*1 TREASURY, OF THE ETC. COMPTROLLER AND ENGINE AIRPLANE FAIRCHILD CORPORATION Term, 98, September 1961.] [No. *2 December 1961.
Decided cause was before C. argued J., Bruñe, Hender- Horney son, Prescott, Marbury, JJ. *3 General,
William McCarthy, J. Assistant Attorney and Ed- Bngelbert, Division, ward Retail B. Tax whom was with Sales Binan, General, Thomas brief, on B. for Attorney appel- lant. Byron
David Kenneth Mackley, W. J. with whom were Lane, Byron brief, Bushong & on the for appellee. delivered J., opinion Court.
Henderson, from an of reversing This order court a decision appeal entering judgment against of a Comptroller Comp- $49,486.40, in the of representing troller amount a of refund use taxes Fairchild. The previously paid sales and facts are virtually undisputed. 1954, into a contract “study” Fairchild entered July
On Force, Air to determine whether the United with States view, a cer- feasible, of to build from a technical point was enemy to confuse use as a decoy of missile and tain type the B-52. This an attack simulating plane, project radar Thereafter, 1955. Fairchild in the spring completed details showing manufacturing various proposals submitted 21, 1955, an elaborate September On and estimated costs. the cost fee This type. contract was executed of fixed plus the missile. was called from name of “goose” $3,550,000.00, initial with total cost appropriation $14,000,000.00. given at estimated some Fairchild was com- as the contractor. Most plete design responsibility, prime Hagerstown, the work was to be at performed Maryland, assembly point.
The contract described as Develop- a “Research and ment Program System for 123 A.” other Weapon Among things, agreed “perform serv- following ices :
Item a research 1—Conduct and development pro- which will gram result to com- development pletion weapon system accordance with * * * Document, dated 16 MCPHMS June * * * following: include (a) Provide full-scale mock-up operational weapon system in a participate inspec- mock-up tion the Air Force.
(b) Design and manufacture hardware use the research and development program, including quantity experimental missiles. configurations the hardware quantity ground (missiles, equipment, etc.,) will be such that they are suitable use the flight program established Con- * * *. tractor. test
(c) Conduct program demonstrate compliance aircraft requirements in respect to *4 range, and, performance accuracy, to a ex- limited tent, simulation. The test program will include demonstration of the weapon system ground equip- ** techniques, ment and launching *. facilities, all
(d) Provide the supplies and services to Item necessary accomplish except for those pro- * * *, vided the Government by the including repair and revision of experimental hardware in order to make within tests and retests the development pro- Also be are the
gram. to included material parts and for these required purposes. costs incurred be Contractor in such facilities shall providing * * costs to the treated as direct allocable contract re- other provisions regard engineering There followed and ports plans.
Part VI contained a clause: and “Inspection acceptance of Item articles fabricated under physical paragraph (b) engi- be at Fairchild’s Maryland.” will Hagerstown, project fifty- neer that the contract called for less than testified flown, the be used three missiles to built and last fourteen to Air Fairchild for demonstration to Command. Strategic for- subcontracting and wings set up operation designs, own and subcontract- according ward its fuselage It system. and constructed ing engines telemetry Fairchild fuselage. pur- vital center and after section on an and from various parts suppliers chased materials raw to the “F.O.B. basis. Title Govern- plant” passed vendor’s ment, the “goose” with the terms of accordance origin, to Fairchild at shipping points upon delivery the invoices. promptly paid Government Some material, guidance equipment, sup- as radio sets such into the missiles. the Air Force built plied December, because The contract was terminated At time twenty- Force strategic policy. of a shift in Air for in the had missiles called contract fifty-three two in test fifteen had fired None flights. been built and been The information from gained fired ever recovered. those at Ca- the Air Force at Cape the test conducted Base flights, naveral, Florida, Force Fairchild under Air employees of mis- succeeding used to improve modify Supervision, tests had been successful At time of termination the siles. con- earlier predictions study fully supported con- large production receive tract. Fairchild expected re- missiles and ground equipment tract. The unexpended to, of, the Air or were delivered mained the possession Force. claimed, for a small except for which refund was taxes
item local paid by suppliers, were paid by way Fairchild by returns, of its own use with conformity ruling Comptroller given 1956. They were upon calculated cost or value of materials into actually incorporated “goose” missiles, tools, material, did not include tooling raw ma- chinery or equipment, overhead items such as office sup- plies. 81,
Code Art. (1957), sec. 372 (d) provides: ‘Use’ means the “(d) exercise by person with- any in this right or any power State over tangible per- sonal property either purchased within or without * * this *. This State term shall also include but not facilities, tools, limited use of machin- tooling, or ery equipment (including, dies, but not limited molds and patterns) by thereof purchaser even though he transfers title to another either before or after use himby and without regard to title whether is transferred to the other within or without this * * * This term shall not State. include the following: The (2) incorporation tangible personal property as a material or part of other tangible personal prop- erty produced sale by as- manufacturing, sembling, refining.” or processing Almost identical 81, is used in language Code (1957), Art. retail, sec. to sales at (f) regard and we shall treat the are, course, together. two taxes complementary. Comp- Co., troller Glenn Martin v. L. Md. 242. in his Comptroller concedes brief that if the “goose” sale,
contract is contract for the production use, tangible personal property manufactured from the items pur- chased, rather than services, a contract for Fairchild is en- It titled to refund claims. is the intent and purpose of tax “To sales and use acts the tax impose on the final pur- ultimate and to chaser or consumer avoid a pyramiding Products, Comptroller Aerial the tax.” 210 Md. 644. however, contends, He that the contract was for engineering that Fairchild itself was services and the ultimate consumer But with agree the articles we purchased. user of and. *6 re- from the ordinary differs trial that this contract court the delivery in that under contract development search and and acceptance for inspection s'ection specifically provided missile, by to be followed completed the Air of each Force be said that it could Perhaps fairly the test Florida. firing think the end but we hybrid, something the contract was missiles with of completed result was a series contemplated characteristics, the usual engineering and not optimum contract, in “study” characteristic of only, and data reports of are tangible property items personal the course of which of large that a proportion be observed It also may consumed. ground missile the finished the total cost represented ex- To the launching tracking. in its utilized equipment “hard- is referred to as the called for what tent that contract ware”, therein seem to fall incorporated the materials would sec. language (d) of exclusionary within squarely the completed be that It can denied hardly above. quoted (2), the Air were delivered to equipment the ground missiles and think Government. We paid and fully Force test of by way the missiles were expended, that fact some controlling. is not firing, relies the case of United strongly upon
The Comptroller O’Connor, 107 A. 2d that Corp. (Conn.). v. Aircraft engines were held for experimental contracts case that the services, delivery property ground on the to service special performed by pur- incidental merely material no as how much finding There was chaser. and how was used and scrapped bought engines. into the At incorporated eventually much was tax, rise transactions Connecti- giving time enacted, not contain language subsequently statute did cut ingredient an or com- which become materials excluding sold. The tangible property personal part ponent questioned been has an article the decision soundness Rev. 283. We have Hellerstein, distinguished in 11 Tax L. Comptroller, Balto. v. Foundry decisions. prior it in two Products, 321; supra. Aerial In the Comptroller v. Md. Corp. Connelly, 140 A. 2d of United case later Aircraft 486, 491 (Conn.), exemption was statutory applied, the case of an experimental contract for aeronautical equip- ment such as airplanes, aircraft engines propellers, held that taxable, fabrication materials were not under statutory exception. court stated that even under the case, test of the O’Connor the products of the experimentation were the tangible personal delivered to the property Govern- ment and “were the end and objective of the primary govern- ment.” we hold
Since items of material here in question tax, were the sales subject to or use we do not reach the that, contention of the since appellee title to the Gov passed item, ernment upon of each delivery doctrine of immunity applies. appellant contends that the amendment of sec. *7 and sec. (d), 324 (f) (6), by 3 of the chapter Acts of 1957, imposed a tax upon “facilities”, even though the con tractor title to transferred another before or after use him. that the assuming title to the passage Even Government not prevent imposition would a tax based on sub sequent use made by contractor Martin (see Co. v. State Comm., 404, Tax 415-417), Md. statute Maryland that where materials clearly imports are incorporated manufactured or assembled the tax should be product, paid by the ultimate consumer. of Congressional absence con sent, such a tax cannot be levied against the Government it self. It be hardly could contended that the nature theory- and is of the tax altered the fact that the ultimate is. consumer immune. Nor do we find reason to any extend the term “fa context, its beyond “tools,, cilities” where is associated with tooling, but machinery equipment (including, not limited dies, molds and so patterns)”, as to nullify express, tangible excepting personal provision property purchased for “as a material or of other incorporation part tangible personal to for sale produced property manufacturing, as [or] * * out sembling, pointed As we in Balto. Foundry 319, 316, Comptroller, 211 Md. are we not here with dealing a definition of the an but with o.f exemption, scope the taxing contract, As the “goose” Government,. statute. we construe contractor, the mis- not the the ultimate consumer of was with the ground siles delivered accepted, along appurtenant taxed, sought into which now equipment, property, was incorporated. in- that the trial court disallowed
The appellee complains claim, we cross-appeal in the absence of terest its but upon Double before Fitch v. think the is not us. Cf. point properly and cases cited. Corp., “U” Md. Sales with costs. Judgment affirmed, Hornüy, the following dissenting opinion. filed J., that the and not holding government, majority, contractor, those “experimental the ultimate consumer of made and which had been tested by missiles” terminated and abandoned abruptly the contract was before their on the belief that based conclusion government, the contract was to “a series produce the real purpose flight characteristics.” I dis- optimum missiles with completed that the of be- belief instead my because agree one for clearly perform- hybrid,” ing “something of to the terms explicit of the con- ance services (according research and conducting development “a pro- tract itself) in the development completion result which will gram not the design limited including (but to) system,” weapon structural models of experimental of full-sized manufacture But testing. mass production for study missiles *8 been the accepted model had finally until a contemplated government. contract, the transfer from to Hagerstown the I read
As the missiles that been fifteen of model had of Canaveral Cape the from time government time to and accepted inspected “full-scale at of the mock-up operational tested a flight Fairchild to required in which was partici- system,” weapon Force, the Air of was more scrutiny nothing the under pate to a the whole experiment program develop of a phase than government. fact, the the acceptable missile model to obtain such testings the was informa- of only purpose
261 later performance might tion as to as useful perfecting of the models missiles. course, contract, fact, the it is that cost-plus
Under of the missiles title to model the expendable government, was the the of the reality part but cost of models only total contract while the of models price. flight testing And the an is of it that integral part apparent of the making merely completion models was incidental to experimental of the contract. O’Connor,
In United Corp. v. 2d 398 A. Aircraft where the (Conn. 1954), Court of Connecticut had Supreme before contracts to render serv- experimental engineering ices, here, similar to the one have there we Court declared that in their p. 402) aspect, broadest the con- (at “[v]iewed tracts the rendition dearly were skilled engineering services, and the tangible of items of delivery personal prop- was, most, into fabricated at erty, incidental to engines, only rendered, the services delivery such property [and the] a sale at if not retail under act it is incidental to a merely And, service for the special performed purchaser.” while is true the same Court in United v. Con- Corp. Aircraft A. nelly, 1958), 2d (Conn. under dif- substantially case, ferent factual situation from that the O’Connor stated that “the p. 491) so-called (at products experimentation the Connelly tangible personal were the de- property [in case] livered to government were the end and ob- primary Court, jective government,” nevertheless, specific- affirmed ally taxability materials the user when the furnishing of the end called for the contract product services incidental experimental merely furnishing such services. It is also significant to note that Professor Hel- R. Jerome erstein—in the article entitled “The Scope of Taxable Acts; Under Tax and Use Sales as Distinguished Sale Sales Services,” from Tax. Rev. 283—in stating that the L. in the case holding “appears open O’Connor to question” un- less the classification is applied service to special order con- and, tracts did condemn generally, definitely holding, that the on admitted contrary, reasoning Court had *9 Furthermore, that a appears prior “a .persuasive appeal.” Maryland point. General of also Attorney opinion then Judge (who where Hammond G. A. G. See status concerning in an opinion the Attorney General) under services an “experimental of a contractor performing clause, contract, usual containing “title-in-government” “in (cer- that the contractor was 287) reality (at stated p. purchased), as most of the materials within tainly the ultimate consumer.” purpose case, require- contractural only instant where the contractor should “complete as was that delivery ment called deliver data work experimental] the [stated date, gov- I unable to agree am for” by specified mis- experimental consumer of the the ultimate ernment was delivery in the contract requiring nothing when there is siles either at the time the to the missiles government of such the contract was completed or when mocked-up tests were terminated abandoned or was sooner government. re- lower court and judgment reverse
I would the claim ruling Comptroller disallowing instate the refund. v. PORTER
BRADSHAW Term, 111, September 1961.] [No.