Court Opinion

ID: 9719477
Source: CourtListenerOpinion
Date Created: 2023-08-26 07:54:08.879189+00
Date Added: 2024-06-11T18:24:07.645138
License: Public Domain

Murphy, C. J.,

dissenting:

The Court holds that the Comptroller’s assessment of a use tax upon the full amount of the "monthly charge” made by Quotron to its Maryland subscribers was in error. It concludes that no part of that charge is subject to the tax, thus reversing the judgment of the Baltimore City Court, which upheld the Tax Court’s affirmance of the Comptroller’s assessment. I dissent from that conclusion and give my reasons.
Quotron provides to its subscribers information services and computer hardware upon which to receive the services. At issue is the extent to which the transactions between Quotron and its subscribers are subject to the Maryland Use Tax. Maryland Code (1957, 1975 Repl. Vol., 1979 Cum. Supp.), Art. 81, §§ 372-402.
Quotron offers its subscribers about fifty types of information services, including displays of stock exchange tickers, prices and sales of certain securities, and headlines of news stories from various wire services. Quotron’s information service originates in New York City, where information is continuously received and programed into computers. Information stored in these computers is transmitted to Maryland subscribers over leased telephone *190and telegraph lines via a regional computer center in Philadelphia. The regional computer stores and retransmits the information to á computer hardware system provided by Quotron and installed in individual subscribers’ offices. Consisting of a communications computer, keyboards and display units, the computer hardware system gives the subscriber access to the information services. Through operation of the keyboard, the information stored in the New York or Philadelphia data base is transmitted to the subscriber’s office computer which processes the transmitted information for observation on the subscriber’s display units.
The cost of the hardware is about twenty percent of the costs incurred by Quotron in providing the information services. Although a subscriber may use Quotron’s hardware to obtain access to its own private data base, no evidence in this case established such a use. All of the hardware provided to subscribers is owned, installed, maintained and insured by Quotron. Subscribers are contractually bound to pay Quotron a "monthly charge.” Encompassed within this charge are three elements. Each subscriber pays a uniform "basic service charge”; in addition, there is a separate charge for each type of information service received, and a separate charge for additional keyboards or display screens.
Section 373 of the use tax statute imposes an excise tax on
"the use, storage or consumption in this State of tangible personal property and certain services purchased within or without this State....” (Emphasis supplied.)
Section 372 (d) defines " 'Use’ ” to mean
"the exercise by any person within this State of any right or power over tangible personal property purchased either within or without this State ....” (Emphasis supplied.)
Under the preceding two provisions, it is evident that a *191"purchase” is a prerequisite to imposition of a use tax. The term " 'Purchase’ ” is defined in § 372 (f) to mean
"the acquisition for a price by any person of taxable services or tangible personal property which is used, stored or consumed within this State. A transaction shall be deemed to be a purchase if the acquisition of tangible personal property was effected by:
(1) The transfer, either conditionally or absolutely, of title or possession or both of the tangible personal property.
(2) A lease, rental or grant of a license to use (including royalty agreements), store or consume the tangible personal property.” (Emphasis supplied.)
The tax imposed is calculated upon the "price” charged for the "purchase.” 1 The term " 'Price’ ” is defined in § 372 (g) to mean
"the aggregate value in money of any thing or things paid or delivered, or promised to be paid or delivered by a purchaser to a vendor in the consummation and complete performance of a retail sale without any deduction therefrom on account of the cost of the property sold, cost of materials used, labor or service cost, or any other expense whatsoever. Trice’ shall be deemed to be the amount received exclusive of the tax hereby imposed provided the vendor shall establish to the satisfaction of the Comptroller that the tax was added to the price. . . .”
Section 372 (h) defines a " 'Retail sale’ ” to mean
"all sales in any quantity or quantities of tangible personal property, or services taxable under this subtitle, within or without this State.”
*192Section 376 imposes responsibility upon Quotron as a vendor making sales of tangible personal property or services subject to the use tax to collect the tax from the purchaser; should the vendor fail to do so, § 380 provides that it will be personally liable for the payment of the taxes due.
The Comptroller assessed the use tax on the full amount of Quotron’s "monthly charge” on the theory that Quotron engaged in a taxable transaction where, for a "price,” it transferred possession of tangible personal property to its subscribers. He maintained that the information service was an integral part of the transaction pursuant to which the computer hardware was transferred to Quotron’s subscribers; and that consequently the full amount of the monthly charge, including that part allocable to the receipt of information services, was taxable since the statutory definition of "price” prohibited a deduction of service cost from the charge for the property.
The Tax Court concluded that the entire monthly charge was subject to the use tax. It found that Quotron’s primary purpose was to provide a financial information service, and said it was "a service which is being taxed in this case.” It held, however, that the transfer of possession of the computer hardware to Quotron’s subscribers subjected the transaction to a use tax on the amount of the monthly charge because the equipment was so indispensable to the service function that it was impracticable to carry out that function without the transfer of the property.
The Baltimore City Court (Kaplan, J.) affirmed the assessment on appeal, stating that the tax was properly levied "on the equipment leased to Quotron’s subscribers.” It accepted the Comptroller’s argument that Quotron’s information service was not being taxed by and of itself, but rather the tax was based on the transfer of possession of the equipment to Quotron’s subscribers. What was being taxed, the court said, was the transfer of tangible personal property, and if the service was also being taxed, it was because it was part of the "price” of the property transferred. The court concluded:
"Quotron should have paid a use tax on the fees it collected for equipment transferred to the *193subscribers of its information service. The subscribers have possession of the equipment, since they can use it whenever they wish and it is located at their premises, rather than at the premises of the Company. The equipment is an integral element of the entire operation, and a tax on its use is within the ambit of the statute providing for a tax on the use of tangible personal property.”
It is undisputed that Quotron has paid on its own behalf a Maryland use tax on the value of all computer hardware which it has brought into the State. It has done so on the theory that it, rather than its subscribers, uses the equipment as the means by which it communicates its information services. It suggests that the equipment is of no utility to subscribers in and of itself, since their only concern is to obtain information. It argues that no additional use tax should be collected on the amount of the monthly charge paid by its subscribers for several reasons. First, it contends that a use tax on the monthly charge would be a tax on a service, and that the term "certain services” in § 373 is so vague as to prevent imposition of a use tax on any service. This argument is based on the fact that § 373 fails to specifically describe or enumerate the types of services that are taxable. Quotron further asserts that nothing else in the use tax subtitle aids in determining the services subject to the use tax. According to Quotron, § 373 creates a doubt as to whether the service it renders is subject to the use tax, and that when doubt exists, a tax statute must be construed against the State. See Comptroller v. Mandel Re-election Com., 280 Md. 575, 580, 374 A.2d 1130 (1977); Fair Lanes v. Comptroller, 239 Md. 157, 162, 210 A.2d 821 (1965).
Quotron also argues that to subject tangible personal property or services to the Maryland use tax there must be a "purchase.” To constitute a purchase, Quotron maintains that there must be an acquisition for a "price” of tangible personal property, either by a sale, a lease or a rental, or by the delivery of title to the equipment. Quotron argues that its transactions with its subscribers involve none of these elements and consequently no part of the monthly charge is *194taxable. It contends further that it does not transfer possession of computer hardware to its subscribers within the contemplation of the use tax statute, or the Comptroller’s regulations because it does not relinquish control over the equipment.
At oral argument, counsel for the Comptroller appeared to concede that a use tax cannot be collected on the purchase of a service per se. Seizing upon this concession, and applying the "dominant purpose” test articulated in Comptroller v. C & P Tel., 241 Md. 345, 216 A.2d 717 (1966), the majority has concluded that the essence of the agreement between Quotron and its subscribers was to render a service and, therefore, no part of the monthly charge, even that allocable solely to the transfer of the computer hardware, was subject to the tax.
Of course, whether services are subject to the use tax is a matter of law, governed by rules applicable to the construction of statutes, rather than by concessions made by the litigants. In this regard, it is patent that the legislature intended to subject services to the imposition of use taxes because, in unmistakable language, it so provided in the statute. Construed in the context of the use tax subtitle, and read in relation to the complementary sales tax subtitle, the use tax statute provides a sufficiently certain meaning of taxable services. Evidence of a broad legislative intent to tax services is found in the key statutory terms in § 372. The terms in this section — vendor, purchaser, purchase and price — are all defined in terms of assessing a use tax on services. The term "certain services” is limited only to the extent of the applicability of the exclusion of specified services in § 372 (g) (1) and (2). The sales tax subtitle similarly provides a broad concept of what constitutes a taxable service, §§ 324 (d), (f), 325, and is limited only to the extent of express exclusions. See §§ 324 (i) (1) and (2), 326. The services within the scope of § 373 may be determined with reasonable certainty when read in the context of the use tax subtitle, with attention focused on the key definitions of § 372, and when § 373 is viewed in relation to the sales tax subtitle.
*195Whether the services are taxable or not under the statute, or whether the dominant purpose of the transaction between Quotron and its subscribers was to render a service, rather than to transfer or lease tangible personal property, is not, however, determinative of whether a use tax may properly be levied upon the monthly charge or any part thereof. Although the Comptroller’s position is that the purchase of a service by itself is not taxable, he claims that under the definition of "price” in § 372 (g) a service which must be contemporaneously acquired and paid for in the consummation of a transfer of tangible personal property is subject to the tax. At oral argument, the Comptroller made it plain that he seeks to impose a use tax only on that part of the monthly charge attributable to the transfer of possession of the basic hardware items and, in addition, to that part of the monthly charge allocable to information services provided to the subscriber, and for which it must pay, before Quotron will install the computer hardware on the subscriber’s premises. According to the Comptroller, the minimum "package” which the subscriber must agree to accept before the computer equipment can be obtained includes the basic hardware items and a specified number of information services at a fixed price. The acquisition of optional information services by the subscriber, included as a part of the monthly charge, is apparently not considered by the Comptroller to be subject to the tax because these services need not be purchased in order to obtain the computer hardware; hence, they are not tied to the equipment and do not constitute any part of the "price” paid for the purchase. However, the Comptroller maintains that hardware items transferred to the subscriber in addition to those included as a part of the uniform basic service charge, and included within the monthly charge, are properly subject to the tax.
Without regard to whether a service may be subject to a use tax, nothing in Comptroller v. C & P Tel., supra, undermines the position taken by the Comptroller. The issue in C &P was whether a transaction fell within an exemption under the Retail Sales Act for communications services. *196There, the telephone company furnished both teletypewriter equipment and services to its subscribers. The Court applied a "dominant purpose” test to determine whether the monthly charge collected by C & P constituted a fee for rental of equipment or whether the charge was for services. Although the dominant purpose test was there properly utilized to effectuate the legislative intent — the issue being whether a transaction as a whole was intended to be exempt from the sales tax — that test is irrelevant where, as here, the transaction does not fall within such an express statutory exemption. On the contrary, the clear language of § 372 (g) should be given effect, and the use tax imposed on the basis of the "price” paid for the equipment, together with the information services which must be acquired as a condition to obtaining the equipment.2
That the transfer of possession of tangible personal property is a taxable event under § 372 (f) is entirely clear. Notwithstanding the degree of control which Quotron exercises over the computer hardware, there is no merit in the argument that possession of the property was never transferred to Quotron’s subscribers. Indeed, the hardware is placed on the subscriber’s premises in locations which it designates. The subscriber is contractually responsible for safekeeping the equipment that is located within its office. Access to the information stored in the computer banks may *197be obtained at the subscriber’s discretion through operation of the keyboard. The fact that the computer hardware was under the direction of subscribers is not diminished by the fact that Quotron also maintained a measure of control over the equipment. That two parties exercise varying degrees of control over the hardware does not mean that the party with less control has no control or direction over the equipment. Section 372 recognizes that one party may have direction over the property even though another party retains an ownership interest in it. This is reflected in the provisions of § 372 (f) which recognize that title need not pass in order to constitute a taxable transfer of possession of tangible personal property.
I thus conclude, consistent with the position of the Tax Court and the Baltimore City Court, that the transfer of possession of the equipment to Quotron’s subscribers was an event subject to imposition of the use tax. At the least, the tax should be calculated on the amount of the monthly charge which represents the price paid for the "purchase” of the hardware that was conditionally transferred to Quotron’s subscribers for the length of the contract. Additionally, I would impose the tax on the price paid for those information services inextricably related to the transfer of the equipment, without payment for which the equipment itself could not be acquired, and also upon hardware items additional to those minimally required under the agreement.
This use tax liability is different from and in addition to the use tax already paid by Quotron with respect to its own use of the computer hardware brought into the State. Both Quotron and its subscribers use the equipment, and both uses are separate and distinct taxable privileges. Quotron’s use tax liability is controlled by the same principle found in decisions imposing a sales tax upon both the purchase of cars by a rental car business and on consumers who rent the cars. See Herbertson v. Cruse, 115 Colo. 274, 170 P.2d 531 (1946); Ryder Truck Rental, Inc. v. Bryant, 170 So. 2d 822, 825 (Fla.1964). Thus, Quotron is liable under the Maryland use tax on two grounds. It must pay a use tax on the value of the *198hardware that it brought into Maryland and, pursuant to § 380, it is liable to pay, on account of its subscribers, a use tax on that part of the monthly charge which the Comptroller contends was properly subject to the tax.

. The rate of tax is currently 5%.

. Quotron argues that the information service it provides to its subscribers is within the telecommunications exemption of Art. 81, § 326 (bb), as made applicable to the use tax subtitle through § 375 (b). The exemption provides:
" Telephone, telegraph, etc., messages or service. — The sale of or charges for telephone, telegraph, or other telecommunication messages or service; provided that this exemption shall automatically terminate, without further action by the General Assembly, and such sales or charges shall become taxable under this subtitle, to be collected upon original statements and billings made on or after the effective date of federal legislation reducing or eliminating the rate of federal excise tax upon such sales or charges, to one percent or less.”
Contrary to Quotron’s position, this section is applicable only if the transaction at issue is, or was at one time, subject to the federal excise tax. The record makes no mention of whether Quotron’s monthly charge is subject to federal excise tax, and therefore in the absence of proof to the contrary, it appears that Quotron is not subject to the federal excise tax, and therefore the exemption is inapplicable.