Comptroller v. Citicorp

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Comptroller of the Treasury v. Citicorp, No. 147, September Term, 2004 HEADNOTE LEASE TERMINATION FEES NOT A TA XABLE TR ANSACTIO N A fee paid to terminate a lease is not a sale and, therefore, is not subject to sales tax when there is no transfer of title or possession of property to the lessee. HEADNOTE AGENCY DE CISIONS A reviewing court must affirm decisions of agencies if their decisions are not erroneous as a matter of law or if its conclusions are supported by substantial evidence. An agency s decision is prima facie correct and presumed valid, and therefore a reviewing court must review such decisions in the light most favorable to the agency. In particular, we note that the interpretation of the tax law can be a m ixed qu estion o f fact a nd law , the reso lution o f whic h requi res age ncy expe rtise. HEADNOTE AMB IGUITY IN TAX S TATUTES [W]hen specifically interpreting tax statutes, this Court recognizes that any ambiguity within the statutory language must be interpreted in favor of the taxpayer. Supervisor of Assessments of Anne Arundel County v. Hartge Yach tyard, In c., 379 Md. 452, 461, 842 A.2d 732, 737 (2004) (quoting Comptroller v. Clyd e s of C hevy C hase, In c., 377 M d. 471, 4 84, 833 A.2d 1 014, 10 21 (20 03)). In the Circu it Court for B altimore C ity Case No. 24-C-04-002236 IN THE COURT OF APPEALS OF MARYLAND No. 147 September Term, 2004 __________________________________ COMPTROLLER OF THE TREASURY v. CITICORP INTERNATIONAL COMMUNICATIONS, INC. __________________________________ Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ. _________________________________ Opinion by Greene, J. Wilner, J., D issents __________________________________ Filed: October 4, 2005 This case involves the termination of a lease for computer e quipment. We are asked to decide whether a fee paid by the lessee to terminate the lea se is taxable. Two prelim inary questions reside with in this question: (1) whether the payment was made pursuant to a transaction th at can be d efined as a sale, with in 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 te rminate the lease was n ot a sale and, th erefore , is not su bject to s ales tax. FACTS On May 30, 1990, Citicorp Inte rnational C ommu nications, Inc . ( CICI ) e ntered 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, the parties extended the lease for an a ddition al term. On September 3, 1998, CICI decided to upgrade its computer equipm ent and sough t a releas e from the oblig ations o f its lease with IB M. 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 replace ment e quipm ent from IBM at a cost o f $7,38 7,800, p lus sales tax of $ 369,39 0. Initia lly, CICI did not pay sales tax on the lease termination f ee. On December 1, 1998, IBM subm itted another invoice to CIC I for sales tax on the termination fee, in the amount of $360 ,999.90. O n April 1, 1999, C ICI 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 KPM G, 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 o f tangible personal property when the property subje ct 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, Daw son co nclude d that, [t]he termination fee . . . is a charge imposed by the lessor on the les see 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 termination agreement as described in your request is an agreement separate and apart from the lease agreement and does not appear to be a con dition or requ irement of the lease ag reement. Therefore, the termination fee cannot be deemed consideration in the consummation and complete performance of a sale as provided in § 11-101 (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 re fund of the sales tax p aid on the termination fee. The Comptroller s Refund Supervise r requested that CICI f ile additional d ocumen ts with its application, and on January 29, 2001, CICI refiled its Refu nd Ap plication along w ith those docum ents. By letter dated July 30, 2001, the Refu nd Supe rvisor denie d CICI s r equest. On September 28, 2001, 2 the Comptroller held an informal hearing on the matter. On Janua ry 4, 2002, the Comptroller issued a Notice of Final Determination, denying the refund. CICI appealed to the Maryland Tax Court and on Novem ber 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 th e lease term ination agre ement, C ICI release d 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 prop erty 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 Comptroller filed a Motion for Reconsideration that was later denied by the Circuit C ourt. 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 . Com ptroller v. Citico rp, 385 M d. 511, 8 69 A.2 d 864 ( 2005) . STANDARD OF REVIEW As stated in CBS v. Comptroller, 319 Md. 68 7, 697-98, 575 A .2d 324, 329 (199 0), [a] reviewing court m ust affirm [the decision o f] the Tax Cou rt if its order is not erroneous as a matter of law, and if the order is supported by substantial evidence appearing in the 3 record (quoting Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834, 490 A.2d 1296, 1300-01 (1985)). We explained in Ram say, Sca rlett & Co . that, the Tax Court s decision is based on a factual de termination , and there is no error of law, the reviewing court may not reverse the Tax Co urt s order if substantial evidence o f record supports the ag ency s decision. Ram say, Scarlett & C o., 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 S ervices v. Van n, 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 o f Physician Quality Assurance v. Banks, 354 Md. 59, 69 (1999)(noting that, an adm inistrative agen cy s interpretation and applic ation 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 fa vorabl e to it. Ramsay, Scarle tt & Co., 302 M d. at 835, 49 0 A.2d a t 1301. W e also note that it is the agency s province to resolve conflicting evidence and where inconsistent inferences can be drawn from the same evidence it is for the agency to draw the inferences. Id. Fina lly, we note that the interpretation of the tax law can be a mixed question of fact and law, the resolutio n of w hich req uires ag ency exp ertise. NCR Corp. v. Comptroller, 313 4 Md. 118, 133-134, 544 A.2d 764, 771 (1988) (stating that determinations involving mixed questions of fact and law must be affirmed if, after deferring to the Tax C ourt s expertise and to the presum ption that the d ecision is correct, a reasoning mind could have reached the Tax Court s conclu sion. )(i nternal q uotation marks omitted ). See also Vann , 382 Md. at 298, 855 A.2d at 320 (stating that [d]efere ntial review o ver mixed questions o f law and fact is appropriate in order for the agency to fulfill its mandate and exercise its expertise ); CBS, 319 Md. at 698, 575 A.2d at 329 (noting that, we apply [a] deferential standard of review not only to its fact-finding and its drawing of inferences, but also to its application of the law to the facts ); Ramsay, Scarlett & Co., 302 M d. at 838, 490 A.2d at 1303 (holding that whether a busine ss is unita ry or sepa rate . . . for tax pur poses . . . is not solely a question of law and therefore, the Tax Court s decision on the question deserves de ference). Rather, we must as k wh ether in l ight of s ubstan tial evide nce ap pearing in the rec ord, a reasoning mind could reaso nably have re ached the conclusion reached b y the Tax C ourt, consistent with a proper app lication [of the tax statute in question]. ). Unless the Tax Court s de cision wa s erroneou s as a matter o f law, or its conclusion was not sup ported by substa ntial evid ence, w e must a ffirm th at decisi on. See CBS, 319 Md. at 697-98, 575 A .2d at 329 (internal quotations an d citations omitted). In the instant case, the issue of w hether the ter mination f ee is part of th e taxable price of the M aster Lease is a question of law that hinges on two factual issues: (1) was the termination fee part of a sale, and (2) was the Lease Termination Agreement part of the Master Lease. Therefore, whether the termination fee is subject to sales tax is a mixed 5 question of law and fact and compels a certain deference to the Tax Court s decision. DISCUSSION The resolution o f the questi on in this case depends on the interpretation and application of sections of the Tax General Article and related provisions of COMAR. We begin, therefore, with a review of the rules of statutory interpretation. Our goa l is to ascertain and effectuate the intention of the legislature, and we begin that exercise by reviewing the statu tory langu age itsel f. Rockwood Casualty Insurance Co. v. Uninsured Employers Fund, 385 Md. 99, 108, 867 A.2d 1026, 1031 (2005) (quoting Oaks v. Conners, 339 Md. 24, 35, 660 A.2d 423, 429 (1995)). As explained in Oaks , if the words o f the statute, construed according to their common and everyday meaning, are clear and unambiguous and expr ess a plain m eaning, w e will give effe ct to the statute a s it is written. Oaks, 339 Md. at 35, 660 A.2d at 429 (quoting Jones v. State, 336 Md. 255, 261, 647 A.2d 1204, 1206-07 (1994)). Furthermore, we note that we will not read COM AR pro visions in isolation. Rather, w e must interp ret [them] in light of [their] enabling legislation . . . . Worton Creek Marina v. Clagge tt, 381 Md. 499, 511, 850 A.2d 1169, 1 176 (200 4). F inall y, we note that when specifically interpreting tax statutes, this Court recognizes that any ambiguity within the statutory language must be interpreted in favor of the taxpayer. Supervisor of Assessments of Anne Arundel County v. Hartge Yacht yard, In c., 379 Md. 452, 461, 842 A.2d 732, 737 (2004) (quoting Comptroller v. Clyde s of Chev y Cha se, Inc., 377 Md. 4 71, 484 , 833 A .2d 101 4, 1021 (2003 )). Section 11-102 of the Tax General Article provides that a sales and use tax is imposed 6 on (1) a retail sale in the State; and (2) a use, in the State, of tangible personal property or a taxable service. Md. Code (1988 , 2004 Repl. Vol.), § 11-102 (a) of the Tax General Article. In addi tion, § 11-103 provides that there is a rebuttable presumption that any sale in the State is subject to the sales and use tax imposed und er § 11-102 (a)(1) . . . and that [t]he person required to pay the sales and use tax has the bu rden of p roving that a sale in the State is not subject to the sales and use tax. Md. Code (1988 , 2004 Repl. Vol.), § 11-103 of the T ax Ge neral A rticle. Section 11-101 (i) of the Tax General Article defines sale as (i) title or possession of property is transferred or is to be transferred absolutely or conditionally by any means, including by lease, rental, royalty agreement, or grant of a license for use; or (ii) a person performs a service for another person. Md. Code (1988, 2004 Repl. Vol.), § 11-101 (i) of the Tax General Article.1 In further explanation of the definition of a sale, Section 03.06.01.28 of COMAR provides: A. The transfer of possession, absolutely or conditionally by any means, of tangible personal property for a consideration, by way of lease, rental, royalty agreement or grant of a license for use, referred to in this regulation as a lease, is included within the statutor y definition of th e term sale and is thus subject to the tax in the absence of a specific exemption or exclusion. B. Each lease payment period is considered a separate lease, and thus a separate sale, for the purpose of determining when the tax is to be collected or paid. 1 We note that Title 11 o f the Tax Ge neral Article does not def ine the term lease. Section 2A-103(j) of the Commercial Law Article, however, defines the term as a transfer of the righ t to possession and use o f goods for a term in return for consideration . . . . Md. Code (1975, 2002 Repl. Vol., 2004 Supp.), § 2A103(j) o f the C ommercial L aw A rticle. 7 Section 11-101(l) of the Tax General Article defines taxable price as the value, in mon ey, of the consideration of any kind that is paid, delivered, payab le, or deliv erab le by a buyer to a vendor in the consummation and complete performance of a sale without deduction for any expense or cost . . . . Md. Code (1988, 2004 Repl. Vol.), § 11-101 (l) of the Tax General Article ( emph asis add ed). As made clear by § 11-102, the imposition of sales tax requires, in the first instance, a sale. Md. Code (1988, 2004 Repl. Vol.), § 11-102 of the Tax General Article. In keeping with that concept, the statutory definition of taxable price includes co nsideration p aid in the consummation and complete performance of a sale. Md. Code (1988, 2004 R epl. Vol.), § 11-101 (l) of the Ta x Gene ral Article. (Em phasis added.) Moreover, under § 11-103, the presumption that sales tax is o wed an d the burd en of pro of on the ta xpayer, only exist if the transaction in question actually is a sale. Md. Code (1 988, 200 4 Repl. Vol.), § 11-103 of the Tax General Article. Considering the plain lan guage of the statutory and reg ulatory provisions in question, it is clear that if the transaction at issue in this case is not a sale, the consideration paid for the transaction, by definition, canno t be part o f the ta xable p rice, and canno t be sub ject to sa les and use tax . Section 6.1 of the Master Lease between CICI and IBM p rovides tha t payment is absolute and unconditional and shall not be subject to any abatement, reduction, set off, defense, counterclaim, interruption, deferm ent or recoupment for any reason whatsoever, and that such payments shall be and continu e to be payable in all events. The Comptroller argues that, under this language, there is no way out of the Lease, short of complete and 8 total payment of all rental payments due at the inception of the Lease. As a result, the Comptroller asserts that the Termination Agreement entered into by CICI and IBM was not a separate agreement at all, but merely an amendment to the existing lease.2 The Comptroller argues that because CICI payed the Termination fee to meet and complete its pre-existing obligations under the Lease, payment of this fee c onstitutes co nsumm ation and c omplete performance of a sale, and is therefore a payment of taxable price subject to sales tax. There are two flaws in the Comptroller s argument. First, the argument ignores language in the Ma ster Lease th at provides an exception to the seemingly absolute and uncond itional language of Se ction 6.1. Second, the argu ment mischaracterizes the nature 2 As additional support for his argument that the termination agreement was not separate from the Master Lease, the Comptroller points to the fact that the Termination Agreement was labeled with the same identification number as the term lease supplements, documents that all parties agree are part of the Master Lease. We are n ot persuaded by that argum ent, as it appears to us to elevate form over substance. The Comptroller s contention that paragraphs (b) and (d) of the Master L ease rende r the Term ination Ag reement a Term L ease Sup plement is similarly u nconv incing. We interpret the Termination Agreement and Master Lease based on a review of the contents of those d ocumen ts, not on the b asis of the n umbers u sed to identify those documents. A termination agreement entered into for the purpose of terminating a particular lea se is undou btedly part of the lease, inso far as it is connecte d to and re lated to the lease that is b eing termin ated it wo uld be diff icult to imagine how companies as large as IBM and CICI, who likely have many leases with mu ltiple parties, wo uld know which lea se was be ing termina ted withou t a reference to the lease itself. That fact, however, does not transform a lease termination fee into a ren tal payment, as a rgued by the C omptroller. A s previously explained , the contents of the Te rmination A greemen t itself make it c lear that it was not a part of the Master Lease. Rather, it was a separate agreement through which CICI and IBM terminated the Master Lease and released each other from further perfor manc e in acc ordanc e with its terms. 9 of the termination transaction b etween IBM and CICI. Section 14.1 of the Master Lease, provides that [n]either this Master Lease nor any Equipment Schedule may be altered, modified, terminated or discharged except by a writing signed by the party against whom such alteration, modification, termination or dischar ge is sought. 3 (Emphasis add ed.) We agree with the Tax Court s finding that the written Termination Agreement entered into by CICI and IBM released CICI from its obligations under the lease.4 The T ermina tion Ag reeme nt states, in relevan t part, Lessee releases all of its interest in the leased equipment indicated above ( Leased Items ) and Lessor agrees to discontinue such leases and to relieve Lessee from all continuing obligations to pay Rent due after the Termination/Prepayment Date indic ated abov e . . . . In considera tion for Lessor s agreement to release Lessee from its original lease/financing obligations after the Termination/Prepayment date, Lessee shall pay Lessor the Total Charge indicated above. (Emp hasis ad ded.) The transaction between CICI and IBM, whereby IBM released C ICI from its obligations under the le ase and C ICI paid the termination fee and re turned the o ld equipm ent, 3 We note that the Commercial Law Article recognizes the concept that parties may enter into seemingly absolute and unconditional agreements that can be mo dified b y agreem ent in w riting. See Md. Cod e (1975) (2002 R epl. Vol.) § 2A-208 (2) of the Commercial Law Article (providing, in pertinent part, that [a] signed lease agreement that excludes modification or rescission except by a signed writing may not be otherw ise modified or rescinded . . . ). 4 The court concluded that the Termination Agreement is a separate and distinct agreement from, and not an amendment to, the Master Lease, and also that [t]he termination charge imposed by IBM Credit on Petitioner relieved each of the parties from the requirements of the lease agreement. Rather than being a condition or requirement added to the Master Lease, the Termination agreement effectively rendered the Master Lease void. 10 does not fit within the statutory or regulatory definition of the wo rd sale. Upon termination of the agreement and payment of the term ination fee to IBM, the re was no transfer of title or possession of property to the lessee, as contemplated by § 11-101 (g) of the Tax General Article and Se ction 03 .06.01.28 of CO MAR . In fact, in the in stant case, C ICI, the party paying the fee, transferred the property back to IBM, the party receiving the fee. Such an arrangement cannot fa irly be desc ribed as a sale, as that term is g enerally define d or as it is defined in the relevant statutes and regulations. To consider this arrangement a sale would turn the statutory definition of that term on its head. W e seek to avoid statutory constructions that are illogic al, unreasonable, or inconsistent with common sense. Frost v. State, 336 M d. 125, 1 37, 647 A.2d 1 06, 112 (1994 ). We do not think the statutory definition of sale is ambiguous. Even if it were, we would not be inclined to interpret the statute as suggested by the Comptroller, in view of the standard described in Comp troller v. Gan nett, 356 Md. 699, 707-08, 741 A.2d 1130, 1135 (1999), in which we said: When . . . the applicability of a tax statute and not a tax exemption is being construed, it is the established rule not to extend the tax statute s provisions by implication, beyond the clear import of the language used, to cases no t plainly within the statute s language, and no t to enlarge the statute s operation so as to embrace matters not specifically pointed out. In case of doubt, tax statutes are construed most strongly against the government, and in favor of the citizen. (quoting Com ptroller v. John C. Lou is Co., 285 Md. 527, 539, 404 A.2d 1045, 1053 (1979) (internal citations omitted)). The Comptroller also argues that the Termination Fee is taxable because, even though 11 IBM and CICI call it a termination fee, it should be viewed as a consolidation of the payments CICI w ould have paid under the Master Lease had the lease continued through the end of the term, discounted to present value.5 In other words, instead of making several payments over the course of the Master Lease (for the use of the equipment), the Comptroller argues that CICI made one lump sum payment to fulfill its lease obligations. That argument ignores the fact that the termination fee was not actually paid to fulfill CICI s lease obligations, which consisted of the requirement to pay for the use of the equipment. Rather, as stated in the Termination Agreement itself, CICI paid the fee to cancel the lease and to be released from all continuing obligations to pay Rent under the Master Lease. We will not look behind the words of the agreement between IBM and CICI in an attempt to ferret out an intention not otherwise described by the language of the agreement itself. To do so would violate the rules of the interpretation of contracts. As recently noted in Owens-Illinois v. Cook, 386 Md. 468, 872 A.2d 969 (2005), when construing a contract, we must first determine from the language of th e agreem ent itself wh at a reasonab le person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. Owen s-Illinois v. Cook, 386 Md. at 49 6-97, 872 A.2d at 985 (quoting General Motors 5 In view of the fact that the termination fee amount is similar to the amount th at would h ave been paid had th e lease con tinued, the C omptroller a sserts that the termination fee is just a creative label for what is really a buyout of the Maste r Lease . 12 Accepta nce Cor p. v. Danie ls, 303 Md. 254 , 261, 492 A.2d 1 306, 1310 (198 5)). Moreover, this transaction cannot be viewed as a buyout of a lease because CICI returned the leased equipment to IBM upon signing the Termination Agreement and paying the termination fee. The p arty that received the money also retained the goods. Consideration, within the context of the statutory definition s of sale a nd taxab le price, involves an exchange. Md. Code (1988, 2004 Repl. Vol.), §§ 11-101 (i), (l) of the Tax General Article. As p reviously noted, a sale occurs when title or posses sion of pro perty is transfe rred . . . abso lutel y or co nditiona lly . . . including by lease. Md. Code (1988, 2004 Repl. Vol.), §§ 11-101 (i) of the Tax General Article. Furthermore, Section 03.06.01.28 of COMAR further defines sale as [t]he transfer of possession . . . of tangible personal property for a cons ideration . . . . O rdinarily, the buying p arty makes pa yment in exchange for the r eceipt o f good s from the sellin g party. Under the Mas ter Lease in the present c ase, CICI s money w as exchan ged for th e possession and use o f compu ter equipm ent. Unde r the Lease Termina tion Agre ement, CICI s money was exchanged not for possession and use of compu ter equipment but for a release from the Master Lease obligations. The term release is defined as [l]iberation from an oblig ation, d uty, or demand; the act of giving up a right or claim to the person against whom it could have been enforced. Black s Law Dictionary 1292 (7 th ed. 1999). As a practical m atter, CICI p aid an agreed-upon fee to avoid being sued for breach of lease.6 6 The fact that the amount paid was the same amount of the remaining lease paym ents, disc ounted to pres ent v alue , doe s not chan ge th e ana lysis. A pparently, (continued...) 13 If we view the transaction as requested by the Comptroller, there is no exchange. Under the Comptroller s view, CICI would have paid rent for th e remainin g term of th e lease and in return would get nothing except the prior possession and use of the equipment that CICI had already enjoyed and for whic h it had already paid rent and taxes. Had the Master Lease actually remained in effect, the rent wou ld have co ntinued to be paid monthly and CICI would have continued to enjoy monthly possession and use of the c omputer e quipmen t, in exchange for each payment. Th ere is no comparab le exchange of p ayment for possession and use of equipme nt, if the fee is paid all at once and the equipment is returned before the expiration of the lease term.7 6 (...continued) IBM had the bargaining power to demand a high price in order to release CICI from it s lease obligations and CICI was willing to pay that price, rather than risk being sue d. As a ge neral rule, par ticipants in a fre e market p lace are free to contrac t as they w ish. Nesbit v. GEI CO, 382 Md. 65, 76, 854 A.2d 879, 885 (2004). A bsent frau d, duress, or m istake, or a co nflict with p ublic policy, we will interpre t a contra ct as it is w ritten. See Owens-Illinois v. Cook, 386 Md. at 496-97, 872 A.2d at 985 (noting that in the absence of fraud, duress, or mistake, parol evidence is not admissible to show the intention of the parties or to vary, alter, or contradict the terms of that contract (quoting General Motors Acceptance Corp. v. Daniels , 303 Md. at 261, 492 A.2d at 1310); Finch v. Holladay-Tyler Printing, Inc., 322 Md. 197, 206, 586 A.2d 1275, 1280 (1991) (noting that a contractual provision that violates public policy is invalid). 7 The C omptro ller argu es in its b rief that, [t]he fact that Citicorp shortened the period of possession of the equipment by executing the Termination does not support the conclusion it was the Termination that caused Citicorp to be required to return the equipment. The equipment had to be returned at the conclusion of the Le ase in any eve nt. The Te rmination m erely moved the date o n which surrend er of the equipme nt had to occur. (continued...) 14 The Tax Court made a finding that the termination fee relieved each of the parties from the requirements of the lease agreement. The only thing exchanged for the termination fee in this case, and therefore the only thing for which it can be said to be consideration, is the release from the Master Lease obligations. In our view, payment in exchange for the termination of a lease is not part of the taxable price of a transaction because it is not among the transactions that fairly fit within the statutory definition of a sale. A s a result, the Comptroller has no statutory authority to impose a sales tax on such a transaction. We have found no Maryland case discussing the question of whether a lease termination fee, paid in connection with the return of the leased property, is subject to a sales and use tax. The Comptroller relies on Chesapeake Industrial Leasing Company, Inc. v. Comptroller, 331 Md. 428, 628 A.2d 234 (1993), in support of its argument. The Comptroller s reliance on Chesapeake is misplaced. Our discussion in Chesapeake of lease payment periods (the part of the opinion upon which the Comptroller relies), actually provides support to CICI s position. We said: In particular, the parties differ on the meaning of section 03.06.01.73.B, which identifies each lease payment period as a separate sale and, therefore, as the trigger for collection and remission of tax under the Statute. Chesapeake s first argum ent is that if the lessees ceased paying rent, the leases ended, meaning there were no more lease payment periods and consequ ently 7 (...continued) That argument transforms the payment of the termination fee into a lump sum payment of rent. Such a transformation contradicts the language of the Termina tion Agre ement itself, w hich states tha t CICI m ust release its inte rest in the equipment and pay a termination fee and, in exchange, IBM will relieve [CICI] f rom all co ntinuing obligatio ns to pay Rent . . . . (Emphasis added.) 15 no more sales to which the sales tax could apply as per COMAR 03.06.01.73.B. We need not address today the effect of lease termination upon a vendor s obligation to remit sales tax because there is no evidence that the leases in this case ac tually terminated . Chesape ake s lessee s apparen tly remained in possession of the leased property, and so we presume the periodic payments remained due and the leases continued to exist. There is no indication that the le ases w ere eve r termin ated or, a lternativ ely, that they contained an autom atic termination clause eff ective upo n a lessee s f ailure to pay. Chesapeake, 331 M d. at 439 , 628 A .2d at 23 9. By contrast, in the instant case, it is clear that the lease terminated, that the lessee no longer was obligate d to pay re nt, and th at the les see retu rned th e prope rty to the les sor. As already noted, the Tax C ourt found that the Termination Agreement between IBM and CICI was not a part of the lease bu t that it effectively rendered the Master Lease void. The discussion in Chesapeake does not in any way lead to the conclusion that a payment made to terminate a lease (in conjunction with the lessee s return of the leased equipment to the lessor), is subjec t to sales a nd use tax. 8 8 We concluded the discussion of lease payment periods in Chesapeake by rejecting Chesapeake s argument that the lease payment periods marking the taxable sale ceased just because the lessees stopped making payments. Chesa peake , 331 Md. at 439-40, 628 A.2d at 239. We held that the words lease payment period . . . unambiguously describe the period during which each payment is due, not the actual payment itself. Chesapeake, 331 Md. at 440-41, 628 A.2d at 240. In order for our discussion in Chesapeake to support the Comptroller s argument at all, we would have to characterize the termination fee paid by CIC I as the last lease payment of the lease, instea d of as a fe e paid to terminate the obligations of the lease. The plain language of the Termination Agreement itself prevents us from doing that. In addition, in order to characterize the termination fee as a lease payment, we would have to consider the Termination Agreement between CICI and IBM as a sale. As we have already explained, we are prevented from characterizing the termination fee as the last lease payment. 16 CICI relies on Maryland Glass Corporation v. Comptroller, 217 Md. 241, 142 A.2d 570 (1958). In Mary land G lass Co rporat ion, Maryland Glass purchased manufacturing machinery from a company known as Hartfo rd-Em pire. Maryland Glass, 217 Md. at 243, 142 A.2d at 57 1. At the tim e of the pu rchase, the m achinery wa s installed and used by Maryland Glass because Maryland Glass had been leasing the machinery from HartfordEmpire. Id.9 In addition to the purcha se price of $ 39,974.13 , Maryland G lass also paid Hartford-Em pire $175,50 0 in cons ideration of the cancellation and termination of outstanding leasing and licensing agreements covering the machinery and related patents . . . . Maryland Glass, 217 Md. at 243, 142 A.2d at 571. Maryland Glass attempted to obtain a refund of the use tax it paid upon the use of the property acquired by reason of said payments . . . . Maryland Glass, 217 Md. at 243, 142 A.2d at 572. Maryland Glass argued, among other things, that the transaction was not 9 Prior to the purchase, Maryland Glass was not permitted to buy the machinery because Hartford-Empire was the exclusive owner of patents covering the ma chinery a nd Ha rtford-E mpire o nly leased the ma chinery to custom ers. Maryland Glass, 217 M d. at 244, 14 2 A.2d a t 572. As a result of an a ntitrust suit filed against Hartford-Empire, Hartford-Empire was direc ted to offe r for sale at an y time to any lessee a ny of its machines then under lease, at a price representing the depreciated book value of each machine, as shown on the books of HartfordEmpire, p rovided the existing leasin g and licen sing agreem ents relative thereto were cancelled, and payment for the cancellation made . . . . Maryland Glass, 217 M d. at 244 , 142 A .2d at 57 2. 17 subject to use tax be cause the p ayment to term inate and ca ncel the leasing and licensing agreeme nts did not constitute use . . . of tangible personal property purchased from a vendor within or withou t this State, und er the applicable tax statute . Id. In answer to that contention, we held: The property transf erred in the instant case was tangible personal property, and the price paid for each transfer included not only the depreciated book value but an additional sum representing the value to the vendor of the cancellation of the outs tanding agreem ents rela tive ther eto. It was only by reason of such payment that the purchaser could receive the bundle of rights making up the complete and unconditional title. There was no separate sale of the patent rights as such. W e think the tran sactions fall w ithin the defin ition of price set up in Code (1951), Art. 81, sec. 368(g). Cf. Code (1957), Art. 81, sec. 372(g). As we see it, the transactions were no different in character from sales of articles whose sales value is enhanced because of the fact that the manufacturer holds patents that give it a virtual mono poly in the field. Under the terms of the judgment, the consummation and complete performance of the sale in each case was conditioned upon the payment of a sum that may fairly be described as representing the aggregate value in money of the property purchased, without deduction for cost, or any other expense whate ver. We think the release of claims for rentals and royalties was thus an integ ral par t of the pr ice of ac quiring title. Maryland Glass, 217 M d. at 245 , 142 A.2d at 573 (em phasis add ed). In other w ords, in Maryland Glass, the purchaser of the property had to pay a purchase price and a lease termination fee, in exchan ge for title to the property. By stark con trast, in the instant case, the lease termination fee was not paid in exchange for acquiring title or possession of the leased prop erty, because the property was returned to the lessor. As a result, the termination fee was not paid in the consummation and complete performance of a sale. In view of the fact that no Maryland case illumines the issue before us, both parties have urged us to rely on cases from other jurisdictions. 18 CICI relies on Grabler Manufacturing Com pany v . Kosd ydar, T ax Co mmr ., 298 N.E.2d 590 (Ohio 1973). In Grabler, the lease between the parties included a provision for premature termination of the lease that permitted the lessor to terminate the lease and demand a return of the equipment or enter the lessee s property to take possession of the equipment, if the lessee defaulted in the paymen t of rent . Grabler, 298 N.E. at 593. The premature termination provision of the lease also provided for the payment of liquidated damages owed to the lessor in the event of such a breach by the lessee. Id. The Board of Tax Appeals held that the payments made as liquidated damages were taxable because the amount paid was contracted for within the term of price as defined under the applicable tax statute. Grabler, 298 N.E. at 594. Similar to Maryland s definition o f taxable p rice, the Oh io statute at the time defined price as the aggregate value in money of anything paid or delivered, or promised to be paid or delivered, in the complete performance of a retail sale . . . . Grabler, 298 N.E. at 594. Also similar to Maryland s definition of sale, the Ohio statute defined sale and selling to inclu de all tran saction s by whic h title or p ossessio n, or both, of tangible personal property, is or is to be transferred . . . . Id. Having reviewed those statutory provisions, th e Suprem e Court of Ohio rev ersed the B oard of T ax App eals and he ld that, [t]he monies paid by Grabler as a deficiency, even though paid in accord with the terms of a le ase contrac t, cannot be included within the definition of price in R.C. Chapter 5739, and hence are not taxable. Further, the monies paid were specifically labeled in the lease contra cts as liqu idated d amag es. Black s Law D ictionar y (4 Ed.) defines rent as consideration paid for use or occupation of property. 19 The essence of this definition is an exchange of some consideration paid for the use of someth ing. In the instant case, the monthly rental installments were paid by Grabler to C ommerc ial Credit Corporation as the consideration for use of the equipm ent. The monies paid as a deficiency by Grabler were not paid for the u se of so methin g; nor w ere they p aid in ex chang e for an ything. Grab ler, 298 N.E.2d at 594. While Grabler is factually distinguisha ble from the case at bar, we think its reasoning is instructive. The liquidated damages in Grabler were not paid in exchange for the possession and use o f the equip ment, and therefore, co uld not be included within the statutory definition of the term sale. Likewise, in the instant case, the termination fee was not paid in exchange for the possession and use of the equipment, and therefore, for reasons already ex plained , canno t be inclu ded w ithin the statutory d efinition of sale . 10 The Comptroller relies on Residential Information Services Limited Partnership v. Rylander, 988 S .W.2d 467 (T ex. Ap p. 1999). In Rylan der, the Court of Appeals of Texas considered whether payment to term inate a computer equipment lease was subject to sales tax. The court affirmed the trial court s judgment in favor of the Comptroller, holding that 10 CICI notes in its brief that after Grabler was decided, the Ohio Legislature amended the definition of the term price contained in Ohio Rev. Code Ann. § 5739.0 1(H) to include a term ination o r dama ge cha rge. While CICI s citation contained no reference date, it appears that the current incarnation of 5739.01(H) does not include a termination or damage charge in its definition of price. A reference to the inclusio n of a term ination or da mage ch arge in connection with the definition of price can be found in an Amendment Note to § 5741.01 , a section that c ontains the d efinitions use d in the cha pter of the O hio Code addressing use and storage taxes. The note indicates that the definition of price in subsection (G)(1) was rewritten to exclude the term termination or dama ge cha rge by H .B. 95, 1 25th G en. As sem., R eg. Ses s. (Ohio 2003) . Marylan d s legis lature ha s taken no sim ilar action . 20 the termination payment was taxable because it was a part of the entir e lease p rice. Rylander, 988 S.W .2d at 471. In reaching th is conclusio n, the court n oted that Comptroller Rule 3.294(d) specifically indicates that all charges related to a lease agreement are taxable, including a charge imposed for the early termination of the lease. 34 Tex. A dmn. Code § 3.294(d) (1988). Add ition ally, Comp troller Rule 3 .294(d)(5) m akes clear th at a charge imposed for the early termination of the lease is included in the lease price and is taxable. Id. § 3.294 (d)(5). Rylan der, 988 S.W.2d at 470. By contrast, Maryland has no similar regulation, equating a lease termination fee with the lease price or explicitly permitting the imposition of a tax on the payment of a lease termination fee. As a result, even though the facts of the instant case are very similar to the facts of Rylan der, the Comptroller s reliance on that case is misplaced. The Comptroller argues that even though Maryland h as no similar rule, we sh ould follow the conclusion in Rylander because the court in that case found that the Texas Comptroller s rule was a proper interpretation of the economic realities of the marketplace. Rylan der, 988 S.W .2d at 470. S pecifically, the co urt stated that, [g]iven the economic realities of the m arketplace, we believe that the Comptroller correctly views the termination payment as being an integral part of the lease agreement rather than a penalty for forgiveness of future o bligations. *** The amount of the termination payment wa s not a pun ishment fo r early termination per se, it me rely reflected the increase d cost of the lease had it been negotiated for a shorter term. Rylander, 988 S.W.2d at 470. For us to follow that reasoning, we would have to ignore the words of the Termination Agreement itself, in an effort to characterize the transaction 21 between IBM and CICI as a sale instead of a termination of a lease. As previously stated, we are not p ermitted to do th at. Owens-Illinois v. Cook, 386 Md. at 496-97, 872 A.2d at 985. Moreover, as already discussed, the relevant Maryland statutory provisions do not lend themselves to the conc lusion that a p ayment ma de to termin ate a lease is subject to sales tax. The reasoning in Rylander does not change our interpretation of the plain language of those provisions. It would b e fundam entally unfair to p ermit the C omptroller to impose a sales tax on a transaction , without no tice to the ta xpa yer that the law permits such a tax. Again, as already noted: [W]hen . . . the applicability of a tax statute . . . is being construed, it is the established rule not to exten d the tax sta tute s provisions by implication, beyond the clear import of the language used, to cases not plainly within the statute s language, and not to enlarge the statute s operation so as to embrace matters not spe cifically po inted ou t. Comptroller v. Gann ett, 356 Md. 699, 707-08, 741 A.2d 11 30, 1135 (1999) (emphasis added) (quoting Comptroller v. John C . Louis C o., 285 Md. 527, 539, 404 A.2d 1045, 1053 (1979) (internal citations omitted)). Neither the Comptroller nor this Court is permitted to extend the tax statute s rea ch. Only the leg islature has the power to do that. See Stearman v. State Farm, 381 Md. 43 6, 454, 849 A.2d 539, 550 (stating that [w ]e will not invade the province of the General Assembly and rewrite the law for them . . . . The formidable doctrine of separation of powers demands that the courts remain in the sph ere that belong s uniquely to the judic iary that o f interp reting, b ut not cr eating, th e statuto ry law. ). We also note, that even if Maryland had a regulation like the regulation in Rylander, our review of the relevant statutory provisions would require us to hold that such a regulation 22 was beyond the Comptroller s power to promulgate. As explained in Lussier v. Maryland Racing Com missio n, 343 Md. 681, 686, 684 A.2d 804, 806 (1996), in determining whether a state administrative agency is authorized to act in a particular manner, the statutes, legislative background and policies pertinent to that agency are controlling. The controlling standard is whether the regulation is consistent with the letter and spirit of the law under which the age ncy acts. Lussier, 343 Md. at 687, 684 A.2d at 807. (Internal citations omitted .) Even when the Legislature has delegated such broad authority to a s tate administrative agency to promulgate regulations in [a particular] area, the agency s regulations are valid under the statute if they do not contradict the statutory language or purpose. Lussie r, 343 M d. at 688 , 684 A .2d at 80 7 (199 6) (emp hasis ad ded). There is nothing in the statutory definition of the term sale that could fairly be s aid to cover the transaction that occu rred in the insta nt case.11 As a result, it would not be consistent with the letter and s pirit of the law to permit the Comptroller to impose a sales tax on such a transaction. Unless the legislature changes the statute, the payment of a fee to terminate a lease is not a sale and, therefore, is not subject to Maryland sales and use tax. JUDGMENT OF TH E CIRC UIT COURT FOR BALTIMORE CITY AFFIRMED. COSTS TO BE P AID B Y TH E CO MPT ROL LER . 11 As h as be en stated alrea dy, the re w as no exch ange of g oods and mon ey, as contemplated by the statute. Rather, the buyer returned the goods to the seller and paid an expensive penalty for the early termination of a lease. 23 In the Circu it Court for B altimore C ity Case No. 24-C-04-002236 IN THE COURT OF APPEALS OF MARYLAND No. 147 September Term, 2004 ______________________________________ COMPTROLLER OF THE TREASURY v. CITICORP INTERNATIONAL COMMUNICATIONS, INC. ______________________________________ Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ. ______________________________________ Dissenting Opinion by Wilner, J. ______________________________________ Filed: October 4, 2005 Maryland Code, § 1 1-102(a) o f the Tax -Genera l Article imp oses a tax o n a retail sale in the State and on a use, in the State, of tangible personal property or a taxab le servic e. Section 11-104(a ) bases the tax on the tax able price of the property or service. Section 11103 creates a reb uttable presu mption tha t any sale in the State is sub ject to the sales and use tax imposed under § 11-102(a)(1) of this subtitle and places the burden on the person required to pay the sales or use tax of proving that a sale in the State is not subject to the tax. Two terms used in §§ 11-102(a) and 11-104(a) are critical in this case sale and taxable price. Those terms are defined in § 11-101. Section 11-101(i) defines sale as including a transaction for a consideration whe reby . . . title or possessio n of prop erty is transferred or is to be transferred absolu tely or con ditional ly by any mea ns, including by lease . . . (Empha sis added). S ection 11-1 01(l) defines ta xable price , in pertinent p art, as the value, in money, of the consideration of any kind that is paid, delivered, payable, or deliverable by a buyer to a vendor in the consummation and complete performance of a sale without deduction for any expense or cost . . . . Sections 2-102 and 2-103 of the Tax-General Article authorize the Comptroller to administer the sales tax law and to adopt reaso nable regu lations in the administration of that law. Purs uant to th at au thority, the Com ptroller adop ted CO MAR 03.06.01.2 8, dealing w ith the application of the sales tax to leases of tangible personal property. Under that regulation, the transfer of possession of tan gible personal property for a consideration by way of lease is included in the statutory definition of sale, each lease payment is considered a separate lease, and thus a separate sale , and the tax a pplies to the entire lease p ayment if pro perty acquired by lease is w ithin this S tate at an y time dur ing that l ease pa yment pe riod . . . . With exceptions not relevant here, the tax app lies to the valu e in money of the consideration of any kind required to be paid to the lessor under the terms of the lease. COMAR 03.06.0 1.28E . (Emp hasis ad ded). In 1990, Citicorp entered into a Master Lease with IBM Credit Corporation under which Citicorp leased certain computer equipment from IBM. Through an amendment to the Master Lease made in June 1997, the term of the lease was extended to June 27, 2002. Two provisions of the lease, as amended, are of particular relevance. Section 6.1 provided that the lease was a net lease, that Citicorp s obligation to pay all rent was absolute and uncon ditional , and that its obligation was not subject to any abatement, reduction, set-off, defense, counterclaim, interruption, deferment or recoupment for any reason whatsoever, and that such payments shall be and continue to be payable in all events. Section 14.1, however, permitted the Master Lease to be altered, modified, terminated, or discharged by a writing signed by the party against whom such alteration, modification, termination or discharge is soug ht. The Master L ease was essentially a skeleta l lease. See International Business Machines v. State Bd. of Equalization, 609 P.2d 1 (Cal. 198 0). It set forth general terms and conditions applicable to all of the equipm ent to be leased but did not specify the leased equipment or the term of the lease of such equipment or the rent to be paid for that equipme nt. All of that was to be done through separate equipment schedules ente red into from time to time as various items were leased. Those equipment schedules were regarded as separate, independent leases, though subject to the terms and conditions in the Master -2- Lease. Implicitly, they would become amendments to the Master Lease. Section 1 of the Master Lease described the property subject to the lease as all of the tangible personal property (collectively the Equipment and individually an Item ) listed on each equipment schedule ( Equipment Sc hedule ) execu ted, from time to time, pursuant to this Master Lease . Each such schedule was to constitute a separate, distinct and independent lease and contractual obligation of Lessee. In furtherance of that provision, the Master Lease provided that the term of each lease of an item was to be as designated on the equipment schedule applying to that item, and, as a result, the lease terms of the various items of equipment subject to the ini tial Ma ster Lea se varie d. Under § 2.2(a) of that agreement, the leases for the individual items could be extended, renewed, or terminated as provided in the equipment schedules applicable to those items. The rent for the various leased items was to be as specified in the equipment schedules . See § 3 of the Master Lease. By virtue of the 1997 amendment to the Master Lease, the leases for all of the equipment were extended to June 27, 2002. It is clear that, subject to an alteration, modification, termination, or discharge made pursuant to § 14.1, Citicorp was liable for the entire amount of rent payable under the Master Lease or the various equipment schedules through June 27, 2002. It is also clear that, under the statutory definitions of sale and taxable price and the implementing COMAR regulation that each equipment schedule, incorporated into the Master Lease, constituted a taxable retail sale and th at a sales tax was imposed and collectible on each rental payment made by Citicorp under the Master Lease. Had the lease continued until its termination date, -3- IBM would have been liable for the tax based on the entire am ount of ren t payable and p aid under the lease. Ea ch month , as it received th e rent from Citicorp, it would have been required to remit the tax based on that rental payment to th e Comp troller, and, in recognition of that obligation, it did, in fact, make those payments. None of that is in dispute. In October, 1998, IBM and Citicorp decided on a different arrange ment that Citicorp would return the lea sed equip ment, the M aster Lease would b e terminated , and Citicorp would purchase other equ ipment from IB M. In order to effect that new arrangement, IBM and Citicorp, acting pursuant to § 14.1 of the lease, terminated the Master Lease effective October 15, 1998. Pursuant to the termination, Citicorp returned the leased equipment. The termination was not cost-free, however. IBM calculated the amount of rent that would have been due for the various categories of leased equipment had the lease continued to its normal expiration date, discou nted that total amount to arrive at the present value of the gross amount, as of Oc tober 15, 19 98, and req uired Citico rp to pay that ag gregate discounted amount as a termination fee. As the termination fee $8,067,183 took the place of the rent that would have remained due under the lease, Citicorp, understandably, was relieved of further lia bility for that rent. The Comptroller takes the position that the lease, incorporating the equipment schedules, constituted a sale, and that the termination fee, being part of the consideration paid by Citicorp under the lease, constituted part of the taxable price and was therefore subject to the tax. Th e Tax C ourt thoug ht otherw ise and a m ajority of this Court proposes to affirm th at decision. W ith respect, I disse nt. -4- I recognize that great deference is to be paid to the factual determinations of the Tax Court and that some deferenc e is to be paid to its legal determ inations. If the Tax Co urt, which, despite its name, is an administrative agency and not a court, has misconstrued either a statute or a co ntract, how ever, it has made a legal error, and we are not obliged to give any deference at all to that kind o f error. Indee d, we w ould be violating Art. 8 of the Maryland Declaration of Rights and Art. IV of the M aryland Con stitution if, und er the guise of deference to administra tive expertise, we effectively abrogated, through delegation to an Executive Branch agency, our Constitutional responsibility to construe statutes and contracts and inte rpret the law. The Majority recognizes that whether the termination fee is part of the taxable price is a question of law, but it holds that that question hinges on two subsidiary issues that it declares to be factual in nature whether the termination fee was part of a sale and whether the termination agreement was part of the lease. Having declared those predicate issues to be fa ctua l one s, the Majority t hen simp ly def ers to the T ax C ourt: end of story. I disagree that those subsidiary issues are factual in nature. They involve either statutory or contract c onstruction , which are legal issues. The Tax Court treated the termination agreement as a separate transaction, wh olly apart from the le ase, and it is on ly on that premise that it was able to conclude that the termination agreement was not a sale and that the termination fee is therefore not a taxable price. As the Ma jority points out, the heart of the Tax Court s decision was its determination that the clear and unambiguous provisions of the Master Lease and the Lease Termination Agreement and the lack of any transfer of -5- title of the leased property to [Citicorp] establish that the lease termination payment was not made pu rsuant to a transaction that is a sale a s defin ed by § 1 1-101 (g). 1 I regard that as a legal, not a factual, determination a construction of the lease, the termination agreeme nt, § 11-101(i), a nd, though not mentioned, COMAR § 03.06.01.28 and one that was erroneous. The termination agreement at issue here was a global one, of the Master Lease itself, rather than of the individual equipment schedules. It was founded on § 14.1 of the Master Lease, and it essentially said as much: Lessee and IBM Credit Corporation ( Lessor ) agree that pursuant to the above-referenced lease agreement between the Lessee and Lessor ( Lease ), Lessee releases all of its interest in the lea sed equ ipmen t indicate d abov e . . . and Lessor agrees to discontinue such leases . . . . (Emphasis added). The above referenced lease agreement was Lease Agreement No. 3269100, which identified the then-current Master Lease Term Supplement. The only authority in the Master Lease to modify or termina te it was set forth in § 14.1 . Although parties to a written contract are usually free to modify or terminate the contract by separate ag reement, even if the contract purports to prohibit or condition such modifications, this termination clearly was pursuant to the lease. The termination agreement was contained in a separate document, but so were the various equipment schedules and other additions to and modifications of the Master Lease. That the p arties signed a separate document does not d isconnect the transaction from the Master Lease, especially when the 1 The definition of sale now appears in § 11-101(i), not 11-101(g). -6- document not only references that lease but expressly states that it is pursuant to it. Under § 14.1, such a modification/termination was permissible only if IBM agreed to it. IBM could, of course, have agreed without exacting any termination fee, but it was not so generous. It insisted on full payment of the rent due under the Master Lease, which had nearly 43 month s more to run, a lthoug h it disco unted th e future rent to its c urrent v alue. The Tax Cou rt s error, and that of this Court s Majority, lies in viewing the termination agreement as a separate transaction, one in which, the Majority notes, there was no transfer of title or possession of property to the lessee as contemplated by § 11-101(g) of the Tax Ge neral Article and Section 03.06.01.28 of COMAR . That, to me, ignores the reality of what occurred. The taxable event w as not the term ination. The re were m ultiple taxable events, base d on both the Mas ter Lease a nd the equ ipment schedules. Those equipment schedules designated as separate leases in the Master Lease are what caused possession of the property to be transferred fro m IBM to Citicorp. Once those equipment schedules, which became amendments to the Master Lease, were properly regarded as sales, which everyone agrees they were, the tax became measured by the value in money of the consideration of any kind required to be paid to the lessor under the terms of the lease. The termination fee exacted by IBM as a condition to its agreement to the termination under § 14.1, being the discounted value in money of the rent remaining due under the amended Master Lease, constituted c onsideration required to b e paid to the lessor under the terms of the lease. Ergo: it constitu ted part o f the tax able pric e. See Residential Information Services Limited Partnership v. Rylander, 988 S.W .2d 467 (T ex. App . 1999) (term ination payment -7- taxable because it wa s part of entire lease). I would reverse the judgment of the Circuit Court, which affirmed the decision of the Tax Court, and hold that the termination fee was subject to the sales tax. -8-

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