*1
(1993),
Goldsborough,
Md.
624 A.2d
trust,
attorney-client
is based on
relationship
“[t]he
with the
client
necessarily placing
attorney
total
trust
and the
attorney
Culver,
to act in
pledging
the client’s best interest.”
It is clear from our analysis respondent’s conduct was laced dishonesty with breach of trust. The only appropriate sanction is disbarment.
IT IS SO ORDERED. RESPONDENT SHALL PAY ALL TAXED COSTS AS BY THE CLERK OF THIS COURT, INCLUDING THE ALL TRAN- COSTS OF SCRIPTS, 16-515(c), PURSUANT TO MARYLAND RULE FOR WHICH SUM ENTERED JUDGMENT IS IN FA- THE VOR OF ATTORNEY GRIEVANCE COMMISSION MARYLAND OF AGAINST VIRGIL DUANE PARKER.
Oct. 2005. *4 (J. Curran, Romine, Atty. Joseph Asst. Gen. Leslie Moore brief), Jr., Gen., Atty. appellant. on for (Morrison LLP, York A. & Foerster New Michael Pearl Winner, LLP, Baltimore, Levine, on Fisher & Stuart City, brief), appellee. WILNER, BELL, C.J., RAKER,
Argued before GREENE, CATHELL, HARRELL, JJ. BATTAGLIA GREENE, J. computer of a lease for
This case involves termination a fee paid We are asked to decide whether equipment. preliminary terminate the lease is taxable. Two lessee to (1) question: pay- reside this whether questions within to a transaction that can be defined pursuant ment made “sale,” of the relevant Tax General meaning as a within (2) sections, made pursuant if the Article “sale,” paid the amount constituted whether hold that the fee “taxable of the lease transaction. We price” therefore, and, not a “sale” to terminate lease was subject to tax. sales
FACTS Communications, May Citicorp International On (“Master Lease”) (“CICI”) agreement entered into a lease Inc. (“IBM”) for that CICI computer equipment with IBM Credit January MD. In Spring, used in its data center Silver *5 extended the lease an term. parties the additional On 3, 1998, computer CICI decided to its September upgrade a release obligations from the of its equipment sought IBM. lease with 20, 1998, negotiated CICI and a termi-
On October IBM (“Termination agreement Agreement”) nation which released 1, from Lease of obligations, its Master as November CICI 1998. Pursuant to the Termination CICI re- Agreement, the equipment paid turned old to IBM and a termi- computer $7,219,998. addition, purchased fee of replace- nation CICI $7,387,800, at equipment ment from IBM a cost of plus sales $369,390. tax of
Initially, pay did not sales tax on lease CICI the termination 1, 1998, On December IBM another fee. submitted invoice to fee, for sales tax on termination in the CICI the amount of $360,999.90. tax, April On CICI the sales even though it doubted to obligation pay its the tax. On April anonymous CICI made an request, through Christine M. Oates, KPMG, LLP, a Manager accounting at the firm of to Maryland Comptroller the for a on Treasury ruling Dawson, termination taxability fee. James the Assis- Legal tant Comptroller, Director of the Office respond- letter, ed to the request by dated June 2000. Dawson to ruling” “declined issue a formal but declaratory agree did to the question informally. answer Dawson framed the question him before the Maryland “whether and use tax applies sales payments to termination made for early termination of a of tangible lease personal property property subject when the lease required to the is to be returned to the lessor and title to tangible personal property does not to the pass lessee.” Noting that the regulations statutes and do address termi- fees, that, nation Dawson concluded ... termination fee is a charge by imposed [t]he lessor on the lessee to terminate the lease agreement and relieve of the parties each from the requirements the lease agreement. The property agreement be returned to the lessor title lessee and will not in any way vest lessee. is an agreement your request as described
termination separate apart agreement from the lease agreement appear requirement and does not to be condition *6 Therefore, the be termination fee cannot agreement. complete deemed consideration in the “consummation and The provided ll-101(j). of a in performance sale” “taxable termination fee would not be considered thus, to the sales Maryland and would not be price” and use tax. 5, 2000, Tax filed a Sales and
On CICI Use September Comptroller with the a refund seeking Refund Application tax on the termination fee. The Comptroller’s sales file docu- Supervisor requested Refund CICI additional 29, 2001, January and on application, ments with its CICI Refund those documents. Application along refiled its with 30, 2001, July denied By Supervisor letter dated Refund 28, 2001, held On request. September Comptroller CICI’s 4, 2002, January matter. hearing an informal on the On Determination, a Comptroller denying issued Notice of Final the refund. Maryland Tax Court and on Novem- appealed
CICI 6, 2002, oral on the matter. arguments ber the court heard The to the facts parties stipulated presented relevant and 2004, 23, to the court. On the Tax Court argument February that, Comptroller. The Tax found under reversed Court the lease termination “released its interest agreement, CICI and of all equipment obligations the leased was relieved 1, to such after 1998.” The respect property with November and unambiguous provisions court concluded “the clear Agreement Lease Lease the Master and the Termination title of to the any the lack of transfer of the leased the lease termination Petitioner establish that to a transaction that is a ‘sale’ as defined pursuant made § by 101(g).” 11—
The Court for Balti- Comptroller appealed Circuit a on City. hearing more That court held on matter and 2004, 24, August affirmed Tax Court’s decision. later Comptroller filed Motion Reconsideration Subsequently, Comptroller denied the Circuit Court. by the case was timely appeal. pending noted While there, but before a decision we Special Appeals, Court Comptroller certiorari on our initiative. v. Citi- granted own (2005). corp, 385 Md. 869 A.2d
STANDARD OF REVIEW
687, 697-98,
As stated in
319 Md.
Comptroller,
CBS
(1990),
reviewing
A.2d
court must affirm
“[a]
[the
decision
the Tax Court if its order ‘is not erroneous as a
of]
law,’
supported
matter of
and if the order ‘is
substantial
”
appearing
Ramsay,
the record’
Scarlett
(quoting
evidence
Comptroller,
& Co. v.
302 Md.
490 A.2d
1300-01
(1985)).
that,
explained in
& Co.
“the
Ramsay,
We
Scarlett
determination,
Tax Court’s decision is based on a factual
*7
law,
no
reviewing
there is
error of
court
not
may
reverse
Tax
if
sup
Court’s order
substantial evidence of record
Co.,
ports
agency’s
Ramsay,
decision.”
Scarlett &
302
omitted).
834,
(internal
490
Md. at
A.2d at 1301
citations
are not at
liberty
judgment
We
to substitute our
role is to
expertise
agency. Our
accord deference
to an
it
agency’s interpretation of a statute which
administers.
Vann, 382
County Department
Charles
Social Services v.
of
286, 295-96,
313,
(2004)(stating
Md.
855 A.2d
319
that a court
deference to an
gives
agency’s legal interpretation of its own
regulations);
statute or
Board
Physician Quality Assur
of
Banks,
that,
ance v.
354 Md.
Furthermore,
that the
decision
recognizing
agency’s
valid,”
is
facie correct
“prima
presumed
“we must review
decision in
agency’s
light
most favorable to it.” Ram
Co.,
835,
say, Scarlett &
evidence the inferences.” agency it is for the to draw the same evidence Id. of the tax law interpretation note that the
Finally, we
law, the
of fact and
resolution
question
can be a mixed
Corp. Comptroller,
agency expertise. NCR
requires
which
(1988)
133-134,
764,
that
118,
(stating
313 Md.
544 A.2d
of fact and law
involving
questions
mixed
“determinations
if,
exper
to the Tax Court’s
deferring
be affirmed
after
must
correct,
is
a
the decision
presumption
tise and to
Tax
conclu
mind could have reached the
Court’s
reasoning
omitted).
Vann,
sion.”)(internal
marks
also
quotation
See
(stating
A.2d at 320
review
“[deferential
Md. at
in order
appropriate
of law and fact is
questions
over mixed
exper
exercise its
to fulfill its mandate and
agency
for the
that,
CBS,
tise”);
(noting
In the instant issue whether Lease is of the “taxable of the Master part price” nation fee is (1) hinges a of that on two factual issues: question law (2) sale, of and the Lease Termi termination fee Therefore, Master Lease. Agreement part nation
165 the termination fee is subject whether to sales tax is a mixed of and question compels law and fact a certain deference to the Tax decision. Court’s
DISCUSSION
The resolution of the
in this case
question
depends
interpretation
application
on the
and
of sections of the Tax
provisions
General Article and related
of
begin,
COMAR. We
therefore,
awith
review of the rules of statutory interpreta
“
tion. Our
is to
goal
‘ascertain and effectuate the intention of
”
the legislature,’ and
begin
by reviewing
we
exercise
statutory language itself. Rockwood
Insurance
Casualty
Co.
Uninsured,
Fund,
99, 108,
v.
Employers’
385 Md.
867 A.2d
(2005)
1026,
Connors,
24,
1031
(quoting
35,
Oaks v.
Md.
339
“
423,
(1995)).
Oaks,
660 A.2d
429
As
explained
‘if the
statute,
construed according
words
to their common and
everyday meaning, are clear and
and
unambiguous
express a
plain meaning,
give
we will
effect to the statute as it is
” Oaks,
35,
written.’
Section of the Tax General Article provides that a “(1) sales use tax is on imposed State; a retail in the sale (2) use, State, in the of tangible personal property or a (1988, 11-102(a) taxable service.” § Md.Code 2004 Repl.Vol.), of the Tax addition, General Article. § 11-103 provides that there is a rebuttable presumption any “that sale in the is subject State to the sales and use tax under imposed 11- 102(a)(1) ...” and that person required pay “[t]he the sales
166 burden of that a sale in the State proving and use tax has the (1988, subject sales tax.” Md.Code 2004 and use Article. § 11-103 Tax General Repl.Vol.), (i) “sale” 11-101 of Tax General Article defines Section as
(i) of to be title is transferred or is possession or means, in- absolutely conditionally by or any transferred lease, rental, of a cluding royalty agreement, grant or by use; or license for
(ii) person. a a for another person service performs ll-101(i) (1988, of Repl.Vol.), § 2004 the Tax Gener Md.Code “sale,” explanation al Article.1 In further of the definition of a 03.06.01.28of COMAR provides: Section absolutely possession, conditionally A. The transfer of or means, a consider- by any tangible personal property of for ation, lease, rental, of royalty agreement grant or by way of “lease,” use, regulation a license referred to in this as a for definition of term statutory is included “sale” within specific and is tax in the absence of a thus exemption or exclusion. separate
B. Each is considered a payment period lease, sale, for the determin- separate purpose and thus tax is to be ing paid. when the collected (l) of the Tax Article “taxable Section 11-101 General defines value, in kind money, any of the consideration of price” “the delivered, to a payable, by buyer that is or deliverable paid, a, complete performance vendor the consummation and or cost....” any expense sale without deduction Md.Code 11-101(0 (1988, § Tax Article 2004 Repl.Vol.), General added). (emphasis 11-102, the imposition §
As made clear sales (1988, instance, in the first a sale. Md.Code requires, tax 11 of the Article define the 1. We note that Title Tax General does not Article, 2A-103(j) how- term "lease.” Section ever, of the Commercial Law right possession "a and use defines the term as transfer of (1975, goods in return for a term for consideration....” Md.Code Repl.Vol., Supp.), 2A-103Q) of the Commercial Law Arti- cle. In keeping Tax Article. § 11-102 of the General Repl.Vol.), price” “taxable definition of statutory concept, with com “in consummation and consideration includes *10 (1988, Repl.Vol.), a sale.” Md.Code plete performance of added.) 11-101(l) (Emphasis Article. of the Tax General § sales tax is Moreover, 11-103, the that presumption under exist if the taxpayer, only on the proof the burden of owed and (1988,2004 actually is a sale. Md.Code question transaction Considering Tax Article. § 11-103 of the General Repl.Vol.), regulatory provisions and language statutory plain the in this if at issue it is clear that the transaction question, transaction, “sale,” for the paid case is not a the consideration definition, of the “taxable and cannot part price,” cannot be by tax. subject be to sales and use CICI and IBM 6.1 of the Master Lease between
Section and shall that is “absolute and unconditional provides payment off, defense, abatement, reduction, set any not be counterclaim, recoupment any deferment or interruption, whatsoever, that such shall be and payments reason and argues Comptroller continue to be in all events.” The payable Lease, that, “there is no out of language, way under this payments and total of all rental complete payment short of result, Comptrol- Lease.” As a inception due at the entered into Agreement ler that the Termination asserts all, at separate agreement and IBM but CICI was not existing Comptroller an amendment to the lease.2 The merely that the Termination fee “to meet argues because CICI argument agree- support the termination 2. As additional for his that Lease, Comptroller points separate was not from the ment Master Agreement with the same the fact that the Termination was labeled supplements,” identification number as the "term lease documents that agree persuaded by parties are of the Master Lease. We are not all argument, appears that as it to us to elevate form over substance. (b) (d) paragraphs of the Master Comptroller's contention that Agreement Supplement” a "Term Lease Lease render the Termination similarly unconvincing. is Agreement interpret Lease based on We the Termination and Master documents, on the basis of the a review of contents of those Lease, complete pre-existing obligations its under of this fee constitutes ‘consummation and payment complete sale,’ performance of a and is therefore a of ‘taxable subject to sales tax.” price’ First, Comptroller’s argument.
There are two flaws in the argument ignores language Master Lease seemingly an and uncondi- provides exception “absolute Second, tional” 6.1. mis- language argument Section characterizes the nature of the termination transaction be- tween IBM and CICI. Lease, “[njeither provides
Section 14.1 of the Master may this Master Lease nor be any Equipment Schedule altered, modified, terminated or discharged except by writ- alteration, ing signed by party against whom such modifi- cation, termination or discharge sought.”3 (Emphasis added.) We the Tax agree finding with Court’s *11 Agreement written Termination entered into CICI obligations IBM released CICI from its under the lease.4 The states, in Agreement Termination relevant part, identify agreement to A numbers used those documents. termination purpose terminating particular for the entered into a lease is un- lease, doubtedly "part of” the insofar as it is connected to and related to being imagine the lease that is terminated —it would be how difficult to CICI, companies large likely many as IBM and who have with as leases multiple parties, being would know which lease was terminated without fact, however, a reference to the lease itself. That not transform a does payment, argued by Comptrol- termination fee a rental lease into as explained, Agree- previously ler. As the contents of the Termination ment itself make it clear that it Rather, not a Lease. Master separate agreement through it was a which CICI and IBM terminated the Master Lease released each other from further performance in accordance with its terms. recognizes concept 3. We note that the Commercial Law Article parties may seemingly agree- enter into "absolute and unconditional” by agreement writing. ments that can be modified (1975) (2002 in See Md.Code (2) Repl.Vol.) § 2A-208 Article of the Commercial Law (providing, pertinent part, signed agreement "[a] except by signed may writing excludes modification or rescission ”). ... be otherwise modified or rescinded Agreement separate 4. The court concluded "that the Termination is a to, from, agreement and distinct and not an amendment the Master releases all in the equipment Lessee its interest leased (“Leased Items”) agrees indicated above and Lessor to discontinue stick leases and to relieve Lessee all from continuing obligations pay Rent due after the Termi- nation/Prepayment Date indicated In consider- above.... ation for Lessor’s to release from agreement Lessee its original lease/financing obligations after the Termi- date, nation/Prepayment pay Lessee shall Lessor the Total Charge indicated above. added.)
(Emphasis IBM, The transaction whereby between CICI and IBM obligations released CICI from its under the lease and the termination fee equip CICI and returned the old ment, does not fit the statutory within definition regulatory Upon word “sale.” termination of the agreement and IBM, of the termination fee to there was no transfer lessee, possession of title or property contemplat §by ed of the Tax ll~101(g) General Article and Section fact, case, CICI, 03.06.01.28of COMAR. the instant fee, party paying IBM, transferred back party receiving the fee. Such an cannot arrangement “sale,” fairly be described as as that term is generally defined or as it is defined regula relevant statutes and tions. To consider this arrangement a “sale” turn the would statutory definition of that term on its seek head. We statutory unreasonable, avoid constructions “that are illogical, State, or inconsistent common with sense.” Frost v. 336 Md. (1994). 647 A.2d *12 We do not think the statutory definition of ambigu- “sale” is were, if ous. Even it we would not be inclined to interpret the statute as suggested by the in Comptroller, of the view Lease," charge imposed and also that by "[t]he termination IBM Credit parties on Petitioner requirements relieved each of the from the of the agreement. being lease requirement Rather than a condition or added Lease, agreement
to the Master effectively the Termination rendered the Master void.” Lease
170 Gannett, 699, Md. Comptroller in standard described (1999), 1130, 1135 we said: 707-08, A.2d which statute and not a tax of a tax applicability ... the “When construed, the established rule not it is exemption being beyond provisions by implication, tax to extend the statute’s used, plainly to cases not language of the import the clear the stat- enlarge not to language, statute’s the within specifically matters not as to embrace ute’s so operation doubt, construed tax statutes are out. In case of pointed favor of government, strongly against ‘most ” citizen.’ Co., 285 Md. C. Louis Comptroller v. John (quoting omitted)). (1979) (internal citations A.2d the Termination Fee is argues that Comptroller also because, call it a termi- IBM and CICI though taxable even fee, as a consolidation it should be viewed nation the Master Lease had paid under CICI would have payments term, to the end of the discounted through continued the lease words, making instead of several In other present value.5 (for Master Lease the use of the course of the over payments made one Comptroller argues CICI equipment), That obligations. argu- to fulfill its lease sum lump actually not fact that the termination fee was ignores ment consisted of obligations, which to fulfill CICI’s paid Rather, equipment. to for the use of requirement pay itself, the fee CICI Agreement stated in the Termination “all continuing to be released from cancel the lease and Lease. Rent” under the Master pay obligations of the agree look behind the words We will ferret out an attempt IBM and in an ment CICI between language described intention not otherwise the rules of the To do so violate itself. would agreement recently As noted Owens- of contracts. interpretation fee amount is similar to 5. view of the fact that the termination continued, Comp- paid had the lease that would have been amount just a creative label for what is that the termination fee is troller asserts really buyout Lease. of the Master *13 171 Cook, (2005), v. 386 Md. A.2d 969 Illinois 872 when contract, construing a we from language agreement
“must first determine
person
position
parties
itself what a reasonable
in the
meant at
the time it
effectuated.
would have
was
addition,
the contract
is
language
plain
when
of
construction,
there
no
for
and a court
unambiguous
room
they expressed.”
must
that the
meant
presume
parties
what
Cook,
496-97,
Owens-Illinois v.
Under the present Master Lease in the money CICI’s exchanged possession for the and use of computer equipment. Under the Lease Agree Termination ment, money CICI’s not for exchanged possession and use of computer equipment but for a release from the Master obligations. Lease The term “release” is defined as “[l]ibera demand; tion from obligation, an the act duty, giving up or claim to the right person against it could whom have been (7th ed.1999). enforced.” Black’s Dictionary Law As a matter, being fee to avoid agreed-upon an CICI practical transaction as If view the for breach of lease.6 we sued exchange. there is no Under Comptroller, requested by *14 view, “rent” for the paid CICI would have Comptroller’s get nothing— of the lease and in return would remaining term of the equipment and use except prior possession already paid it had already enjoyed and for which had CICI in actually remained the Master Lease rent and taxes. Had and monthly to effect, paid have continued be the rent would and enjoy monthly possession to have continued CICI would exchange payment. for each computer equipment, of the use possession exchange payment of comparable There is no all at once and the paid if the fee is equipment, of use term.7 of the lease expiration returned before the equipment remaining paid same amount of the the amount was the 6. The fact that value, change the present does not payments, discounted to lease high bargaining power to demand a analysis. Apparently, IBM had the obligations and CICI was price release CICI from it’s lease in order to rule, general being As a willing pay price, rather than risk sued. to they wish. place are free to contract as participants in a free market 879, (2004). GEICO, 65, 76, Absent 854 A.2d 885 v. 382 Md. Nesbit fraud, duress, mistake, policy, will public we or a conflict with or Cook, v. 386 interpret it is written. See Owens-Illinois a contract as " fraud, 496-97, (noting of 985 ‘in the absence Md. at 872 A.2d at duress, mistake, parol not admissible to show evidence is or alter, vary, of that parties to or contradict terms intention of the ” Daniels, Corp. Acceptance v. 303 Md. quoting Motors contract' General Inc., 1310); Holladay-Tyler Printing, A.2d Finch v. at at (1991) (noting that a contractual Md. 586 A.2d invalid). public policy is provision that violates that, Comptroller argues in The its brief 7. period possession of the Citicorp fact that shortened [t]he support by executing does not the conclu- equipment the Termination required Citicorp to be to Termination that caused sion it was the at the equipment. equipment had to be returned The return merely moved any The Termination of the Lease in event. conclusion equipment had occur. which to the date on surrender a payment of the termination fee into argument transforms the
That payment rent. Such a transformation contradicts lump sum itself, Agreement which states that CICI language the Termination pay fee equipment in the a termination must release its interest and, continuing all obli- exchange, IBM will "relieve from [CICI] added.) gations pay (Emphasis Rent ...” a finding The Tax Court made that the termination fee each of the from the parties requirements “relieved agreement.” only thing exchanged The for the termi case, only thing nation fee in this and therefore the for which consideration, it can from be said be is the release view, Master In our obligations. exchange Lease for the termination of a lease is not of the “taxable price” of a transaction because it is not the transactions that among fairly statutory fit definition of a “sale.” As a within result, the no Comptroller statutory authority impose has sales tax on such a transaction. Maryland
We have found no
case discussing
question
fee,
whether
lease termination
in connection with the
return of the leased property, is
to a sales and use tax.
relies on
Comptroller
Chesapeake
Leasing
Industrial
Company, Inc.
331 Md.
In the parties differ on the of section meaning B, 03.06.01.73. which identifies each “lease payment period” and, therefore, separate
as a sale trigger as the for collec- tion and remission of tax under the Statute.
Chesapeake’s first is that if the argument lessees ceased rent, ended, paying the leases meaning there no more were “lease payment periods” and consequently no more “sales” to the which sales tax could apply per as COMAR 03.06.01.73.B. We need not address today effect of lease termination upon a vendor’s to obligation remit sales tax because there is no evidence that the leases in this case actually terminated. Chesapeake’s lessees apparently re- mained in possession of the leased property, and so we presume the periodic payments remained due and the leases continued to exist. There is no indication that the leases or, were ever terminated that alternatively, they contained 174 a lessee’s upon effective termination clause automatic
an pay. to failure
Chesapeake,
A.2d at 239.
Md. at
628
331
case,
the lease
it
clear
contrast,
the instant
is
By
obligated
pay
terminated,
longer
lessee no
to the lessor.
rent,
returned
and that
the lessee
noted,
found that
the Termination
the Tax Court
already
As
of the lease
IBM and
between
CICI was
Agreement
Lease void.”
rendered the Master
“effectively
it
but
Chesapeake
lead to
any way
does not
discussion
(in
terminate
a lease
made to
payment
that a
conclusion
equipment
return of the leased
the lessee’s
conjunction with
lessor),
and use tax.8
to sales
is
Comptroller,
Corporation v.
Maryland
Glass
on
CICI relies
Corpo-
Maryland
Glass
(1958).
Maryland Glass reason of property acquired by it the use of the paid “upon Glass, 243, 142 A.2d 217 Md. at Maryland said payments____” things, that argued, among other Maryland at 572. Glass payment tax because the transaction was not use and did leasing licensing agreements terminate and cancel the property pur- ... tangible personal not constitute “use State,” under the chased from a within or without this vendor contention, tax statute. In answer to that we applicable Id. held: tangible instant transferred case was property, and the for each transfer
personal
price
an addi-
depreciated
included not
book value but
only
tional sum
the value to the vendor
representing
outstanding agreements
cancellation of the
relative thereto.
purchaser
It
of such
that the
only by
payment
reason
rights making up
complete
could receive the bundle of
and
There
no
sale of the
separate
unconditional title.
as such.
think the
fall
patent rights
We
transactions
within
(1951),
81,
set
Art.
“price”
up
the definition
Code
(1957),
it,
§
Art.
As
see
368(g).
372(g).
Cf.Code
we
the transactions
no different in character from sales of
were
articles whose sales value is enhanced because of the fact
covering
machinery
only
Hartford-Empire
Glass,
ents
and
leased the
machinery
Maryland
to customers.
that the manufacturer holds
judgment,
in the field.
the terms
the
monopoly
Under
of
the sale
complete performance”
the “consummation and
of
the
a sum
upon
payment
in each case was conditioned
of
may
representing
“aggregate
be described as
the
fairly
without deduc-
money”
property purchased,
value in
of
”
“cost,
expense
other
whatever. We think
any
tion
or
for
an
rentals and
was thus
royalties
the release
claims
of
for
title.
price
acquiring
integral
of
of
Glass,
Md. at
In
of the fact that no
case illumines
issue
view
us,
rely on
from
urged
before
both
have
us to
cases
parties
Manufacturing
relies on
jurisdictions.
other
CICI
Grabler
Commr.,
Tax
St.2d
Company
Kosydar,
Ohio
(1973).
Grabler,
parties
N.E.2d
the lease between the
termination” of the lease
provision
“premature
included
the lessor to terminate the lease and demand
permitted
return
or enter the lessee’s
to take
equipment
in the
equipment,
if the lessee defaulted
possession
Grabler,
“prema-
of rent.
Similar
“price”
aggregate
statute at the time defined
as “the
value
delivered,
or
to be
or
money
anything paid
promised
”
delivered,
complete performance
in the
of a retail sale....
Grabler,
Maryland’s
[t]he contract, in accord the terms of a lease cannot be paid with the definition of in “price” Chapter included within R.C. Further, and hence are not taxable. the monies paid labeled in the lease specifically “liquidated were contracts as damages.” (4 Ed.)
Black’s Dictionary Law defines “rent” as “consider- ation for use or paid occupation property.” exchange The essence this definition is an of some paid consideration for the use of In the something. instant case, monthly paid by rental installments were Grabler to Commercial as the for Corporation Credit consideration use of the The equipment. paid deficiency by monies paid Grabler were not for the use of nor something; were in for they paid exchange anything.
Grabler,
While Grabler is
from the
at
case
bar,
think its
reasoning
liquidated
we
instructive. The
damages Grabler
for
exchange
posses-
were
therefore,
sion
use of
equipment,
and
could not be
statutory
included within the
definition of the term “sale.”
Likewise,
case,
in the instant
the termination fee
not paid
was
in exchange for the
and use
possession
equipment,
therefore, for reasons already explained, cannot be included
within the
definition of
statutory
“sale.”10
decided,
10. CICI notes
its brief that after Grabler was
the Ohio
Legislature
"price”
amended the definition of the term
contained in
5739.01(H)
§
damage
Ohio Rev.Code Ann.
to include a "termination or
date,
charge.” While CICI’s citation
appears
contained no reference
it
relies on Residential
Services
Comptroller
Information
(Tex.App.
Rylander,
Comptroller taxable, including are agreement related to a lease charges termination of the lease.” imposed early “a charge 3.294(d) (1988). Additionally, Comp- § 34 Tex. Admn.Code 3.294(d)(5) charge imposed clear that “a makes troller Rule in the lease of the lease is included early for the termination 3.294(d)(5). and is taxable.” Id. price *19 contrast, has no By Maryland at 988 S.W.2d 470. Rylander, a lease termination fee with equating regulation, similar of a tax on imposition price explicitly permitting result, fee. As a of a lease termination even payment are similar to the very of the instant case though the facts is reliance on that case Comptroller’s of Rylander, facts misplaced. though Maryland that even Comptroller argues
The rule, Rylan the conclusion no similar we should follow has in that case found that the Texas because the court der the “eco interpretation” rule “proper Comptroller’s at 988 S.W.2d marketplace.” Rylander, realities of the nomic that, the court stated Specifically, 470. 5739.01(H) not include a "termi- the current incarnation of does charge” “price.” A reference damage in its definition of to nation or damage charge” with of a "termination or in connection the inclusion "price” can be found in an Amendment Note to the definition of 5741.01, chapter the definitions used in the a section that contains addressing storage note indicates use and taxes. The the Ohio Code (G)(1) "price” in subsection was rewritten to the definition of charge” by damage H.B. 125th exclude the term "termination or Assem., (Ohio 2003). Maryland's legislature Reg. has taken Sess. Gen. no similar action. marketplace, we believe realities of the the economic
fg]iven pay- the termination correctly views Comptroller that the lease agreement integral part as an being ment future obligations. forgiveness than a for penalty rather punish- not a of the termination payment The amount se, reflected the merely it per termination early ment for a negotiated lease had it been increased cost of the shorter term. reasoning, at 470. For us to follow 988 S.W.2d
Rylander,
Agree-
of the Termination
to
the words
ignore
would have
we
itself,
the transaction be-
in an effort to characterize
ment
a termination of
as a sale instead of
IBM and CICI
tween
stated,
that.
not
to do
permitted
As
we are
previously
lease.
Cook,
496-97,
at 985.
at
872 A.2d
Md.
Owens-Illinois
discussed,
Moreover,
Maryland statu-
already
as
the relevant
that a
to the conclusion
provisions do not lend themselves
tory
tax.
terminate a lease is
sales
made to
interpretation
does
our
reasoning Rylander
change
It
be funda-
provisions.
of those
would
plain language
impose
a sales
mentally
Comptroller
unfair to permit
transaction,
that the
taxpayer
tax on a
without notice
noted:
Again,
already
such a tax.
as
permits
law
...
being
...
of a tax statute
is
applicability
[WJhen
construed,
tax
it
the established rule not to extend the
beyond
import
the clear
provisions by implication,
statute’s
used,
the stat-
plainly
to cases not
language
within
the statute’s
so
language,
enlarge
operation
ute’s
and not
out.
specifically pointed
to embrace matters not
*20
1130,
Gannett,
699, 707-08,
v.
356 Md.
741 A.2d
Comptroller
(1999)
added) (quoting Comptroller
1135
v. John C.
(emphasis
(1979)
Co.,
1045,
527, 539,
285
404 A.2d
1053
Louis
Md.
omitted)).
(internal
nor this
Comptroller
citations
Neither the
Only
statute’s reach.
the
permitted
is
to extend the tax
Court
has the
to do that. See Stearman
State
legislature
power
Farm,
436, 454,
539,
(stating
“[w]e
381 Md.
849 A.2d
550
and
Assembly
not invade the
province
will
General
the
for them....
The formidable doctrine
rewrite
law
in
demands that the courts remain
the
separation
powers
judiciary
of inter-
sphere
belongs uniquely
—that
law.”).
preting,
creating,
statutory
but not
note,
Maryland
regula
also
that even if
had a
We
regulation Rylander,
tion like the
our review of the relevant
us to hold that such a
statutory provisions
require
would
to
regulation
beyond
Comptroller’s power
promulgate.
Commission,
Maryland Racing
As
in Lussier v.
explained
(1996), “in determining
Md.
684 A.2d
administrative
is authorized to act
agency
whether
state
manner,
statutes,
legislative background
and
particular
controlling.”
to that
are
The con
policies pertinent
agency
“
trolling
regulation
standard is
‘consistent with
whether
”
spirit
agency
the letter and
of the law under which the
acts.’
(Internal
Lussier,
JUDGMENT CIRCUIT COURT AFFIRMED. BE PAID BY THE MORE CITY COSTS TO COMPTROLLER.
WILNER, J., Dissents. already, exchange goods 11. has been there no As stated Rather, money, contemplated by buyer the statute. returned the goods expensive penalty early to the seller and an for the termi- nation of a lease. *21 WILNER, by Dissenting Opinion J. ll-102(a) Code,
Maryland § of the Article Tax-General use, a tax on “a in imposes retail sale the State” and on “a State, personal or a taxable tangible property service.” 11-104(a) Section bases the tax on the “taxable price” or service. 11-103 a rebuttable Section creates “any subject sale in the is to the presumption State sales 11-102(a)(1) § and use tax imposed under of this subtitle” and the burden places person required pay on the the sales or use tax of that a sale in the is proving State tax. ll-102(a) ll-104(a) §§
Two terms used in are critical this price.” case—“sale” and “taxable Those terms are de- (i) fined in 11-101. Section 11-101 defines “sale” includ- ing “a transaction for a consideration ... title or whereby possession property is transferred or is to be transferred means, by absolutely conditionally any including by lease added). 11-101(0 ...” (Emphasis Section defines “taxable value, price,” pertinent part, as “the in money, of the delivered, any consideration of kind that is paid, payable, or buyer deliverable to a vendor in the consummation and complete performance of a sale any without deduction for expense or cost....”
Sections 2-102 and 2-103 of the Article Tax-General author- ize the Comptroller administer the sales tax and to law adopt regulations reasonable in the administration of that law. Pursuant to that authority, the Comptroller adopted COMAR 03.06.01.28, dealing application with the of the sales tax to leases of tangible personal property. regulation, Under that the transfer of possession tangible personal property for a consideration by way of lease is included in statutory “sale,” definition of each lease payment considered a sepa- lease, sale, rate and thus a separate applies tax “to the if payment entire lease property acquired by lease is within ” this at any during State time that lease period.... here, exceptions With not relevant the tax “to applies money value in any consideration kind required to be terms of to the lessor under the the lease.” COMAR added). (Emphasis 03.06.01.28E. into Master Lease with IBM Citicorp entered *22 com- under which leased certain Corporation Citicorp
Credit Through IBM. amendment equipment from an puter 1997, in the of the lease Master Lease made June term was lease, 27, provisions to 2002. Two as extended June amended, provided relevance. 6.1 particular are Section lease,” obligation “net to Citicorp’s that the lease was a unconditional,” and that rent was “absolute and its pay all abatement, reduction, subject any “to obligation was set- defense, counterclaim, off, or interruption, recoup- deferment whatsoever, and payments ment for reason that such shall any 14.1, in continue to all payable be and be events.” Section altered, modified, however, Lease permitted the Master to be terminated, the “signed by party or discharged writing alteration, modification, whom such termination or against discharge sought.” lease. See essentially
The Master Lease was a skeletal Equaliza Machines v. Bd. International Business State tion, 782, (1980). Cal.Rptr. 26 Cal.3d 609 P.2d It all of general forth terms and conditions to the applicable set to be but did not the leased equipment specify equip leased ment or the term of the lease of such or the rent to equipment for that All of that to be equipment. be was done separate schedules entered into from time through equipment equipment to time as various items were leased. Those leases, separate, as regarded independent schedules were to and subject the terms conditions the Master though to Implicitly, they Lease. would become amendments Lease. Section 1 of the Master Lease described the Master subject to as “all of tangible personal the lease property (collectively 'Equipment’ individually an ‘Item’) listed on equipment (‘Equipment each schedule Sched ule’) executed, time, pursuant from time this Master Each a separate, Lease.” such schedule was “constitute independent obligation distinct and contractual provision, furtherance of that the Master Lessee.” Lease lease of item to be as that the term of each an was provided item, to that applying on the schedule designated equipment and, result, items of the lease terms of the various to the initial Master Lease varied. Under equipment subject 2.2(a) § leases for the individual items agreement, of that extended, renewed, or terminated as provided could be The rent for to those items. equipment applicable schedules specified equip- items to be as various leased Lease. By ment schedules. See 3 of the Master virtue Lease, leases for all of amendment to the Master the 1997 to June 2002. equipment were extended alteration, modification, that, termi- It is clear to an nation, 14.1, §to discharge pursuant Citicorp made entire amount of rent under the Master payable liable equipment through Lease or the various schedules June that, It under the definitions of statutory 2002. is also clear *23 “sale” and “taxable and the price” implementing COMAR schedule, regulation that each into the equipment incorporated Lease, and Master constituted a taxable retail sale that a sales imposed payment tax was and collectible on each rental made Had the lease continued by Citicorp under the Master Lease. date, until its termination IBM would have been liable for the tax based on the entire amount of rent and under payable paid month, Citicorp, lease. Each as it received the rent from it would have been remit the based on required to tax that and, rental to Comptroller, recognition of that did, fact, obligation, it make those None of that payments. in dispute. is October, 1998, IBM and on a different Citicorp decided
arrangement return the leased Citicorp equip- would —that ment, terminated, the Master Lease be and Citicorp would purchase would other from IBM. In order to equipment effect that IBM arrangement, Citicorp, acting pursuant new and to lease, § 14.1 of terminated the Master Lease effective termination, 1998. Pursuant Citicorp October re- turned the leased The cost- equipment. termination was not free, however. IBM calculated the amount of rent that would categories have been due for the various of leased equipment date, expiration had the continued to its normal discount- of the present gross ed that total amount to arrive at value amount, Citicorp pay and required as October amount fee.” As that discounted “termination aggregate $8,067,183—took the rent place the termination fee— lease, Citicorp, that have remained due under would further for that rent. understandably, liability was relieved of lease, Comptroller position incorpo- The takes schedules, “sale,” constituted a and that rating equipment fee, paid by of the consideration being part the termination lease, taxable price under the constituted Citicorp thought therefore to the tax. The Tax Court and was to affirm that majority proposes and a of this Court otherwise I respect, decision. With dissent.
I deference is to be to the factual recognize great paid Tax and that deference is to determinations of the Court some Court, which, to its determinations. If the Tax legal be court, name, not a agency its is an administrative despite contract, however, either a statute or a it has misconstrued error, obliged give any made a and we are not legal has Indeed, be deference at all to that kind of error. we would Art. 8 of the Declaration of and Art. violating Maryland Rights if, of defer- Maryland guise Constitution under the IV expertise, effectively abrogated, ence to administrative we agency, to an Executive Branch our Con- through delegation contracts responsibility stitutional construe statutes and the law. interpret Majority recognizes whether the termination fee *24 law, price question of the taxable is a but it holds part subsidiary on two that it declares question hinges issues the termination part to be nature —whether fee was factual a sale and the termination agreement whether was Having predicate the lease. declared those issues to be ones, Tax Majority simply factual then defers to the end of story. Court: subsidiary
I that those issues are factual in nature. disagree construction, They statutory involve either or contract which are issues. The legal Tax Court treated the termination agreement transaction, as a separate wholly apart from the lease, it is only on that premise that it was able to conclude that the termination agreement not a sale and that the termination fee is therefore not a taxable price. As out, the Majority points the heart of the Tax Court’s decision was its determination that “the clear and unambiguous provi- sions of the Master Lease and the Lease Termination Agree- ment and the lack of any transfer of title of the leased property to [Citicorp] establish that the lease termination not payment was made pursuant to a transaction that ais § ‘sale’ as defined by I 101(g).” regard that legal, as a 11— factual, not a determination —a lease, construction of the agreement, (i), and, § termination 11-101 though men- tioned, § COMAR one 03.06.01.28—and that was erroneous.
The termination agreement at one, issue here a global itself, Master Lease rather than of the individual equipment schedules. § It was on founded 14.1 of the Master Lease, and essentially it said as much: “Lessee and IBM (‘Lessor’) Credit Corporation agree that pursuant lease agreement between the Lessee and Les- above-referenced (‘Lease’), sor Lessee releases all of its interest in the leased equipment indicated ... above agrees Lessor to discontin- ue such added). leases----” (Emphasis The “above refer- enced agreement” was Lease Agreement No.
which identified the then-current Master Lease Term Supple- ment. The only authority in the Master Lease to modify terminate it § was set forth in 14.1.
Although parties to a written contract are usually free to modify or terminate the contract by separate agreement, even if the contract purports to prohibit or condition such modifica- tions, this termination clearly was pursuant to the lease. The termination agreement was contained in a separate document, but so were the various equipment schedules and other addi- tions to and modifications of the Master Lease. That ll-101(i), 1. The appears definition of “sale" now 101(g). not 11— *25 does the signed a document not disconnect parties separate Lease, Master the docu- especially transaction from the when it but expressly ment not references that lease states only 14.1, § it. such “pursuant to” Under modification/termi- could, only IBM agreed if IBM to it. permissible nation was fee, course, any exacting without termination agreed of have on of the it It insisted full generous. payment but was not so Lease, had 48 months nearly due the Master which rent under run, it the rent to its although more to discounted future current value. error, Majority, this
The Tax and that of Court’s Court’s as trans- the termination viewing agreement separate lies notes, action, which, no trans- Majority one in the “there was of to the contem- fer of title or lessee as possession property § of the Tax Article and Section plated by 101(g) General 11— That, me, ignores reality to of 03.06.01.28 of COMAR.” termination. occurred. The taxable event was what events, on Master taxable based both the multiple There were Those sched- equipment equipment Lease and the schedules. in the Lease—are designated separate as leases Master ules— to be from transferred possession what caused schedules, equipment IBM to Once those which Citicorp. Lease, to properly became amendments the Master were were, sales, as the tax everyone agrees they which regarded money “the by became measured value consideration kind terms any paid to be to the lessor under the required The termination fee exacted IBM a lease.” 14.1, under agreement condition its termination remaining value in of the rent due being money discounted Lease, under amended Master constituted consideration under the terms of the lease. required be lessor Residential Ergo: See it taxable part price. constituted Partnership Rylander, Limited Services Information (termination be- (Tex.App.1999) taxable S.W.2d lease). cause it was of entire Court, judgment I of the Circuit would reverse which Court, affirmed Tax hold that the decision tax. termination fee was to the sales