression was a reasonable 

interpretation of the State law and policy because the issue of whether or not DISCs could 

apportion part of their income outside the State had not been decided by the courts at the 

time Petitioner filed its returns and paid the tax. The Tax Court in SAIC determined that 

SAIC used reasonable judgment in erroneously paying the tax, despite knowing that the 

capital gain had no connection to Maryland, because “the Tax Court inferred from the 

Comptroller’s letter and subsequent denial of SAIC’s appeal that the State’s laws and 

policies at the time SAIC filed the original return required that SAIC pay tax on the sale of 

NSI shares.” SAIC, 405 Md. at 205. 

 There is no evidence in the record that could support the conclusion that JPI, using 

reasonable judgment, misinterpreted, misunderstood, or was uncertain about the law or 

how it applied. Even if JPI had claimed that it was initially uncertain about what proportion 

of the materials printed had to be for sale to meet the exemption’s criteria, it could not be 

said to have used reasonable judgment under the circumstances in reaching a mistaken 

understanding of the law. The statute and the regulations regarding the exemption from 

sales tax were clear, and JPI never claimed to misunderstand the law, or more importantly, 

that the Comptroller maintained a policy in applying the law that was inconsistent with the 

exemption statute. 
24 

 Clearly, it is reasonable to pay any tax the taxpayer believes is owed to the State. 

The risk of penalties and other consequences make that decision especially prudent when 

the taxpayer is not confident from its review of its own information whether it meets the 

criteria for an exemption. The reasonableness of paying a tax, however, is present in every 

case in which the taxpayer believed it was owed at the time it was paid and later learns its 

belief was mistaken. The statute, itself, makes clear that the taxpayer’s mistaken 

conclusion must be “attributable to the State.” TGA § 13-603(b)(2)(i). Requiring interest 

to be paid every time a taxpayer unreasonably misinterprets the law or fails to evaluate its 

own circumstances relevant to an exemption would render this second prong of the statute 

meaningless. As the Court in SAIC explained, “[t]he commonsense understanding of the 

phrase ‘attributable to the State’ as used in § 13-603(b) means that the mistake or error can 

be said to be caused by the State.” 405 Md. at 203. To be entitled to interest, therefore, it 

is not enough to show that the taxpayer misunderstood the law when the tax was paid. The 

State must, in some way, be at fault for the error. 

 In this case, JPI’s Tax Director understood the statutory exemption, discovered JPI’s 

error soon after being hired, applied for a refund on behalf of JPI, and after clarifying the 

total proportion of materials for sale at an informal hearing, recovered more than $337,000 

in sales tax that the company had erroneously paid. Where the error of paying the tax was 

completely within the knowledge and control of the taxpayer, however, and no law, 

regulation, or policy of the State caused the taxpayer’s error, the Comptroller may not pay 

interest in addition to the refund. 
25 

 Upon our review of the record before the Tax Court, we cannot conclude that any 

substantial evidence supported the Tax Court’s determination that JPI was “led by the laws, 

regulations, or policies expressed by the State to the mistaken conclusion that tax [was] 

owed.” See SAIC, 405 Md. at 192. Accordingly, the circuit court erred in affirming the 

Tax Court’s decision that JPI was entitled to interest on the refund. We, therefore, reverse. 

JUDGMENT REVERSED. CASE TO BE 

REMANDED TO THE CIRCUIT COURT FOR 

ANNE ARUNDEL COUNTY FOR REMAND TO 

THE MARYLAND TAX COURT FOR 

ENTRANCE OF A JUDGMENT AFFIRMING 

THE DECISION OF THE COMPTROLLER OF 

THE TREASURY. COSTS TO BE PAID BY 

APPELLEE.