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Martin Co. v. State Tax Commission of

Decided: June 8, 1961.


Appeals from the Circuit Court of Baltimore City (Sodaro, J.).

The cause was argued before Brune, C. J., and Henderson, Hammond, Prescott and Horney, JJ.


BRUNE, C. J., delivered the opinion of the Court.

The primary question in this case is the validity under Maryland tax laws of taxes assessed for the year 1958 against The Martin Company (Martin) on materials, work in process and finished products in Martin's possession under contracts with the United States for the production of guided missiles, aircraft, electronics systems and weapons systems. The State Tax Commission, acting in the exercise of its original jurisdiction, entered its final assessment thereon in the amount of approximately $77,000,000. On appeal the Circuit Court of Baltimore City affirmed the assessment, except as to certain items aggregating nearly $13,950,000, as to which it remanded the case to the Department of Assessments and Taxation (successor to the State Tax Commission, the "Commission," under Ch. 757 of the Acts of 1959, with respect to its assessing functions) for the entry of an appropriate order. The principal items held exempt were materials in transit and "special tooling," including tooling labor, overhead, and material and "tooling subcontract." The items included in special tooling, approximately $6,550,000 in amount, were held exempt as Government-owned property and were also held exempt from local taxation by Baltimore County, where Martin's plant is located, under the manufacturer's exemption ordinance or resolution of that County. (Some other property included under a different classification was also held entitled to this manufacturer's exemption.) After all these eliminations were made, the remaining assessments aggregated some $63,000,000. Appeals from the order of the Circuit Court were taken by Martin and by the United States, an intervening petitioner in that Court, and cross-appeals were taken by the Commission or its successor, and by Baltimore

City and Baltimore County, intervening respondents in the Circuit Court.

A number of questions, in addition to the primary question above stated, are raised or sought to be raised by the appeal or cross-appeals. Among them, on the side of the original appellants, are alleged discrimination against the United States and the proper basis of calculating costs of materials, work in process and finished products, if such items are taxable at all. The cross-appeals present questions as to whether or not claims for exemptions of goods in transit and for the Baltimore County manufacturer's exemption were waived because not raised before the Commission or by the petition of appeal and whether the jurisdiction of the Circuit Court was not terminated by Ch. 757 of the Acts of 1959, which repealed the section of the tax laws under which the appeal was taken to the Circuit Court of Baltimore City. We shall consider first this question of jurisdiction.

The Commission's final assessment was entered on December 17, 1958, and Martin filed its petition of appeal in the Circuit Court on January 8, 1959. The record before the Commission was certified to the Circuit Court on February 16, and the United States of America intervened on March 17, 1959. Baltimore City and Baltimore County intervened on October 13, 1959. The latter filed its motion to dismiss for lack of jurisdiction on March 19, 1960, and this motion was overruled. The basis for it was the repeal by Ch. 757 of the Acts of 1959 of the former Section 259 (b) of Article 81 of the Code (1957). Ch. 757 was approved by the Governor on April 28 and took effect on July 1, 1959. Under that Act the assessing functions of the State Tax Commission were transferred to the newly established Department of Assessments and Taxation, and its reviewing functions were transferred to the newly created Maryland Tax Court. As a part of this plan, Section 259 (b) was repealed, and in the place of the appeal to the Circuit Court provided thereunder from the Commission in the exercise of its original assessing functions, an appeal to the Maryland Tax Court was substituted, with a further appeal to the Circuit Court (in the Counties)

or to the Baltimore City Court, and a still further appeal to this Court. Baltimore County urges that this repeal, without any provision being made for cases pending at the time when the repeal became effective destroyed the former remedy to proceed in this case. It is claimed that the change is only one of remedy, an appeal to the Tax Court being substituted, and that there is no deprivation of a substantive right.

We do not find this contention persuasive. The appeal to the new Maryland Tax Court from the action of the Department of Assessments and Taxation in respect of the assessment of ordinary taxes which is provided for by Section 256 of Article 81 of the Code of 1957, as amended by Ch. 757 of the Acts of 1959, must be taken, (in accordance with Section 229 of that Article, as so amended), within thirty days from the date of the action or order complained of. That would be a manifest impossibility in the instant case, where the final action of the State Tax Commission (predecessor of the Department) had been taken more than six months before the effective date of the 1959 amendments; and there is no provision in the 1959 amendments which purports to transfer jurisdiction over an appeal already taken and pending in a Circuit Court to the newly created Tax Court. It is hardly to be supposed that the General Assembly intended that a taxpayer in the midst of seeking a remedy against an allegedly wrongful assessment should be deprived of any remedy by being barred on the one hand from the pursuit of the remedy previously allowed and on the other by a time limitation with which he could not possibly comply. We think that the statute was intended to be prospective only in substituting one course of appeal for another. See Beechwood Coal Co. v. Lucas, 215 Md. 248, 253-254, 137 A.2d 680.

We accordingly think that the Circuit Court of Baltimore City correctly denied the motion to dismiss for lack of jurisdiction. We now turn to the primary question.

Martin had numerous contracts with the United States Government for the production of missiles, electronics systems and weapons systems and in 1958 was still producing some aircraft for the Government. Since these contracts are

classified as secret, only clauses not so classified and pertinent to this litigation have been offered in evidence. In general, these contracts are of two main types: first, fixed-price contracts; and second, cost-plus-fixed-fee contracts. Each type contains provisions relating to the vesting of title in the United States and Government controls over materials purchased or in course of manufacture covering custody and disposition, accounting and supervisions and inspection. There is no real dispute as to the sufficiency of the title-vesting clauses in each type of contract to vest technical, legal title to the materials in question in the United States. The appellees contend that technical, legal title is not controlling -- that Martin has such possession, custody and control, and beneficial use of the property as to render Martin subject to taxation in respect thereof. The appellants contend that Martin's interest is neither actual ownership nor such ownership as to render the property taxable to it as a person in possession or control of property owned by another person.

Usual title-vesting clauses of the fixed price ("FP") type of contract and of the cost-plus-fixed-fee ("CPFF") type are as follows:

FP --

"Upon the making of any progress payments under this contract, title to all parts, materials, inventories, work in process and nondurable tools theretofore acquired or produced by the Contractor for the performance of this contract, and properly chargeable thereto under sound accounting practice, shall forthwith vest in the Government; and title to all like property thereafter acquired or produced by the Contractor for the performance of this contract and properly chargeable thereto as aforesaid shall vest in the Government forthwith upon said acquisition or production: Provided, that nothing herein shall deprive the Contractor of any further progress or final payments due or to become due hereunder; or relieve the Contractor or the Government of any of their respective rights or obligations under this contract."


"Title to all property furnished by the Government shall remain in the Government. Title to all property purchased by the Contractor, for the cost of which the Contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pass to and vest in the Government upon delivery of such property by the vendor. Title to other property, the cost of which is reimbursable to the Contractor under this contract, shall pass to and vest in the Government upon (i) issuance for use of such property in the performance of this contract, or (ii) commencement of processing or use of such property in the performance of this contract, or (iii) reimbursement of the cost thereof by the Government, whichever first occurs. All the items to be furnished by the Government, as set forth in the Schedule or specifications, together with all property acquired by the Contractor title to which vests in the Government under this paragraph, are subject to the provisions of this clause and are hereinafter collectively referred to as 'Government Property.'"

Both types of contract are in general similar as to a number of matters. Under each the Government makes current payments as billed for materials, parts and work in progress. It exercises detailed supervision over accounting matters, physical handling, quality and use of materials. Its supervisory control extends over the purchase of materials and placement of sub-contracts.Though Martin is not the agent of the Government for the purchase of materials, title to materials purchased by Martin vests in the Government immediately upon acquisition by Martin under CPFF contracts and upon the making of the first progress payment under FP contracts. The Government has control over the disposition of surplus, spoiled or scrap material, and has eleven persons employed in this work. It maintains large staffs to carry out a continuous audit and to supervise the performance of contracts.

There are some differences between the two main types of contract, but each type recognizes that property to which the Government acquires title will be left in the possession of Martin to be used in the performance of the contract. Under the FP contracts the risk of loss of the property is on Martin, but Martin is required to carry insurance so written as to cover the Government's interest. Under CPFF contracts the Government assumes the risk of loss and acts as a self-insurer. There are also some differences in inventory control, though control is rather stringent in each case. Under FP contracts accurate and comprehensive records are required and periodic physical inventories are taken. Under CPFF contracts, in addition to complete inventory ...

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