Section of Taxation Publications

VOL. 60
NO. 4

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Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Ignoring the Economic Reality of Lease Termination Fees in Favor of an
Illogical, Plain Meaning Interpretation: Comptroller v. Citicorp
International Communications, Inc.

Stephanie Lyerly


In Comptroller v. Citicorp International Communications, Inc., the Court of Appeals of Maryland held that a termination fee paid by a lessee to a lessor to terminate a computer equipment lease was not subject to sales tax. The Maryland court based its holding on its interpretation of the plain meaning of “sale” and “taxable price” in the Maryland Tax Code and its conclusion that the Comptroller did not have the authority to interpret the statute to the contrary. The court’s plain meaning analysis misinterpreted the statute and ignored the economic reality of lease terminations while creating an incentive for companies to manipulate the language of termination agreements to escape sales taxes owed to the state.

This Note critiques the Citicorp decision and suggests that the Maryland court should have ruled in favor of the Comptroller. Part I discusses the relevant statutory framework. Part II sets forth the facts of Citicorp and discusses the court’s opinion. Part III critiques the court’s plain meaning analysis. The court used plain meaning as a substitute for the Comptroller’s interpretation because the interpretation contradicted the economic reality of termination fees and encouraged companies to escape their obligations to pay sales tax by simply manipulating the wording of the termination agreement. Part IV discusses a potential method for evaluating termination fees for the applicability of sales tax.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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