In Reversing Tax Court Decision, Court of Special Appeals Demonstrates Agencies’ Power to Shape the Law

By John Grimm

Appeals of administrative agency decisions can be deceiving. While they often involve dry and highly technical matters, they also contain some of the trickiest and most interesting problems regarding courts’ powers over a coordinate branch of government’s exercise of its legal authority. The Court of Special Appeals recently proved that in the administrative law world, important concepts can arise out of seemingly minor regulatory decisions: In this case, a $2,554.37 tax assessment.

Comptroller v. Atwood, involved the proper application of Maryland Annotated Code, Tax-General § 11-208(c)(1), which makes aircraft used principally for interstate commerce exempt from a state sales and use tax. The appellee paid $34,000 for 1958 Beechcraft airplane, which he used primarily to train his son how to fly, and to travel back and forth to JFK Airport where he worked. The Comptroller assessed a $2,040.00 sales and use tax plus interest and a penalty totaling $2,554.37. The appellate disputed the tax, first before the Comptroller, and then in the Tax Court. The Comptroller affirmed the assessment, holding that the appellee’s use of the plane was not interstate commerce and did not qualify for a tax exemption.

The Tax Court reversed. It concluded that crossing state lines while providing flight lessons is interstate commerce. The circuit court affirmed the Tax Court. The Court of Special Appeals reversed, remanding the case back to the circuit court with instructions to remand to the Tax Court to enter judgment in favor of the Comptroller.

The Tax Court’s reasoning—that flying from one state to another to get to work or provide commercially valuable training counts as “interstate commerce” seems hard to deny, so why did the Court of Special Appeals reach the opposite conclusion and side with the Comptroller? The answer has to do with the Comptroller’s regulations and the significant deference courts afford them. Although the statute says only that the tax exemption applies to aircraft “used principally to cross State lines in interstate or foreign commerce,” the Comptroller’s own regulations provide substantially more detail for how the tax exemption applies. Under those regulations, aircraft are only involved in interstate commerce if more than 50% of their total mileage traveled involve picking up and delivering of items or passengers[i]—something the facts of this case clearly did not involve.

Atwood is an important reminder of how much administrative agencies are responsible for shaping the law. The court traced the legislative history of the statutory tax exemption and concluded that the General Assembly intended to codify an earlier Comptroller regulation limiting the tax exemption to aircraft involved in transporting passengers or freight and that subsequent revisions intended to carry over that interpretation. And, although not explicitly addressed in this opinion, Maryland law embodies the principle that courts owe special deference to agencies’ interpretations of their own regulations, “because the agency is best able to discern its intent in promulgating those regulations.”[ii] Atwood demonstrates that technical principles of agency law can have significant practical effects.

[i] Interestingly, though, the regulation doesn’t actually say pick up or delivery of items or passengers.  It just refers to a pickup or delivery, but it doesn’t specify of what.  See Md. Code Regs. (“COMAR”)

[ii] Kim v. Md. State Bd. Of Physicians, 196 Md. App. 362, 372, 9 A.3d 534, 540 (2010).

2 responses to “In Reversing Tax Court Decision, Court of Special Appeals Demonstrates Agencies’ Power to Shape the Law”

  1. Robert David Schulte says :

    So words have the meaning that the King gives them at any given moment.

    Frankly, I find the case both frightening and a retrograde of the entire concept of the rule of law.

    Perhaps Nixon was right … [w]ell, when the president does it, that means that it is not illegal.”

    We had given our institutions and the people who administer them too much trust & power for far too long.

    The fact is “interstate commerce” is one of the most widely litigated and understood words in our jurisprudential lexicon.

    Isn’t it interesting that when the government wishes to regulate something “interstate commerce” means, well, everything.

    When it grants a tax exemption based upon the concept, it means much less.

    And for the record, a flight instructor is still a “passenger.”

    The student is the pilot.

    And of course, none of those words appear anywhere in the statute.

    Moreover, the SCOTUS has specifically said that aircraft are “instrumentalities of interstate commerce.”

    Indeed, nobody buys aircraft to go around the block.

    This decision will simply result in less aircraft being based in MD and consequently fewer high-paying skilled jobs otherwise necessary to support those aircraft.

    If the legislature did not mean “interstate commerce,” it should not have used that word in the statute.

    The Court should have made the legislature – you know, those elected folks – clean up their mess instead of providing cover for a poorly worded statute.

  2. Michael A Wein says :


    though it’s not directly discussed, there’s a few other interesting considerations. One is that it’s not surprising when the Circuit Court affirms the Tax Court. That’s usually pro forma, unless there’s a pure question of law involved, such as just an interpretation of the statutory text. (Which there isn’t usually)

    What’s perhaps interesting, is that usually the appeal is affirmed based on the Tax Courts reasoning. But the Tax Court reversed the Comptroller in favor of the pilot (for those few people who fly planes regularly in interstate commerce), and then the Circuit Court agreed based on their limited Standard of Review to reverse. And here it was the Comptroller who appealed, based on their regulation.

    So what’s not discussed (and has only been discussed in passing in a few Maryland reported decisions), is there’s some echoes of Chevron doctrine, from the federal courts, involving deference to admin. regulations. That’s not as controversial as what’s called Auer doctrine, where it goes to the next level, of the administrative agency’s interpretation on the ambiguous regs are granted deference. THat’s been challenged in the Supreme Court, as a case that should be overruled.

    But Chevron doctrine, is not really controversial. Here, it appears that the stipulation made that there was no “business purpose” ended up hurting, because it violated the Regs, on the “ambiguity” that something was left out of the Statute. Those Regs, to be valid, had to be done first with public notice, etcetera. If the Tax Court in the first instance, had relied on a factual determination, then it would have been easier to affirm that decision.

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