Comptroller of the Treasury v. Citicorp International Communications, Inc.

884 A.2d 112, 389 Md. 156, 2005 Md. LEXIS 587
CourtCourt of Appeals of Maryland
DecidedOctober 4, 2005
Docket147, September Term, 2004
StatusPublished
Cited by43 cases

This text of 884 A.2d 112 (Comptroller of the Treasury v. Citicorp International Communications, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Maryland primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Comptroller of the Treasury v. Citicorp International Communications, Inc., 884 A.2d 112, 389 Md. 156, 2005 Md. LEXIS 587 (Md. 2005).

Opinions

GREENE, J.

This case involves the termination of a lease for computer equipment. We are asked to decide whether a fee paid by the lessee to terminate the lease is taxable. Two preliminary questions reside within this question: (1) whether the payment was made pursuant to a transaction that can be defined as a “sale,” within the meaning of the relevant Tax General Article sections, and (2) if the payment was made pursuant to a “sale,” whether the amount paid constituted part of the “taxable price” of the lease transaction. We hold that the fee paid to terminate the lease was not a “sale” and, therefore, is not subject to sales tax.

FACTS

On May 30, 1990, Citicorp International Communications, Inc. (“CICI”) entered into a lease agreement (“Master Lease”) with IBM Credit (“IBM”) for computer equipment that CICI used in its data center in Silver Spring, MD. In January 1997, [161]*161the parties extended the lease for an additional term. On September 3, 1998, CICI decided to upgrade its computer equipment and sought a release from the obligations of its lease with IBM.

On October 20, 1998, CICI and IBM negotiated a termination agreement (“Termination Agreement”) which released CICI from its Master Lease obligations, as of November 1, 1998. Pursuant to the Termination Agreement, CICI returned the old computer equipment to IBM and paid a termination fee of $7,219,998. In addition, CICI purchased replacement equipment from IBM at a cost of $7,387,800, plus sales tax of $369,390.

Initially, CICI did not pay sales tax on the lease termination fee. On December 1, 1998, IBM submitted another invoice to CICI for sales tax on the termination fee, in the amount of $360,999.90. On April 1, 1999, CICI paid the sales tax, even though it doubted its obligation to pay the tax. On April 24, 2000, CICI made an anonymous request, through Christine M. Oates, a Manager at the accounting firm of KPMG, LLP, to the Maryland Comptroller of the Treasury for a ruling on the taxability of the termination fee. James Dawson, the Assistant Legal Director of the Office of the Comptroller, responded to the request by letter, dated June 8, 2000. Dawson “declined to issue a formal declaratory ruling” but did agree to answer the question informally. Dawson framed the question before him as “whether the Maryland sales and use tax applies to termination payments made for the early termination of a lease of tangible personal property when the property subject to the lease is required to be returned to the lessor and title to the tangible personal property does not pass to the lessee.” Noting that the statutes and regulations do not address termination fees, Dawson concluded that,

[t]he termination fee ... is a charge imposed by the lessor on the lessee to terminate the lease agreement and relieve each of the parties from the requirements of the lease agreement. The property subject to the lease agreement is to be returned to the lessor by the lessee and title to the property will not in any way vest to the lessee. The [162]*162termination agreement as described in your request is an agreement separate and apart from the lease agreement and does not appear to be a condition or requirement of the lease agreement. Therefore, the termination fee cannot be deemed consideration in the “consummation and complete performance of a sale” as provided in § ll-101(j). The termination fee would not be considered part of the “taxable price” and thus, would not be subject to the Maryland sales and use tax.

On September 5, 2000, CICI filed a Sales and Use Tax Refund Application with the Comptroller seeking a refund of the sales tax paid on the termination fee. The Comptroller’s Refund Supervisor requested that CICI file additional documents with its application, and on January 29, 2001, CICI refiled its Refund Application along with those documents. By letter dated July 30, 2001, the Refund Supervisor denied CICI’s request. On September 28, 2001, the Comptroller held an informal hearing on the matter. On January 4, 2002, the Comptroller issued a Notice of Final Determination, denying the refund.

CICI appealed to the Maryland Tax Court and on November 6, 2002, the court heard oral arguments on the matter. The parties stipulated to the relevant facts and presented argument to the court. On February 23, 2004, the Tax Court reversed the Comptroller. The Tax Court found that, under the lease termination agreement, CICI “released its interest in the leased equipment and was relieved of all obligations with respect to such property after November 1, 1998.” The court concluded that “the clear and unambiguous provisions of the Master Lease and the Lease Termination Agreement and the lack of any transfer of title of the leased property to the Petitioner establish that the lease termination payment was not made pursuant to a transaction that is a ‘sale’ as defined by § 11 — 101(g).”

The Comptroller appealed to the Circuit Court for Baltimore City. That court held a hearing on the matter and on August 24, 2004, affirmed the Tax Court’s decision. The [163]*163Comptroller filed a Motion for Reconsideration that was later denied by the Circuit Court. Subsequently, the Comptroller noted a timely appeal. While the case was pending in the Court of Special Appeals, but before a decision there, we granted certiorari on our own initiative. Comptroller v. Citicorp, 385 Md. 511, 869 A.2d 864 (2005).

STANDARD OF REVIEW

As stated in CBS v. Comptroller, 319 Md. 687, 697-98, 575 A.2d 324, 329 (1990), “[a] reviewing court must affirm [the decision of] the Tax Court if its order ‘is not erroneous as a matter of law,’ and if the order ‘is supported by substantial evidence appearing in the record’ ” (quoting Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834, 490 A.2d 1296, 1300-01 (1985)). We explained in Ramsay, Scarlett & Co. that, “the Tax Court’s decision is based on a factual determination, and there is no error of law, the reviewing court may not reverse the Tax Court’s order if substantial evidence of record supports the agency’s decision.” Ramsay, Scarlett & Co., 302 Md. at 834, 490 A.2d at 1301 (internal citations omitted).

We are not at liberty to substitute our judgment for the expertise of the agency. Our role is to accord deference to an agency’s interpretation of a statute which it administers. Charles County Department of Social Services v. Vann, 382 Md. 286, 295-96, 855 A.2d 313, 319 (2004)(stating that a court gives deference to an agency’s legal interpretation of its own statute or regulations); Board of Physician Quality Assurance v. Banks, 354 Md. 59, 69, 729 A.2d 376 (1999)(noting that, “an administrative agency’s interpretation and application of the statute which the agency administers should ordinarily be given considerable weight by reviewing courts.”) (citations omitted).

Furthermore, recognizing that the agency’s decision is “prima facie correct and presumed valid,” “we must review the agency’s decision in the light most favorable to it.”

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Bluebook (online)
884 A.2d 112, 389 Md. 156, 2005 Md. LEXIS 587, Counsel Stack Legal Research, https://law.counselstack.com/opinion/comptroller-of-the-treasury-v-citicorp-international-communications-inc-md-2005.