Opinion ID: 2336579
Heading Depth: 2
Heading Rank: 2

Heading: Administrative History

Text: CCSC filed personal property tax returns with the Maryland State Department of Assessments and Taxation (hereinafter SDAT) for the machinery and equipment at its Baltimore facility for the 1997-1999 tax years. CCSC did not report any of its personal property as manufacturing property and stated that the nature of its business in Maryland was exportation of coal. According to SDAT, CCSC's personal property, based on its returns, was assessed as follows: Date of Amount of Assessment Tax Year Assessment Notice (Baltimore City) 1997 5/20/97 $14,917,720 1998 1/7/99 $14,596,480 1999 11/23/99 $13,212,260 On May 19, 2000, CCSC filed amended returns for 1997-1999, and submitted an exemption application for manufacturing and research and development, stating that most of its property was used in manufacturing. CCSC sought to amend its returns for the prior three-year period for 1997-1999 based on SDAT's practice at that time under Section 14-505 of the Maryland Tax-Property Article, [1] which allowed a taxpayer who had failed to report [cost or market] information accurately [to] appeal the value or classification of personal property set forth in the notice of assessment ... within 3 years of the date of the notice of assessment by filing an amended return reclassifying the property. In addition to its effort to amend its 1997-1999 returns in order to receive the manufacturing exemption for those years, CCSC claimed in its 2000 tax return that its equipment was used in manufacturing and that the nature of its business in Maryland was coal blending instead of exportation of coal. On January 21, 2001, SDAT rejected CCSC's application for a manufacturing exemption, denied CCSC the manufacturing exemption for the years 1997-2000, and issued a notice of assessment for CCSC's property at $12,641,700 for 2000. On February 7, 2001, CCSC appealed the notice of assessments and requested a hearing with SDAT, which held an informal hearing on May 10, 2001. On August 16, SDAT issued final notices of assessment to CCSC and concluded that: 1) [CCSC] did not timely file an application for the exemption for the tax year under review. 2) Tax-Property Article §§ 14-906 and 14-915 restrict the time for a refund based on a missed exemption to one year. 3) [CCSC] is not legally entitled to a manufacturing exemption. The final assessment notices also indicated the following assessments for the years 1997-2000: Date of Amount of Assessment Tax Year Assessment Notice (Baltimore City) 1997 8/16/2001 $13,362,510 1998 8/16/2001 $13,097,690 1999 8/16/2001 $12,825,400 2000 8/16/2001 $12,641,700 During the time CCSC was appealing the assessments, SDAT revised its practice with respect to the limitations period regarding the manufacturer's exemption. Prior to its change in practice, SDAT allowed taxpayers to file amended returns seeking a manufacturer's exemption for up to three prior years pursuant to Section 14-505(a), the general limitations period allowed for reclassification of personal property. [2] On August 14, 2001, SDAT issued to its staff an internal memorandum stating that a one-year limitations period applied to taxpayers seeking a manufacturer's exemption for prior years in conformance with Sections 14-906 [3] and 14-915 [4] of the Tax-Property Article. On September 13, 2001, CCSC appealed to the Maryland Tax Court the final notices of assessment that SDAT had issued on August 16. The State Department of Assessments and Taxation and the Mayor and City Council of Baltimore responded. Judge Steven E. Silberg of the Tax Court held a two-day hearing on May 8, 2002 and June 13, 2002. On June 26, 2002, in an oral decision, Judge Silberg upheld SDAT's assessments. Judge Silberg determined that CCSC operated a storage and shipping facility, noting that storing and shipping are non-manufacturing activities under Maryland Code, Section 7-225(c) of the Tax-Property Article, which states that [p]roperty does not qualify for the exemption under this section if the property is used primarily in administration, management, sales, storage, shipping, receiving, or any other nonmanufacturing activity. [5] Judge Silberg also concluded that CCSC did not qualify for an exemption under Section 1-101(r), the general provision defining manufacturing in the Tax-Property Code, [6] because the provision defines manufacturing as the process of substantially transforming, or a substantial step in the process of substantially transforming, tangible personal property into a new and different article of tangible personal property by use of labor or machinery. He stated: Clearly, they are receiving coal primarily from their mine in Pennsylvania, though, in addition, they get some coal from some other sources. It arrives by train. It is removed from the train and put into piles [at] the facility. And in order to satisfy demand from customers, removed from those piles and either shipped by boat or train to the customer. In between those two events there is some fairly sophisticated process of blending that's taking place. The blending is to allow the meeting of specific requirements of the customer for sulphur, primarily, but also for possibly other chemical characteristics of the coal. This blending process can take place either in the way the coal was stacked or the way the coal is removed from the cars or using some combination of the variety of equipment that's at the facility. I think the testimony was fairly clear that [the] individual nuggets of coal that arrived are shipped out without any change occurring to them. The blending process may change, which other nuggets of coal are combined to that one when it's shipped. It may not be the entire batch it arrives with. It's my determination that this whole process is not a substantial transformation or a substantial step in the process of substantially transforming this coal. The coal is pretty much the same form when it leaves as when it arrives. Judge Silberg further found that Section 1-101(r)(2)(ii), which specifically includes within the definition of manufacturing the operation of machinery and equipment used to extract and process minerals, metals, or earthen materials or by-products that result from the extracting or processing, did not apply to the CCSC facility either because it's fairly clear that the facility in Maryland doesn't extract any minerals.... You have to do both extracting and processing to apply to that section. Judge Silberg also noted that CCSC had classified itself as a transportation facility of some sort in documents that were filed with the government such as environmental reports. Finally, with respect to CCSC's argument that it was entitled to the three-year limitations period for the purposes of retroactive relief instead of one year, Judge Silberg acknowledged that this [was] a change in the way [SDAT] had been doing things but found that the Tax Code dictate[d] that the shorter time period [was] the appropriate one. Judge Silberg issued an order affirming SDAT's assessments on July 23, 2002.