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”) 03.06.01.26.B(1)-(3).
[ii] Kim v. Md. State Bd. Of Physicians, 196 Md. App. 362, 372, 9 A.3d 534, 540 (2010).