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Quotron Systems, Inc. v. Comptroller of Treasury, 287 Md. 178, 411 A.2d 439

Facts

Quotron Systems, Inc. provided financial information services to its Maryland subscribers, which included stock exchange tickers and news stories. To access these services, subscribers were required to use computer hardware provided by Quotron, which was owned and maintained by the company. Quotron charged a monthly fee that included a basic service charge, charges for information services, and additional charges for hardware. The Comptroller assessed a use tax on these monthly charges, claiming they represented rentals of tangible personal property.

The appellant, Quotron Systems, Inc. (Quotron), provides to its subscribers a variety of financial information services, including displays of the New York and American stock exchange tickers, prices and sales of selected securities, and headlines or news stories from various wire services.

Issue

Whether Quotron Systems, Inc. is subject to a Maryland use tax on the monthly charges collected from its subscribers for information services and related hardware.

The question here is whether a company which provides information services, and which makes available to its subscribers computer hardware upon which to receive those services, is subject to a Maryland use tax on that part of its monthly charges which is attributable to the use of that hardware.

Rule

Under Maryland law, a use tax is levied on the use of tangible personal property and certain services purchased within or outside the state. A transaction is deemed a purchase if it involves the transfer of title or possession of tangible personal property or a lease of such property.

Maryland Code (1957, 1975 Repl.Vol.), Art. 81, s 373(a) provides in pertinent part: 'An excise tax is hereby levied and imposed on the use . . . of tangible personal property and certain services purchased within or without this State . . . .'

Analysis

The court analyzed the relationship between the services provided by Quotron and the hardware used to access those services. It determined that the primary function of the hardware was to receive information services, and it had no utility in and of itself. The court concluded that Quotron retained control over the hardware and that the dominant purpose of the transaction was to provide services, not to rent hardware. Therefore, the monthly charges were not subject to a use tax.

Applying these principles to the instant case produces a clear result. Here the record shows that although Quotron's hardware could be used to 'access' the subscribers' own data bases, the sole function of the hardware provided to Maryland subscribers was to receive financial information services provided by Quotron.

Conclusion

The court held that Quotron is not subject to a use tax on any part of its monthly charges to subscribers, reversing the previous judgment.

Under this circumstance, we hold that Quotron is not subject to a use tax on any part of its monthly charges to subscribers.

Who won?

Quotron Systems, Inc. prevailed in the case because the court found that the charges for information services were not subject to a use tax, as the hardware was incidental to the service provided.

Quotron, however, contends that it provides only information services. It points out that it is necessary to place its hardware in its subscribers' offices in order to provide those services.

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