MacKe Co. v. Comptroller of Treasury , 302 Md. 18 ( 1984 )

ELDRIDGE, Judge.

The issue before this Court is whether certain paper and plastic products¹ purchased by the Macke Company and Macke Company of Baltimore (Macke) were resold to Macke’s customers within the meaning of Maryland Code (1957, 1980 Repl.Vol., 1984 Cum.Supp.), Art. 81, §§ 372(d)(1) and 324(f)(i), thus excluding Macke’s purchase of those products from the Maryland Use Tax.

The undisputed facts show that Macke purchased certain paper products that were used in its vending and cafeteria business at several institutions, factories and office buildings in Maryland. The paper plates, cups, bowls and lids were used as containers for the food items sold through the vending machines and over the cafeteria lines. The napkins, paper bags, utensils, stirrers and straws were on “condiment tables” in eating areas and were freely available to purchasers of Macke’s food items as well as all other persons in the eating areas.²

Macke was assessed for the unpaid use taxes on its purchase of these paper products for the period from August 9, 1971, through February 29, 1976. Macke twice requested revision of the tax, but the Comptroller denied both requests. Macke appealed to the Maryland Tax Court, which affirmed the Comptroller’s action. The Tax Court found that the transfers of the paper products in cafeteria lines and through vending machines were supported by consideration and therefore constituted sales within the meaning of § 324(d), but that the paper products on the condiment tables were not “sold.” For reasons that are not clear to us, however, the Tax Court ruled that, despite consideration being given for some of the products, Macke was not entitled to an exemption for its purchase of any of the products.

The Circuit Court for Baltimore City upheld the Tax Court’s decision, and the Court of Special Appeals affirmed in an unreported opinion. The Court of Special Appeals based its affirmance on the Comptroller’s administrative practice of taxing a vendor’s purchase of a paper food container if the resold food item was to be consumed on the vendor’s premises, but not taxing the vendor’s purchase of the paper container if the food item was to be consumed off the vendor’s premises.

This Court granted Macke’s petition for writ of certiorari. We shall reverse with regard to the assessments for the paper cups, plates, bowls, hot food cups and lids, but affirm the imposition of the tax for Macke’s purchase of the paper bags, napkins, utensils, stirrers and straws.

The Use Tax in question, Art. 81, § 373, is imposed upon tangible personal property that is used, stored or consumed within this state. Section 372(d)(1) specifically excludes from the definition of “use, storage or consumption” any tangible personal property that is purchased “for the purpose of resale within the meaning of § 324(f)(i)____” Section 324(f)(i), which defines “retail sales,” excludes from the Retail Sales Tax any tangible personal property which is purchased for the purpose of being resold “in the same form in which the same is, or is to be, received by [the taxpayer].”

The Comptroller argues that this Court should accept the administrative practice followed by the Comptroller since 1947 in taxing these paper food containers and utensils on the basis of whether the food was resold for on-premises or off-premises consumption. The Comptroller maintains that “the construction placed upon a statute by administrative officials soon after its enactment should not be disregarded except for the strongest and most cogent reasons.” (Brief, p. 9, citing Comptroller v. Rockhill, Inc., 205 Md. 226, 233, 107 A.2d 93 (1954)). This principle is applicable when statutory language is ambiguous. Nevertheless, the rule is firmly established that when statutory language is clear and unambiguous, administrative constructions, no matter how well entrenched, are not given weight. As Chief Judge Murphy reiterated for the Court in St. Dept, of A. & T. v. Greyhound Comp., 271 Md. 575, 589, 320 A.2d 40 (1974), “the unvarying construction of a law by the agency charged with its enforcement over a long period of time ... cannot override the plain meaning of the statute or extend its provisions beyond the clear import of the language employed.” See Comptroller v. A. Cyanamid Co., 240 Md. 491, 214 A.2d 596 (1965); Bouse v. Hutzler, 180 Md. 682, 26 A.2d 767 (1942). See especially Comptroller v. John C. Louis Co., 285 Md. 527, 543-545, 404 A.2d 1045, 1055-1056 (1979). Furthermore, if the administrative practice is illogical or inconsistent with the statute, it should not be followed. Ibid.

In the present case, § 372(d)(1) explicitly excludes from taxation all property bought for resale within the meaning of § 324(f)(i). Section 324(f)(i) excludes from taxation all property that is bought to be resold in the same form in which it is “acquired. This Court has already taken the position that § 324(f)(i) is clear and unambiguous, and has held that administrative practice is not to be considered in its application. Comptroller v. A. Cyanamid Co., supra, 240 Md. at 498, 504-507, 214 A.2d 596.

Moreover, the Comptroller’s administrative practice is clearly in conflict with the plain meaning of § 324(f)(i). Whether a food container is sold with food that will be eaten on the premises or off the premises is irrelevant to whether that item is resold to the ultimate consumer. The Comptroller attempts to justify the on/off premises distinction by analogizing on-premises consumption to the use of china, silver or glassware in restaurants. This comparison ignores the fact that a restaurant patron could not leave with the china, silver or glassware in hand, whereas the purchaser of soup in a paper bowl retains the bowl when finished eating and is entitled to make any use of it that he pleases. The relevant inquiry, disregarded by the Comptroller, is whether consideration is paid, in exchange for title and/or right to possess the item. Art. 81, § 324(d).

As the administrative practice is illogical and inconsistent with the statute, it should not have been given any weight by the Court of Special Appeals. Rather, the decision in this case depends upon whether the clear statutory requirements for the resale exclusion were satisfied.

According to the statutory scheme, all tangible personal property bought for the purpose of resale is expressly excluded from taxation. Art. 81, § 372(d)(1). Tangible personal property is bought for resale if that property is resold in the same form in which it is acquired. Art. 81, § 324(f)(i). The property is resold if its title and/or the right to its possession is transferred to the ultimate con-, sumer in exchange for consideration. Art. 81, § 324(d).

Under the foregoing statutory provisions, the paper bowls, plates, cups and lids are excluded from the tax. The plain meaning of a “sale” is the transfer of title in exchange, for consideration. Art. 81, § 324(d); Code (1975), §§ 2-106(1) and 2-401 of the Commercial Law Article; Comptroller v. John C. Louis Co., supra; Blank v. Dubin, 258 Md. 678, 267 A.2d 165 (1970); Sheeskin v. Giant Food, Inc., 20 Md.App. 611, 318 A.2d 874 (1974); 1 Squillante and Fonseca, Williston on Sales, § 2-2 (4th ed. 1973). In the present case, the ultimate consumer pays Macke for a whole item, which includes both the food and its container. Either component would be relatively valueless to the consumer without the other; thus, the consumer purchases them both as a unit. The consumer understands this. He realizes that after he eats the food, he owns the paper container and may treat it as he pleases. He can throw it away or take it home and plant flowers in it, but he need not return it to Macke. It is wholly unrealistic to state that when vendors sell soup in paper bowls or hamburgers in styrofoam containers, they have sold the edible portions but not the containers or wrappers.

Thus, Macke “sells” the products within the meaning of § 324(d). Further,. the products are “resold” to the ultimate consumer in the same form as Macke acquires them, in compliance with § 324(f)(i).

The Comptroller argues that the paper products were not “sold” because no separate consideration was requested or paid for them. But the paper bowl is an integral component of the bowl of soup which Macke sells to its customers. Consequently, there is no reason why a price should be separately stated and paid for the bowl, any more than why each ingredient of the soup should have a separate price. The same is true of the paper cup containing coffee or the paper plate containing hot food. The item is offered and purchased as a whole. The Supreme Court of Pennsylvania addressed this matter in Paper Products Co. v. City of Pittsburgh, 391 Pa. 87, 93-94, 137 A.2d 253 (1958):

“[WJhile no specific charge is made for these containers, wrapping paper and packaging material, (1) they in reality are sold because the dealer in fixing a price for the goods which are contained or wrapped almost invariably includes within his mark-up the cost of the containers, etc.; and (2) it has become an accepted custom of the trade and an almost indispensable necessity for the consummation of a sale. In the practical world of today a purchaser does not go around, as the taxing authorities contend, with a paper bag, a milk pail or bucket or other container in his hand to carry home goods which he buys, since he knows the goods purchased will be delivered to him wrapped or nicely packaged. The ultimate purchaser likewise knows that the dealer is not giving these wrappings, etc., free. The taxing authorities also contend that containers, wrapping paper and the like are a part of a merchant’s overhead, the same as light, heat and showcase. We disagree. The ultimate consumer does not acquire title or possession to the light, heat or showcases in a merchant’s store, whereas he does acquire both title and possession to the containers, wrapping paper and packaging material which enclose the product he purchases.” ³

In determining whether consideration is given, the appropriate inquiry is whether the paper container adds to the value of the food when sold, in exchange for the total price paid. Clearly the paper bowls, cups and plates increase the saleability and value of the food sold. It is not necessary that this increase be large, or even be determinable with accuracy. In Moore v. Arizona Box Co., 59 Ariz. 262, 268, 126 P.2d 305 (1942), the court explained as follows:

“The point where some of the cases, and opinions seem to have gotten away from the logical track is a failure to recognize that the mere fact that, though the amount of the value added to the product by the use of the container may be small or may not be determined with even reasonable exactitude either on the basis of per cent, or of dollars and cents, yet if the value is actually added and the salable value of the product increased by the use of the container, it makes no difference that such increase cannot be determined with accuracy. It is obvious in the present case that the container is purchased by the packer only for the purpose of passing on together with the fruit or vegetable; that it cannot be used in any other practical manner, and that without the container the packer’s business would be ruined and his product, for all practical intents and purposes so far as resale is concerned, valueless. Under these circumstances, we think the container was sold by plaintiff for the purpose of resale.”

Finally, the overwhelming majority of jurisdictions have rejected the position taken by the Comptroller in this case. See, e.g., Moore v. Arizona Box Co., supra; Arkansas Beverage Co. v. Heath, 257 Ark. 991, 521 S.W.2d 835 (1975); Hervey v. Southern Wooden Box, Inc., 253 Ark. 290, 486 S.W.2d 65 (1972); Goebel Brewing Co. v. Brown, 306 Mich. 222, 10 N.W.2d 835 (1943); Burger King, Inc. v. State Tax Comm ’r, 51 N.Y.2d 614, 435 N.Y.S.2d 689, 416 N.E.2d 1024 (1980); American Molasses Co. of New York v. McGoldrick, 281 N.Y. 269, 22 N.E.2d 369 (1939); Kroger Grocery and Baking Co. v. Glander, 149 Ohio St. 120, 36 Ohio Ops. 471, 77 N.E.2d 921 (1948); Paper Products Co. v. City of Pittsburgh, supra.⁴ See also District of Columbia v. Seven-Up Washington, 214 F.2d 197, 202 (D.C.Cir.1954), cert. denied, 347 U.S. 989, 74 S.Ct. 851, 98 L.Ed. 1123 (1954).⁵

The opinion of the Court of Special Appeals did not consider the foregoing cases but instead relied upon a minority view expressed by the Supreme Court of Illinois in Sta-Ru Corp. v. Mahin, 64 Ill.2d 330, 1 Ill.Dec. 67, 356 N.E.2d 67 (1976). In that case, under a similar statutory and factual framework, the court determined that paper products were not “resold” because separate consideration was not paid for them, and because the ultimate consumer did not receive “permanent benefit” from the paper product. The court in Sta-Ru relied on two cases, one involving meals sold with an airline flight, the other involving paper tissue and towels furnished to hotel guests. In each of these cases, the main item which the consumer received, whether it was transportation or a place to sleep, had value regardless of its being accompanied by a meal or towel. The court in Sta-Ru, and the Court of Special Appeals in the present case, failed to recognize that, in contrast to those situations, the food sold to a consumer is relatively valueless if no container for carrying and consuming the food is provided. See Moore v. Arizona Box Co., supra; American Molasses Co. of New York, supra; Paper Products Co. v. City of Pittsburgh, supra.

Another reason for excluding these paper containers from taxation is recognized by nearly every case on point: the avoidance of double taxation. See, e.g., L.A. Frey and Sons v. Lafayette Parish School Board, 262 So.2d 132, 134, 136 (La.1972); Burger King, Inc. v. State Tax Comm’r, supra, 416 N.E.2d at 1028. It is beyond dispute that the purpose of Maryland’s resale exclusion is to avoid the “pyramiding” of taxes and to have the tax burden rest on only the final consumer of an item. Comptroller v. A. Cyanamid Co., supra, 240 Md. at 494-495, 214 A.2d 596. In the present case, the Comptroller would have Macke pay the use tax on the paper products when purchased, then collect a sales tax on the item when resold, resulting in a tax upon a tax. This is contrary to the intent of the General Assembly.

For the foregoing reasons, the Tax Court should have allowed the tax exclusion as to Macke's purchase of the paper plates, cups, bowls, hot food cups and lids. This holding is inapplicable to Macke’s purchase of napkins, straws, utensils, stirrers and paper bags, which are kept separate from the items sold and are freely available to non-purchasers of the food items.

JUDGMENTS OF THE COURT OF SPECIAL APPEALS AND THE CIRCUIT COURT FOR BALTIMORE CITY AFFIRMED IN PART AND REVERSED IN PART. CASE REMANDED TO THE COURT OF SPECIAL APPEALS WITH DIRECTIONS TO REMAND THE CASE TO THE CIRCUIT COURT FOR BALTIMORE CITY WITH FURTHER DIRECTIONS TO REMAND THE CASE TO THE MARYLAND TAX COURT FOR PASSAGE OF AN ORDER CONSISTENT WITH THIS OPINION. COSTS TO BE DIVIDED EQUALLY.

1 . The products involved are paper cups, plates, bowls, hot food cups, ■ napkins, bags, plastic utensils, straws and stirrers. For convenience, we shall hereafter refer to the products involved simply as "paper" products.

2 . The testimony before the Tax Court was uncontradicted that persons in the cafeteria and lunch room areas bringing food from home, and not purchasing anything through the food lines or vending machines, were able to and did use the napkins, utensils and other assorted products from the condiment tables. Macke’s witnesses testified that the non-purchasers of the food were in no way prevented from using these items, that there were no signs suggesting that the items were only for purchasers of food, that the only signs posted requested only that persons not take any more of the items than they intended to use, that the items were in fact used by non-purchasers of food, that Macke’s management was aware of this, and that its accounting practices reflected it.

3 . The court in Paper Products Co. clearly differentiated between two categories of items. The first category, discussed in the above quotation, included containers and wrappings. The second category consisted of “towels, toilet paper, napkins, cups and the like" which were sold to vendors who used these products "on their own premises, by their own employees, and [which] were not used directly in connection with the products which they sold." 130 A.2d at 221. The purchase of these products by the vendors was held to be taxable, like the purchase of pan liners, towels, plastic bags and other products by Macke for use on its premises by its employees in the course of business, and upon which Macke paid, without dispute, the sales tax. Consequently, contrary to the implication in Chief Judge Murphy’s dissenting opinion the purchases by the vendors held to be taxable in the Paper Products Co. case were not similar to the purchases by Macke of the paper food containers and lids.

4 . Cf. Ala.Code, § 40-23-60(4)(c) (1975, 1984 Supp.); Cal.Revenue and Taxation Code § 6364 (West 1970) and Iowa Code Ann. § 432-l(l)(a) (West 1981, 1984 Supp.), which have specific statutory use tax exclusions for containers and/or packaging materials sold together with their contents.

5 . The dissenting opinion suggests that three of the cited cases, Seven-Up Washington, Arkansas Beverage Company, and Southern Wooden Box, “actually support the Comptroller’s position.” This suggestion is inaccurate. The courts in these three cases distinguished between the paper cups and/or cartons used in the sale of soft drinks, which were held to be tax exempt because they were purchased for resale, and the wooden cases and glass bottles, which were deemed taxable. The latter were returnable, and a deposit was paid for them.