Broadway Services v. Comptroller
272 A.3d 800
Md.2022Background
- Broadway Services (for-profit subsidiary of DOME/JHHS) contracted under lump-sum Hospital Service Agreements (HSAs) to manage janitorial services for three tax‑exempt Johns Hopkins hospitals, including purchasing and supplying cleaning products.
- Broadway bought cleaning supplies from vendors (shipped directly to the hospitals), paid sales tax, and sought a refund of $76,161.96 after a Comptroller audit covering 2007–2011; Comptroller denied refund and assessed additional tax.
- Tax Court rejected a reseller theory but found an implied agency relationship and ordered refunding the sales tax; circuit court affirmed; Court of Special Appeals reversed.
- Key legal questions: whether Broadway purchased as an agent of the hospitals (entitling it to exemption) and whether this Court’s McShain precedent (intermediary contractor exemption) applies to cleaning supplies.
- Court of Appeals held Tax Court misapplied implied‑agency factors and reversed; it also declined to extend McShain because the supplies were not incorporated into the hospitals’ realty.
Issues
| Issue | Plaintiff's Argument (Broadway) | Defendant's Argument (Comptroller) | Held |
|---|---|---|---|
| Whether Broadway was an implied agent of the hospitals when buying supplies | Broadway: purchases were for hospitals, vendors shipped to hospitals, hospitals approved products, Broadway supervised janitorial operations — ergo implied agency | Comptroller: no mutual intent or contractual language creating agency; implied‑agency Restatement factors not met | Court: Tax Court erred; implied‑agency factors (power to alter legal relations, duty to act primarily for principal, principal’s right of control) were not satisfied; reverse |
| Whether McShain contractor rule (intermediary exemption) exempts Broadway’s purchases | Broadway: McShain prevents anomalous result where exempt entity loses exemption if using an intermediary; cleaning supplies should be treated like construction materials | Comptroller: McShain is narrow and applies to property incorporated into realty; prior cases declined to extend it to expendable/consumable items | Court: declined to extend McShain—cleaning supplies were not incorporated into realty, so McShain does not exempt these purchases |
| Whether this Court may affirm Tax Court on McShain grounds though Tax Court relied on agency | Broadway: raised McShain below (briefly) and argues it supports refund | Comptroller: the agency’s final decision did not rest on McShain; courts may not affirm an agency on grounds not relied upon by the agency | Court: generally will not uphold agency on grounds not relied upon by it; because Tax Court ruled on agency, McShain was not a proper basis to affirm (court nevertheless addressed and rejected McShain on the merits) |
| Standard of review: whether Tax Court’s finding is supported by substantial evidence | Broadway: Tax Court’s implied‑agency finding is supported by record testimony and contract practice | Comptroller: record lacks evidence of requisite legal authority, control, or fiduciary duty; Tax Court misapplied legal standards | Court: reviews agency fact findings for substantial evidence but reviews agency application of common law agency de novo; concluded factual record and legal analysis did not support implied agency |
Key Cases Cited
- John McShain v. Comptroller, 202 Md. 68 (1953) (contractor’s purchases of building materials incorporated into realty were exempt via intermediary)
- Green v. H&R Block, Inc., 355 Md. 488 (1999) (identifies three factors for implied agency and emphasizes parties’ intent)
- Ramsay, Scarlett & Co., Inc. v. Comptroller, 302 Md. 825 (1985) (substantial‑evidence standard for agency factual findings)
- Frey v. Comptroller, 422 Md. 111 (2011) (deference to agency legal interpretations limited; purely legal issues reviewed de novo)
- Brooks v. Euclid Sys. Corp., 151 Md. App. 487 (2003) (illustrative analysis of principal’s right to control and limits on agency inference)
- James McHugh Constr. Co. v. Comptroller, 291 Md. 48 (1981) (declines to extend McShain to purchases not incorporated into realty)