Comptroller v. Potomac Edison

majority opinion

Comptroller of Maryland v. The Potomac Edison Company, No. 12, September Term, 2025. Opinion by Gould, J.

TAX-GENERAL ARTICLE – TAX EXEMPTION – “TANGIBLE PERSONAL

PROPERTY” USED “DIRECTLY AND PREDOMINANTLY” IN A

“PRODUCTION ACTIVITY”

The Supreme Court of Maryland determined that the equipment that comprises a public utility company’s transmission and distribution system subjects the electricity to a series of actions designed for the specific objective of delivering, over long distances, electricity generated out of State to Maryland customers at a voltage suitable for use. Such equipment is, therefore, used for “processing” and, as such, performs a “production activity” under subsection 11-210(b)(1) of the Tax-General Article.

TAX-GENERAL ARTICLE – TAX EXEMPTION – “TANGIBLE PERSONAL

PROPERTY” USED “DIRECTLY AND PREDOMINANTLY” IN A

“PRODUCTION ACTIVITY”

The Supreme Court of Maryland agreed with the Maryland Tax Court that the conductor, substation, and transformer equipment used by a public utility company in the transmission and distribution of electricity was used “directly and predominantly” in “processing” electricity and therefore qualified for an exemption from the sales and use tax. The Supreme Court also agreed with the Tax Court that foundation support structures, such as the clamps, bolts, brackets, and other items, served only to physically support other components and thus did not qualify for the exemption.

TAX-GENERAL ARTICLE – LIMITATION OF ACTIONS – REQUEST FOR

REFUND OF SALES AND USE TAX PAID

The Supreme Court of Maryland found that the four-year limitations period, as provided in subsection 13-1104(g) of the Tax-General Article, is the general limitations period for sales and use tax refund claims. The 30-day limitations period provided in subsection 13-508(a) is a narrow exception for the specific situation in which a taxpayer pays an assessed tax, in response to a notice of assessment, and seeks a refund of that payment within the 30-day window.

TAX-GENERAL ARTICLE – RECOVERABLE INTEREST ON AN OVERPAYMENT

The Supreme Court of Maryland analyzed subsection 13-603(a) of the Tax-General Article, which requires the Comptroller to pay interest on an approved refund. Subsection 13-603(b)(2)(i) makes an exception for a refund “based on . . . an error or mistake of the claimant not attributable to the State.” That exception applies only if both conditions are met: the overpayment must be the taxpayer’s mistake, and it must not be attributable to the State. The Supreme Court found that a public utility company that, due to an error, paid sales and use tax on only certain equipment that it contended was exempt from sales and use tax, was nonetheless able to recover interest on those tax payments made, because the State had wrongly determined that the equipment was taxable.

Circuit Court for Anne Arundel County

Case No.: C-02-CV-22-000534

Argued: October 1, 2025

IN THE SUPREME COURT

OF MARYLAND

No. 12

September Term, 2025

COMPTROLLER OF MARYLAND

THE POTOMAC EDISON COMPANY

Fader, C.J.,

Watts,

Booth,

Biran,

Gould,

Eaves,

Killough,

JJ.

Opinion by Gould, J.

Killough, J., dissents.

Filed: July 17, 2026

Pursuant to the Maryland Uniform Electronic Legal

Materials Act (§§ 10-1601 et seq. of the State

Government Article) this document is authentic.

2026.07.17

'00'04- 08:55:02

Gregory Hilton, Clerk

This case requires us to address three issues concerning the Maryland sales and use

tax statute. The first is the exemption in subsection 11-210(b)(1) of the Tax-General Article

of the Maryland Annotated Code, MD. CODE ANN., TAX-GEN. (“TG”) § 11-210(b)(1)

(2026 Repl. Vol.), which exempts from the tax “tangible personal property” used “directly

and predominantly in a production activity[.]” “Production activity” includes the

“processing” of “tangible personal property for resale.” Id. § 11-101(f)(1)(i). The

Comptroller of Maryland (the “Comptroller”) and The Potomac Edison Company

(“Potomac Edison”) dispute whether the equipment used by the latter to transmit and

distribute electricity to its Maryland customers is used in a “production activity” and, if so,

whether such equipment is used “directly and predominantly” for that purpose.

The second issue is the limitations period applicable to refund claims for the sales

and use tax. Subsection 13-1104(g) of the Tax-General Article sets a four-year limitations

period for those claims; subsection 13-508(a) sets a 30-day limitations period for a narrow

subset of claims arising from an assessment by the Comptroller. The parties disagree over

which provision applies here.

The third issue concerns TG § 13-603, which requires the Comptroller to pay

interest on a refund unless the taxpayer’s mistake in making the payment was not

attributable to the State. The parties dispute whether that exception applies here.

We hold that: (1) certain equipment purchased by Potomac Edison during the

relevant time period was used to “process” electricity within the meaning of the

“production activity” exemption and that the Tax Court’s finding that such equipment was

used “directly and predominantly” for that purpose was supported by substantial evidence; (2) subsection 13-1104(g)’s four-year limitations period—not § 13-508(a)’s 30-day

limitations period—governs the timeliness of Potomac Edison’s refund claim; and

(3) Potomac Edison is entitled to interest on its refund under § 13-603. Having decided that

the four-year limitations period applies to Potomac Edison’s refund claim, we decline to

address Potomac Edison’s contentions, raised but not decided in the Appellate Court, that

it reached a valid, mutual agreement with the Comptroller to extend their respective

limitations periods and that the Comptroller is equitably estopped from asserting otherwise.

We therefore affirm in part, reverse in part, and remand to the Appellate Court of

Maryland for further proceedings.

A sales and use tax is imposed on any “retail sale” or “use” of “tangible personal

property” in Maryland. TG § 11-102(a). Although some transactions are exempt, the statute

presumes that the sales and use tax applies. Id. § 11-103(a). A person seeking to avoid

payment of the tax “has the burden of proving that a sale in the State is not subject” to it.

Id. § 11-103(b).

The exemption at issue here—known as the “production activity” exemption—is set

forth in TG § 11-210(b):

The sales and use tax does not apply to a sale of:

(1) tangible personal property . . . used directly and predominantly in a

production activity at any stage of operation on the production activity

site from the handling of raw material or components to the movement of

the finished product, if the tangible personal property . . . is not installed

so that it becomes real property[.]

“Production activity” is defined under TG § 11-101(f)(1), in relevant part, as:

(i) except for processing food or a beverage by a retail food vendor,

assembling, manufacturing, processing, or refining tangible personal

property for resale; [or]

(ii) generating electricity for sale or for use in another production

activity[.]

“Tangible personal property,” in turn, is defined to include, among other things, “coal,

electricity, oil, nuclear fuel assemblies, steam, and artificial or natural gas.” Id. § 11-101(k)(2)(iii).

Potomac Edison is a public utility company that sells electricity to Maryland

customers. The electricity is generated outside the State and delivered to Potomac Edison’s

customers through a transmission and distribution system consisting of conductors,

substations, transformers, and related equipment. Electricity is generated at a power plant,

where raw material is transformed into electric power through a process known as energy

conversion. A coal generator, for example, burns coal and releases energy as heat, which

converts water into steam that turns a turbine, resulting in the production of electric power.

Electric power is transmitted from the generator to customers through a system of wire

conductors.

Electric power is comprised of voltage and current: voltage is the pressure or force

behind the electrons, and current is the rate at which charge-carrying electrons flow through

a conductor. Electric power is measured in watts, voltage is measured in volts, and current

is measured in amperes. The electricity generated at a power plant is around 18,000 volts,

which is too low to be transmitted efficiently over long distances and too high for retail

customers to use. Thus, the voltage of the electricity must be “stepped up” for transmission

and later “stepped down” for distribution to customers.

The voltage is “stepped up” before it leaves the power plant. Transmitting electricity

results in energy loss, known as “line loss”—caused by the generation of heat produced by

the movement of electrons along the conductor. To avoid line loss, and thereby preserve

the electricity for distribution, Potomac Edison uses “transformers” to raise the voltage of

the electricity from 18,000 volts to as high as 500,000 or 765,000 volts. At that point, the

high-voltage electricity leaves the power plant and travels along transmission lines to

substations containing transformers, switches, controllers, capacitors, and other equipment.

At the substations, the voltage is “stepped down” in preparation for regional

distribution. “Stepping down” the voltage increases line loss, but it brings the voltage closer

to a level usable by Potomac Edison’s customers. The voltage at this stage may be reduced

from 500,000 volts to 230,000 volts, then further to 138,000 volts, then to 34,500 volts,

and ultimately reduced to lines operating at 12,500 volts. Potomac Edison’s customers have

distinct voltage needs that vary with the intended use of the electricity, but, in any case,

they require electricity at voltages far lower than the transmission voltage.

The electricity then enters the distribution system, where it travels along smaller

conductors to last-in-line transformers, typically large metal cylinders mounted on utility

poles, near the customer’s premises. At this point, the transformers further reduce the

voltage to a level suitable for the customer’s precise needs: 120 or 240 volts in residential

settings, and somewhat higher voltages, such as 480 volts, in commercial and industrial

settings. Only at that point is the electricity in a form that can be consumed by the end user.

In 2006, Potomac Edison concluded that most of the equipment it had purchased for

its transmission and distribution system qualified for the “production activity” exemption,

and so informed the Comptroller. In response, the Comptroller initiated an audit to

determine Potomac Edison’s liability for sales and use tax for the period of August 1, 2003,

through July 31, 2007. Notwithstanding its position, due to an accounting irregularity,

Potomac Edison paid sales and use tax on some, but not all, of the equipment purchased

for its transmission and distribution system. For easy reference, we will refer to these

payments as the “Audit Period Payments.”

On April 1, 2011, with the audit nearing completion, Potomac Edison filed a request

for a refund of the Audit Period Payments (the “Refund Request”). One week later, the

Comptroller completed the audit and issued a notice of assessment for sales and use taxes

in the amount of $1,757,862.18, representing the taxes Potomac Edison did not pay during

the audit period, plus interest of $1,309,958.90, and a penalty of $175,786.22. Potomac

Edison timely petitioned for a redetermination of the assessment (the “Redetermination

Request”) and, without waiving its rights, paid the assessment but not the interest or

penalty. Thus, Potomac Edison had two separate claims pending with the Comptroller:

(1) the Refund Request, seeking a refund of the Audit Period Payments; and (2) the

Redetermination Request, challenging the entire audit assessment. As to both claims,

Potomac Edison relied on the “production activity” exemption, claiming that the equipment

at issue was used, in the words of the statute, “directly and predominantly in a production

activity[.]”

The Comptroller denied both the Refund Request and the Redetermination Request,

concluding that the “production activity” exemption did not apply. Potomac Edison

appealed the Comptroller’s final determinations to the Tax Court, which affirmed. Potomac

Edison petitioned for judicial review in the Circuit Court for Baltimore City, which

affirmed the Tax Court.

Potomac Edison then took its first trip to the Appellate Court of Maryland. In an

unreported opinion, the Appellate Court reversed, holding that at least some of the

equipment should qualify under the “production activity” exemption of TG § 11-210(b)(1).

Potomac Edison Co. v. Comptroller of Treasury, No. 1645, Sept. Term 2016, 2019 WL

1897463, at *1, *9 (Md. Ct. Spec. App. Apr. 29, 2019) (“Potomac Edison I”). The

Appellate Court observed that the statute defines “production activity” to include, among

other things, “processing, or refining tangible personal property for resale” and that

“tangible personal property” is defined to include “electricity” under TG § 11-101(k)(2)(iii). Id. at *8. The court also determined that “some degree of processing was

required between the point at which Potomac Edison received the electricity from the

generating plant and the point of delivery to” its Maryland customers. Id. at *9. Thus, the

Appellate Court remanded the matter for the Tax Court to determine which equipment

would qualify for the exemption under its statutory analysis. Id. at *9-10.

On remand, applying the Appellate Court’s interpretation of the “production

activity” exemption, the Tax Court found that Potomac Edison’s conductor, substation, and

transformer equipment was used “directly and predominantly” in “processing” electricity

and therefore qualified for the exemption. But the Tax Court determined that certain other

equipment categorized as “distribution” equipment and foundation support structures, such

as clamps, bolts, and brackets, did not qualify for the exemption. Thus, the Tax Court

granted in part and denied in part Potomac Edison’s Refund Request and Redetermination

Request.

The Tax Court also rejected the Comptroller’s argument, raised for the first time on

remand, that the bulk of Potomac Edison’s refund claim was untimely under TG § 13-1104(g)’s four-year limitations period. The Tax Court held that the Comptroller was

estopped from asserting a limitations defense based on representations made on the

Comptroller’s behalf to Potomac Edison that the extension agreements both parties had

signed—which ostensibly extended only the Comptroller’s deadlines—likewise extended

the limitations period for Potomac Edison to request a refund. Thus, the Tax Court

concluded that Potomac Edison’s Refund Request was timely, and that Potomac Edison

was owed interest under TG § 13-603 for the tax payments it made on the exempt

equipment.

The Comptroller petitioned for judicial review in the Circuit Court for Anne

Arundel County. The circuit court affirmed the Tax Court’s ruling on the applicability of

the “production activity” exemption but reversed the Tax Court on its statute of limitations

decision. The circuit court held that the Comptroller was not estopped from asserting a

limitations defense and that the four-year limitation period under TG § 13-1104(g) applied

to the Refund Request, which meant that the Refund Request was timely only as to Audit

Period Payments made between April 1, 2007, and July 31, 2007. The circuit court held

that the rest of Potomac Edison’s Refund Request was time-barred.

Then it was back to the Appellate Court on Potomac Edison’s appeal and the

Comptroller’s cross-appeal. Potomac Edison argued that the circuit court erred in its statute

of limitations decision for two reasons: (1) Potomac Edison and the Comptroller

contractually agreed to a mutual extension of the parties’ respective limitations periods;

and (2) the Comptroller was equitably estopped from relying on TG § 13-1104(g)’s fouryear statute of limitations.

The Comptroller argued that: (1) the Tax Court erred in determining that the

“production activity” exemption applied; (2) the Tax Court’s finding that certain equipment

was used “directly and predominantly in a production activity” was not supported by

substantial evidence; and (3) Potomac Edison was not entitled to interest on its Refund

Request because the Audit Period Payments were due to an accounting irregularity and

thus were not attributable to the State.

The Appellate Court affirmed the Tax Court’s determination that certain equipment

qualified for the “production activity” exemption and that Potomac Edison was entitled to

interest on its refund. In re the Comptroller of Maryland, 264 Md. App. 23, 53-54 (2024)

(“Potomac Edison II”). In doing so, the Appellate Court applied the law of the case doctrine

and declined to revisit its determination, made in Potomac Edison I, that TG § 11-210(b)

exempted at least some of the equipment purchased by Potomac Edison for its transmission

and distribution system. Id. at 48-49.

The Appellate Court also found no need to address Potomac Edison’s statute of

limitations arguments, because it instead held that Potomac Edison’s Refund Request was

governed by TG § 13-508(a)—not TG § 13-1104(g). Id. at 39-40. Because Potomac Edison

filed its Refund Request within 30 days from the notice of assessment, the Appellate Court

determined that the entire claim was timely under TG § 13-508(a). Id. at 41.

The Comptroller petitioned this Court for a writ of certiorari, which we granted.

Comptroller of Maryland v. The Potomac Edison Co., 490 Md. 279 (2025). The

Comptroller presents us with four questions, which we consolidated and rephrased:

1. Did the Tax Court erroneously determine that Potomac Edison’s conductor,

substation, and transformer equipment was exempt under TG § 11-210(b)(1)?

2. Did the Appellate Court of Maryland err in holding that Potomac Edison’s

Refund Request was governed by the 30-day limitations period under TG § 13-508(a), instead of the four-year limitations period under TG § 13-1104(g)?

3. Did the Tax Court err in determining that Potomac Edison was entitled to interest

on the successful portion of its Refund Request?

We answer “no” to the first and third questions and “yes” to the second question.

When reviewing the decision of an administrative agency, such as the Tax Court,

see TG § 3-102, we generally look through the decisions of the circuit court and the

intermediate appellate court and evaluate the agency’s decision. Comptroller of Maryland

v. FC-GEN Operations Invs. LLC, 482 Md. 343, 359 (2022) (citing Gore Enter. Holdings,

Inc. v. Comptroller of Treasury, 437 Md. 492, 503 (2014)). We apply the “substantial

evidence” standard to factual findings, asking whether the record contains evidence that

reasonably supports the agency’s conclusions. Id. at 359 (citing Frey v. Comptroller of

Treasury, 422 Md. 111, 137 (2011)). In doing so, we review the evidentiary record in the

light most favorable to the agency and defer to the agency’s credibility determinations and

resolution of conflicting evidence. Id. (quoting Ramsey, Scarlett & Co., Inc. v. Comptroller

of Treasury, 302 Md. 825, 835 (1985)).

An agency’s decisions are also reviewed for legal errors, of which there are at least

four categories: “(1) the constitutionality of an agency’s decision; (2) whether the agency

had jurisdiction to consider the matter; (3) whether the agency correctly interpreted and

applied applicable case law; (4) and whether the agency correctly interpreted an applicable

statute or regulation.” Id. at 360. We have often stated that we apply a de novo standard of

review to an agency’s legal determinations, and that is certainly true for the first three

categories. See id. (quoting Schwartz v. Md. Dep’t of Nat. Res., 385 Md. 534, 554 (2005)).

We have, however, occasionally applied some agency deference to the fourth

category, specifically when an agency interprets a statute that it administers or a regulation

it promulgated under such a statute. Id. at 362 (citation omitted). Just how much deference

we give depends on various considerations, which we have described as a “sliding-scale

approach[.]” Id. at 363. “We give more weight when the interpretation resulted from a

process of reasoned elaboration by the agency, when the agency has applied that

interpretation consistently over time, or when the interpretation is the product of contested

adversarial proceedings or formal rule making.” Id. at 363 (citation modified). It should be

noted that in the context of interpreting tax laws, the agency to which deference may be

owed is the Comptroller, not the Tax Court. Id. at 377. Here, the Comptroller did not

contend, let alone demonstrate, that the conditions warranting agency deference are

satisfied. Thus, we will not give deference to the legal reasoning the Comptroller applied

in rejecting the Refund Request and Redetermination Request.

The threshold question here is whether Potomac Edison’s conductor, substation, and

transformer equipment is “used directly and predominantly in a production activity” under

TG § 11-210(b)(1). That question has two parts. The first is one of statutory construction:

whether the “stepping up” and “stepping down” of the voltage between the manufacturing

facility and the end user constitutes “processing . . . tangible personal property for resale”

under TG § 11-101(f)(1)(i).1 And if the answer to that question is yes, then the second issue

Even though the Comptroller did not petition for a writ of certiorari to review Potomac Edison I, we are not precluded at this juncture from revisiting that decision. Loveday v. State, 296 Md. 226, 233-34 (1983); In re Levon A., 361 Md. 626, 636 (2000) (“Our right to review the judgment of the intermediate appellate court exists whether the issue raised in the second appeal was the same as or different from that raised in the first appeal.”). In its petition for writ of certiorari, the Comptroller asked us to review the Appellate Court’s decision in Potomac Edison I in the first two of the four questions it presented, which we granted:

1. Did the Appellate Court erroneously interpret Tax-General § 11-210(b), which exempts from sales-and-use tax “tangible personal property .

. . used directly and predominantly in a production activity,” to apply to the

equipment that Potomac Edison uses not to produce electricity but to transmit

and deliver it from out-of-state generators to its Maryland consumers?

is whether the Tax Court’s finding that such equipment was used “directly and

predominantly” in that activity is supported by substantial evidence. We take each question

in turn.

The goal of statutory interpretation is to discern and effectuate the General

Assembly’s intent. Westminster Mgmt., LLC v. Smith, 486 Md. 616, 644 (2024) (quoting

Blue v. Prince George’s County, 434 Md. 681, 689 (2013)). Our review begins with the

statute’s text, which we view in the context of the overall statutory scheme. Id. (quoting

Nationstar Mortg. LLC v. Kemp, 476 Md. 149, 169 (2021)). We “take the language as we

find it, neither adding to nor deleting from it; we avoid forced or subtle interpretations; and

2. In applying the Appellate Court’s erroneous interpretation of TaxGeneral § 11-210(b), did the Tax Court err in concluding that much of

Potomac Edison’s transmission and delivery equipment was used “directly

and predominantly”—that is, more than 50 percent—in a production activity,

when Potomac Edison’s expert testified that the equipment is used both to

deliver and process electricity simultaneously and concurrently and that

neither delivery nor processing predominates?

3. Did the Appellate Court err in concluding that Tax-General § 13-508(a), which governs the time within which a taxpayer may seek a refund

of tax paid pursuant to an assessment by the Comptroller, supersedes the

generally-applicable four-year limitations period in Tax-General § 13-1104(g) and allows Potomac Edison to seek a refund of previously-paid

sales-and-use tax that was not paid pursuant to an assessment by the

Comptroller?

4. Did the Appellate Court err by compelling the State to pay interest on

Potomac Edison’s refund claim when the evidence showed that Potomac

Edison paid the tax because of an “accounting system irregularity,” a mistake

not attributable to the State?

we avoid constructions that would negate portions of the language or render them

meaningless.” Id. (citation modified). We often refer to contemporaneous dictionary

definitions to ascertain the “ordinary and popular” meaning of undefined terms used in the

statute. Id. (quoting FC-GEN Operations, 482 Md. at 390). And we try to reconcile and

harmonize the various provisions of a statutory scheme consistent with their “object and

scope.” Id. at 645 (quoting Wheeling v. Selene Fin. LP, 473 Md. 356, 377 (2021)). If the

statute is unambiguous, we may consult legislative history to confirm our interpretation.

Blackstone v. Sharma, 461 Md. 87, 113-14 (2018) (quoting State v. Roshchin, 446 Md.

128, 140 (2016)).

Tax exemptions are strictly construed against the taxpayer. Broadway Servs., Inc. v.

Comptroller, 478 Md. 200, 215 (2022) (quoting Supervisor of Assessments of Balt. Cnty.

v. Treasurer of Bosley Methodist Church Graveyard, 293 Md. 208, 212 (1982)). That rule

of construction, however, does not permit “strained or unreasonable” interpretations or

interpretations that are at odds with the purpose of the exemption that, here, was to

“encourage the location, development and growth of industry in Maryland.” Comptroller

of Treasury v. Disclosure, Inc., 340 Md. 675, 683 (1995) (citation modified).

With these principles in mind, we turn to the relevant statutory text. To recap: A

sale of “tangible personal property” is exempt from the sales and use tax if such property

is used “directly and predominantly in a production activity.” TG § 11-210(b)(1). A

“production activity” is defined as, among other things, (1) the “processing [of] tangible

personal property for resale[,]” id. § 11-101(f)(1)(i), and (2) “generating electricity for sale

or for use in another production activity[,]” id. § 11-101(f)(1)(ii). “Tangible personal

property,” in turn, includes electricity. Id. § 11-101(k)(2)(iii). The “for resale” element in

§ 11-101(f)(1)(i) is not at issue.2 So, Potomac Edison’s purchases of conductor, substation,

and transformer equipment are exempt if the equipment is “directly and predominantly”

used in the “processing” of electricity.

The statute does not define the word “processing,” so we turn to its dictionary

definition. Webster’s New World Dictionary of the American Language defined “process,”

in relevant part, as “a series of actions or operations conducing to an end.” Process,

WEBSTER’S SEVENTH NEW COLLEGIATE DICTIONARY 678 (1963). Similarly, The Random

House Dictionary of the English Language defined “process,” in relevant part, as: “1. a

systematic series of actions directed to some end. 2. a specific, continuous action,

operation, or series of changes.” Process, THE RANDOM HOUSE DICTIONARY OF THE

ENGLISH LANGUAGE, COLLEGE EDITION 1055 (1968).3

Although the ordinary meaning of “process” can encompass a broad range of

activities, that does not render the definition of “production activity” ambiguous. FC-GEN

In Potomac Edison I, the Appellate Court stated that Potomac Edison “does not own the power plant at which the electricity it supplies is generated, and that generating station is not located in Maryland,” Potomac Edison I, 2019 WL 1897463, at *1, and neither party appears to have challenged that premise.

In 1968, the Revenue and Taxes Article of the Maryland Annotated Code first codified a reduced rate of two percent for “manufacturing machinery and equipment,” MD. CODE ANN., ART. 81, § 325(g) (1969 Repl. Vol.), which it defined to include “all machinery and equipment . . . which is used in manufacturing, assembling, processing or refining products for sale or in the generation of electricity, or research and development.” Id. § 372(r). As such, we will consider the dictionary definitions of “process” from 1968. See Lowery v. State, 430 Md. 477, 491 (2013) (stating that courts use a dictionary that is “contemporaneous with the drafting and enacting of the language in the statute”).

Operations, 482 Md. at 392 (observing that the statutory provision at issue is both broad

and unambiguous). Applying those definitions here, the equipment that comprises Potomac

Edison’s transmission and distribution system subjects the electricity to a series of actions

designed for the specific objective of delivering, over long distances, electricity generated

out of State to Maryland customers at a voltage suitable for their use. Such equipment is,

therefore, used for “processing” and, as such, performs a “production activity” under § 11-210(b)(1).

The Comptroller does not contend that the word “processing,” viewed in isolation

and given its ordinary meaning, does not embrace the voltage transformation activities

performed by Potomac Edison’s transmission and distribution system. Instead, she points

to the bigger statutory picture and argues that the General Assembly chose to confine all

electricity-related exemptions to subsection TG § 11-101(f)(1)(ii), which exempts

equipment used in “generating electricity for sale or for use in another production

activity[.]” The Comptroller argues that if TG § 11-101(f)(1)(i) applies to the electric

power industry, then, given the breadth of the related and overlapping activities it

includes—“assembling, manufacturing, processing, or refining”—that subsection “would

entirely swallow the more specific reference to ‘generating electricity’” in subsection (ii),

rendering the latter superfluous. The Comptroller leans heavily on legislative history to

support her interpretation, so we turn to that history next.

In 1968, the General Assembly reduced the tax rate for “manufacturing machinery

and equipment,” which was defined to include equipment used in “manufacturing,

assembling, processing or refining products for sale or in the generation of electricity, or

research and development.” 1968 Md. Laws, ch. 452, codified at MD. CODE ANN., ART. 81

§§ 324(s), 325(g), 372(r), 373(g) (1969 Repl. Vol.). And in 1979, the reduced rate was

expanded into a full exemption. See 1979 Md. Laws, ch. 216.

The Comptroller asserts, and we agree, that the General Assembly’s drafting choices

in 1968 are best understood against the backdrop of this Court’s prior caselaw, but we draw

different conclusions from that history. The Comptroller points to Frederick Electric Light

& Power Co. v. Frederick City, 84 Md. 599, 600 (1897), which involved a Frederick City

municipal tax ordinance enacted to encourage industrial development in the city by

exempting “machinery and manufacturing apparatus of all manufacturing industries”

established within. In rejecting the taxpayer’s claim that its electricity-generating plant was

exempt, this Court found it unnecessary “to attempt a scientific discussion of what

electricity is” and perceived little value in consulting “encyclopedias, dictionaries or other

books endeavoring to define it.” Id. at 600-01. Thus, we declined to decide whether the

electric company “can properly be said to ‘manufacture’ electricity or whether it simply

brings into action that which is already made[.]” Id. at 601. Instead, we framed the question

as what “manufacturing industries” would mean to “the average man” of “fair and ordinary

intelligence[.]” Id. Using that approach, we held that the term “manufacturing industries”

as used in the ordinance, did not reach electric companies. Id. at 601-08. This analytical

approach was not unusual for the time. See, e.g., Ky. Elec. Co. v. Buechel, 143 S.W. 58,

59-61 (Ky. 1912).

In subsequent decades, we cited Frederick Electric Light & Power for the

proposition that an electric company was not a manufacturer. See, e.g., American

Newspapers, Inc. v. McCardell, 174 Md. 56, 58 (1938); Comptroller of Treasury v. Crofton

Co., 198 Md. 398, 403 (1951); Suburban Propane Gas Corp. v. Tawes, 205 Md. 83, 92

(1954). Courts from other states debated whether electricity generation constituted

manufacturing, with some concluding that it did and others concluding that it did not. See,

e.g., City of Ames v. State Tax Comm’n, 71 N.W.2d 15, 22 (Iowa 1955); Buechel, 143 S.W.

at 61; Beggs v. Edison Elec. Light & Illuminating Co., 96 Ala. 295, 300 (1892); People ex

rel. Brush Elec. Illuminating Co. v. Wemple, 129 N.Y. 543, 553 (1892); Williams v. Park,

56 A. 463, 465 (N.H. 1903); Commonwealth v. N. Elec. Light & Power Co., 22 A. 839,

841 (Pa. 1891).

The General Assembly is presumed to have known about this Court’s holdings when

it drafted the 1968 statute. See Comptroller v. Badlia Bros., LLC, 490 Md. 163, 170 (2025)

(citing Consol. Constr. Servs., Inc. v. Simpson, 372 Md. 434, 461 (2002)). The General

Assembly knew in 1968 that, in holding that the “manufacturing” exemption did not apply,

this Court in Frederick Electric Light & Power had intentionally not decided whether

generating electricity is, in some scientific or technical sense, “manufacturing.” Thus, the

General Assembly’s carve-out for “the generation of electricity” in the 1968 enactment is

best understood as responding to that holding and clarifying that, regardless of how people

understood the science of electricity and the meaning of “manufacturing,” the reduced tax

would apply to electricity generation.

That drafting choice, however, did not affect the meaning of “processing,” let alone

narrow its meaning. In fact, unlike the uncertainty reflected in cases addressing whether

electricity generation constitutes “manufacturing,” there does not appear to have been a

similar uncertainty about whether transmission and distribution of electricity constituted

“processing.” And the closest Maryland case on point—Suburban Propane—decided

fourteen years before the 1968 enactment, indicates that this Court perceived a relevant

distinction between “manufacturing” and “processing.” 205 Md. at 88-90.

In Suburban Propane, this Court considered a propane distributor’s claim under

Article 81, § 370(f) of the 1951 Maryland Code, which exempted a manufacturer’s or

compounder’s “tangible personal property” not “readily obtainable in Maryland,” but only

if the manufacturer also “process[ed]” the product being manufactured or compounded. Id.

at 85. The taxpayer purchased the liquid propane, stored it, sometimes added various

chemicals for safety and transportation purposes, and then delivered it to Maryland

customers in tanks and bottles. Id. at 86-87. Thereafter, valves and regulators on those tanks

and bottles reduced the pressure to convert the liquid propane into a gaseous form for use.

Id. The equipment for which the taxpayer sought the exemption was “not readily obtainable

in Maryland.” Id. at 86. Nonetheless, we rejected the taxpayer’s claim for an exemption

because it had not shown that it was engaged in “manufacturing” or “compounding” within

the meaning of § 370(f). Id. at 93-94. We reasoned that adding odorant and antifreeze to

liquid propane was not “compounding” because it did not change the propane’s BTU

content, and reducing the pressure on liquid propane to convert it into a gaseous form for

the consumer was not “manufacturing.” Id. at 87-89.

Because the taxpayer in Suburban Propane could not surmount the threshold

requirement that it be a manufacturer or compounder, we did not need to address whether

the taxpayer engaged in “processing” liquid gas to bring it to the customer in a usable form.

Id. at 93-94. But we nevertheless observed that the Supreme Court of Alabama had

determined, in State v. Alabama Gas Corp., 62 So.2d 454 (Ala. 1952), that gas regulators

used to reduce pressure for distribution to consumers were appliances used in “processing”

gas. Suburban Propane, 205 Md. at 89-90 (citing Ala. Gas Corp., 62 So.2d 454). Notably,

the statutory scheme in Alabama at that time, much like the scheme here at issue,

distinguished between “manufacturing” and “processing.” Ala. Gas Corp., 62 So.2d at 455.

In Suburban Propane, we observed that the taxpayer in Alabama Gas Corp. proceeded

solely under the theory that its equipment was used in “processing,” and made “[n]o

contention . . . that such regulators were used in compounding or manufacturing.”

Suburban Propane, 205 Md. at 89-90. In other words, over a decade before the 1968

enactment, this Court acknowledged that “manufacturing” gas—at issue in Suburban

Propane—and “processing” gas—at issue in Alabama Gas Corp.—were two different

activities. And our reference to Alabama Gas Corp. reflects this Court’s awareness that

this distinction was based on a similar distinction drawn by the Supreme Court of Alabama

between generating electricity and the “stepping down” process necessary to bring

electricity in a usable form to consumers.4

The Alabama Supreme Court concluded that regulators “process” gas because, ten years earlier, it had concluded that transformers “process” electricity. See Ala. Gas Corp., 62 So.2d at 456 (citing Curry v. Ala. Power Co., 8 So.2d 521 (Ala. 1942)). The Curry Court had reasoned that transformers “process” electricity because “the purpose of a transformer is to put electricity in a form which is usable” and therefore “marketable to domestic users.” Curry, 8 So.2d at 526 (citation modified). Thus, just as transformers “step down the voltage for domestic and other uses,” gas regulators “reduce the pressure of gas to get it suitable for use by many customers, who could not otherwise use it.” Ala. Gas Corp., 62 So.2d at 456 (citation modified). So, when this Court in Suburban Propane recognized and found

The General Assembly’s drafting choice in 1968 to list “processing” as an exempt

activity alongside “manufacturing” is consistent with that distinction, which, we note, was

preserved in 1988 when the exemption took its current form through the recodification of

Article 81. The Revisor’s Notes state that the exemption provisions in the newly minted

Tax-General Article are “new language derived without substantive change . . . . [and] for

clarity and brevity.” MD. CODE ANN., TAX-GEN. § 11-101(d) (1988),5 REVISOR’S NOTE;

see also § 11-210(b) (1988), REVISOR’S NOTE.

The recodified version did, however, address an awkwardness in the prior statute

that is worth noting. That is, the 1968 version defined the equipment that qualified for the

reduced rate as “manufacturing . . . equipment,” and then defined that term by referring to

a list that included both “manufacturing” and “processing.” MD. CODE ANN., ART. 81

§ 324(s) (1969 Repl. Vol.). That structure was circular: “manufacturing” equipment

included equipment used for “manufacturing.” The General Assembly cleaned that up in

1988 by dropping “manufacturing equipment” as the operative term and replacing it with

“production activity.” Compare MD. CODE ANN., ART. 81 § 324(s) (1969 Repl. Vol.) with

TG § 11-101(d)(1) (1988). And then it defined “production activity” to include, in TG § 11-101(d)(1)(i), both “manufacturing” and “processing” and, in TG § 11-101(d)(1)(ii),

generating electricity.

significant the Alabama Supreme Court’s distinction between “manufacturing” and “processing,” it was cognizant that the Alabama court had applied such a distinction in the context of generating and transmitting electricity.

For clarity’s sake, we note that this language is now codified at TG § 11-101(f)(1).

Thus, although nothing substantively changed, the statute’s structural change in the

recodified version put “manufacturing” and “processing” on the same footing as two

examples of “production activities.” In making this change, the General Assembly codified

what this Court had observed in Suburban Propane—that “manufacturing” and

“processing” could serve different functions.6 And by defining “tangible personal

property” to include electricity, we conclude that the General Assembly intended the

equipment used in “processing” electricity to be exempt.7, 8

The Comptroller further argues that Potomac Edison’s transmission and distribution

system is excluded from the definition of “production activity” under TG § 11-101(f)(2)(ii),

which excludes the “maintaining [of] tangible personal property.” The Comptroller argues

that, because voltage “stepping up” has the effect of preserving the amount of electric

power as it travels through the system by reducing line loss, it constitutes “maintaining.”

We disagree. The process of “stepping up” and “stepping down” the voltage does not

preserve the electricity in the state that Potomac Edison receives it; rather, it changes the

This is not to say that “manufacturing” and “processing” can never either overlap or appropriately describe the same activity.

In rejecting the Comptroller’s narrow interpretation of “processing,” we note that the exemption applies, by its terms, to all “tangible personal property” processed for resale. The Comptroller does not explain how the meaning of “processing” can be narrowed for the electricity industry without also narrowing it for every other industry covered by the exemption. Without any limiting language in the statute itself, we decline to depart from the plain meaning of “processing” to narrow it for application in just one industry.

Because we conclude that the production exemption distinguishes between

“manufacturing” and “processing,” we decline to apply the “substantial transformation” test, articulated in Disclosure, for determining whether an activity constitutes “manufacturing.” 340 Md. at 686-87.

voltage. The change in voltage is what produces a usable, salable product. An activity that

transforms the product does not become maintenance merely because the transformation

preserves, to the extent possible, the amount of product.

Having determined that Potomac Edison’s transmission and distribution equipment

is used in a “production activity,” we turn to the Comptroller’s argument that such

equipment is not “directly and predominantly” used for that function as required under TG

§ 11-210(b)(1).

“Directly and predominantly” is defined in the applicable regulations as “more than

50 percent of the time directly in production activities.” COMAR 03.06.01.32-2B(2)(b).

The Comptroller argues that Potomac Edison produced no evidence to satisfy this burden.

She bases this argument on testimony from one of Potomac Edison’s experts, Dr. Billy

Don Russell, who testified to the effect that “delivery” of electricity was the predominant

use and sole purpose of such equipment. The Comptroller acknowledges, however, that the

same expert testified that Potomac Edison used its transmission and distribution system

predominantly to process power. The Comptroller argues that, at most, the evidence

established that such equipment was used “equally” to process power and to deliver it.

Potomac Edison responds by summarizing its experts’ testimonies concerning the

categories of equipment—conductor, transformer, and substation—that the Tax Court

determined was used “directly and predominantly in a production activity.” Both experts’

testimonies described the technical operations of the equipment in detail, and explained

how such equipment, by “stepping up” and “stepping down” the voltage, transforms the

high voltage electricity received from the generating plants into the lower voltages required

for the customer’s use.

The Tax Court concluded that the conductor, substation, and transformer equipment

was used “directly and predominantly” for “processing.” The Tax Court also concluded

that the foundation support structures, such as the clamps, bolts, brackets, and other items,

served only to physically support other components and thus did not qualify for the

exemption. It found that the electric meters used to measure customer usage likewise did

not qualify. Put simply, the Tax Court listened to the testimony, weighed competing

technical accounts of the relevant equipment, and made findings that reasonable minds

could reach on the record before it. Such findings were supported by substantial evidence

and, as such, we will not disturb them.

The Comptroller challenges the timeliness of the Refund Request. Subsection 13-1104(g) sets a four-year limitations period for sales and use tax refund claims, and it is

undisputed that, under that provision, much of the Refund Request was filed outside the

four-year period.

The Appellate Court held that the Refund Request was governed by the 30-day

period under § 13-508(a), which runs from the date of the notice of assessment, not the

four-year period in § 13-1104(g), which runs from the payment date. In re the Comptroller

of Maryland, 264 Md. App. at 39-41. And because Potomac Edison had filed its Refund

Request within 30 days of the Comptroller’s notice of assessment, the court held that the

entire refund claim was timely under § 13-508(a). Id.

We disagree with the Appellate Court’s analysis. We start with TG § 13-1104(g),

which provides:

Except as provided in § 13-508 of this title, a claim for refund of sales and

use tax may not be filed after 4 years from the date the tax was paid.

Under its plain text, claims governed by § 13-508 are excepted from the four-year

limitations period. So, we turn to § 13-508(a), which provides:

Within 30 days after the date on which a notice of assessment of the [sales

and use tax] is mailed, a person or governmental unit against which the

assessment is made may submit to the tax collector:

(1) an application for revision of the assessment; or

(2) except for the public service company franchise tax, if the assessment

is paid, a claim for a refund.

The Appellate Court reasoned that TG § 13-508(a) applies here because the Refund

Request “was made in response to the Notice of Assessment that brought the audit to an

end and was mailed to it by the Comptroller’s Office.” In re the Comptroller of Maryland,

264 Md. App. at 40. On that reading, that Potomac Edison filed the Refund Request in

response to the notice of assessment is the relevant fact that makes § 13-508(a) applicable.

But there is a disconnect in that analysis because the Refund Request pertained to

Potomac Edison’s purchases of different equipment than the equipment to which the notice

of assessment applied.9 The notice of assessment imposed taxes on specific equipment

purchases for which no taxes were previously paid. When a notice of assessment is issued,

In the Tax Court, the parties stipulated that: (1) Potomac Edison “paid Maryland sales and use tax on its purchases of the items identified in the refund schedules[]”; and (2) Potomac Edison “did not pay Maryland sales and use tax on its purchases of the items identified in the Comptroller’s assessment and [Potomac Edison]’s assessment reduction schedules until after the Notification of Assessment was issued by the Comptroller[]”; and (3) all such purchases were “substantiated with invoices or receipts.”

§ 13-508 gives the taxpayer two options—both of which must be exercised within 30

days—for contesting it: (1) challenge the assessment by seeking revision; or (2) pay the

assessed tax and seek a refund of that payment. By its plain text, it’s the paid assessment

that’s refundable under § 13-508, not prior tax payments made on other equipment

purchases that were not subject to the assessment.10

The Appellate Court’s interpretation puts § 13-508 into conflict with § 13-1104(g),

allowing the former to revive claims that were rendered stale under the latter. We instead

opt for an interpretation that aligns with and harmonizes the plain text of both statutes. See

Lyles v. Santander Consumer USA Inc., 492 Md. 670, 683 (2025) (quoting Adventist

Healthcare, Inc. v. Behram, 488 Md. 410, 432-34 (2024)). Thus, we hold that § 13-1104(g)

provides the general rule for sales and use tax refund claims, and § 13-508(a) provides a

narrow exception for the specific situation in which a taxpayer pays an assessed tax in

response to a notice of assessment and seeks a refund of that payment within the 30-day

window.

Our interpretation is consistent with the purpose of statutes of limitations, which are

designed “to encourage prompt resolution of claims, to suppress stale claims, and to avoid

the problems associated with extended delays in bringing a cause of action, including

missing witnesses, faded memories, and the loss of evidence.” Roman Cath. Archbishop of

Even if the assessment sought to impose sales and use tax on the same equipment on which Potomac Edison had already paid such taxes, Potomac Edison’s Refund Request as to the second payment—that is, the payment it made in response to the assessment— would be governed by the 30-day period under §13-508(a). But a refund request as to the first payment would remain governed by the four-year period under § 13-1104(g).

Wash. v. Doe, 489 Md. 514, 530 (2025) (citation omitted). The two limitations periods at

issue here reflect the General Assembly’s balancing of those interests. The taxpayer needs

a fair chance to discover that a tax was paid by mistake and seek its return, and the State

needs to know, at some point, that its books are closed. Thus, the General Assembly

determined that four years is long enough for a taxpayer to identify a mistaken payment

through internal review or a change in legal interpretation, but short enough to give the

State finality.

The 30-day window under § 13-508(a) addresses a different situation. A taxpayer

who has just received an assessment notice does not need years to discover the disputed

payment because the assessment puts the dispute squarely on the table, requiring the

taxpayer to pay the assessment or dispute it. The General Assembly determined that 30

days is sufficient time to request a refund if the taxpayer pays the assessment under protest.

Potomac Edison’s Refund Request was for taxes paid voluntarily during the audit

period of August 1, 2003, through July 31, 2007—payments made in the ordinary course

of business, not in satisfaction of a notice of assessment. Accordingly, the Refund Request

is governed by the four-year limitations period in § 13-1104(g), rendering it untimely

except as to those payments made between April 1, 2007, and July 31, 2007.

Having found that § 13-1104(g) does apply, we will remand to the Appellate Court

to address Potomac Edison’s arguments, raised but not decided there, that the parties

mutually agreed to extend their respective deadlines and that the Comptroller is estopped

from asserting otherwise.

We turn now to Potomac Edison’s claim for interest. Subsection 13-603(a) of the

Tax-General Article requires the Comptroller to pay interest on an approved refund.

Subsection 13-603(b) makes an exception for a refund “based on . . . an error or mistake

of the claimant not attributable to the State.” TG § 13-603(b)(2)(i). The exception applies

only if both conditions are met: the overpayment must be the taxpayer’s mistake, and it

must not be attributable to the State. Comptroller of Treasury v. Sci. Applications Int’l

Corp., 405 Md. 185, 199 (2008).

The “attributable to the State” element is the one at issue here. Relying on a brief

filed by Potomac Edison before the Comptroller’s hearing officer, the Comptroller argues

that Potomac Edison “erroneously paid the sales-and-use tax it seeks in its refund claim

due to ‘accounting system irregularities.’” That Potomac Edison paid such taxes on some,

but not other, equipment purchases during the audit period shows, the Comptroller argues,

that its accounting irregularities were not attributable to the State. The Comptroller’s

argument misses the mark.

In Science Applications, we adopted the Tax Court’s formulation from a prior case

that “an error is attributable to the State when a taxpayer, using reasonable judgment under

the circumstances, is led by the laws, regulations, or policies expressed by the State to the

mistaken conclusion that tax is owed.” Id. at 201 (quoting DeBois Textiles Int’l, Ltd. v.

Comptroller, Income Tax No. 1630, 1985 WL 6117 (Md. Tax Ct. Aug. 23, 1985) (citation

modified)). In other words, we held that “attributable to the State” under § 13-603(b)

“means that the mistake or error can be said to be caused by the State.” Id. at 203. Thus,

“if the State requires a taxpayer to pay some amount by assessment, and the taxpayer faces

penalties for non-compliance, the taxpayer cannot be said to have made a mistake when it

pays the required amount.” Id. at 204. That’s what happened here: Potomac Edison was

assessed interest and a penalty on the taxes it did not pay during the same period, thus it’s

fair to conclude that Potomac Edison would have faced further interest and penalty risk

had it not made the Audit Period Payments.

When the Comptroller and a taxpayer disagree over whether a tax is owed, the

taxpayer has a choice: It can pay the tax and seek a refund, or it can refuse to pay the tax

and challenge it. The statute allocates the risks inherent in that choice. If the taxpayer pays

and turns out to be right, the Comptroller pays interest under § 13-603(a); if the taxpayer

refuses to pay and turns out to be wrong, the taxpayer owes interest under § 13-601(a) and

penalties under § 13-701(a). In other words, when the State takes the position that a tax is

owed, the party sitting on the money bears the risk of being wrong.

Here, Potomac Edison apparently intended to take the latter approach (refuse to pay

and challenge it) but, due to accounting irregularities, inadvertently paid taxes on some of

the equipment purchases. Notably, there is no dispute that, from the Comptroller’s

perspective when the Audit Period Payments were made, Potomac Edison would have to

pay the disputed tax sooner or later. Thus, at bottom, the choice Potomac Edison faced

between paying and seeking a refund or not paying and challenging the inevitable

assessment existed only because of the Comptroller’s position that taxes were due on such

purchases. That is what made the Audit Period Payments attributable to the State under

§ 13-603(b)(2)(i).11

Accordingly, we affirm the Tax Court’s finding that Potomac Edison is entitled to

interest on the Refund Request, to the extent it was timely.

III

In conclusion, we hold that Potomac Edison’s conductor, substation, and

transformer equipment is used “directly and predominantly in a production activity” within

the meaning of Tax-General § 11-210(b)(1), and that the Tax Court’s findings to that effect

are supported by substantial evidence. Accordingly, we affirm the Appellate Court of

Maryland’s judgment on that question.

We hold that the timeliness of Potomac Edison’s Refund Request is governed by

the four-year limitations period in § 13-1104(g), not by the 30-day window in § 13-508(a).

We therefore reverse the Appellate Court’s contrary judgment on that question and remand

to that court to address Potomac Edison’s arguments concerning the extension agreements

and equitable estoppel.

Think of it this way. Suppose a taxpayer faced with the same choice as Potomac Edison decides to pay the tax, cuts and signs a check, places the check in an envelope, places a stamp on the envelope, places the envelope in a pile of outgoing mail, and then later—before the mail is picked up—changes its mind, resolving to refuse payment and challenge the tax. But, for whatever reason, the taxpayer forgets to take the envelope out of the outgoing mail pile, and thus inadvertently pays the tax. It would make no sense to say that that the taxpayer would not be entitled to interest simply because it had intended (but neglected) to pull the envelope from the outgoing mail pile, but that it would have been entitled to interest had it never changed its mind. The salient fact is that the taxpayer was put to the choice in the first place due to the State’s position that the tax was owed.

And finally, we hold that Potomac Edison is entitled to interest on its Refund

Request under § 13-603, to the extent it was timely, and thus we affirm the Appellate

Court’s judgment on that issue.12

JUDGMENT OF THE APPELLATE

COURT OF MARYLAND AFFIRMED IN

PART AND REVERSED IN PART. CASE

REMANDED TO THAT COURT FOR

FURTHER PROCEEDINGS CONSISTENT

WITH THIS OPINION. COSTS TO BE

SPLIT EQUALLY BY PETITIONER AND

RESPONDENT.

We will refrain from quantifying the net monetary effect of our holdings, as a final accounting cannot be determined until the Appellate Court resolves the remaining statute of limitations issues.

Circuit Court for Anne Arundel County

Case No.: C-02-CV-22-000534

Argued: October 1, 2025

IN THE SUPREME COURT

OF MARYLAND

No. 12

September Term, 2025

COMPTROLLER OF MARYLAND

THE POTOMAC EDISON COMPANY

Fader, C.J.,

Watts,

Booth,

Biran,

Gould,

Eaves,

Killough,

JJ.

Dissenting Opinion by Killough, J.

Filed: July 17, 2026

The General Assembly exempted the generation of electricity, not the importation

of it. Potomac Edison generates nothing. By its own concession, it is a transmission and

distribution intermediary1—a conduit between out-of-state generators and Maryland

consumers. It buys electricity made elsewhere, moves it across state lines, and sells it. That

is the business of a middleman, not a manufacturer. To treat it as one for purposes of the

“production activity” tax exemption does violence to the statutory text, the legislative

purpose, and any recognizable understanding of the production activities the General

Assembly chose to exempt.

The Comptroller correctly determined that Potomac Edison’s equipment does not

qualify for the tax exemption. The Tax Court agreed in a reasoned 2015 opinion. The

circuit court affirmed on judicial review. Three independent decision-makers, examining

the same record, reached the same conclusion through reasoned analysis of the relevant

legal authority and the factual record. That should have been the end of it.

It was not. The Appellate Court reversed in Potomac Edison Co. v. Comptroller of

the Treasury, No. 1645, Sept. Term, 2016, 2019 WL 1897463 (Md. App. Ct. Apr. 29, 2019)

(Potomac Edison I), with no deference to the Comptroller’s interpretation and no

engagement with the Tax Court’s analysis. It then invented a framework on remand

requiring the Tax Court to sort the components of an integral, single-purpose system into

Potomac Edison’s own public-facing materials confirm the point. The company’s website has compared its “power plants” to “manufacturing plants” and its “distribution system” to “the retail stores that deliver products to customers.” The company’s own characterization of its business matches the Comptroller’s reading of the statute, not its litigation position in this Court.

“buckets” of equipment that supposedly do and do not qualify—a sorting exercise that

Potomac Edison’s own expert testified was impossible because the equipment has “no

predominance” among its functions and a “sole purpose” of delivery.

The case made its way back to the Appellate Court a second time, this time on crossappeals from the circuit court’s judicial review of the Tax Court’s decision on remand.

Matter of Comptroller of Maryland, 264 Md. App. 23 (2024) (Potomac Edison II). The

Appellate Court affirmed the Tax Court’s bucket-sorting analysis, holding itself bound by

Potomac Edison I as the law of the case. Id. at 48-50. The Appellate Court also reversed

the circuit court’s limitations ruling, holding that the Tax Court’s refund award was timely

under § 13-508(a). Id. at 41.

Potomac Edison I was wrongly decided. The Appellate Court below acknowledged

in Potomac Edison II that it was constrained by that decision as law of the case. Id. at 48.

The Majority had the opportunity to correct the 2019 error. Instead, it compounds it—

ratifying Potomac Edison I’s flawed statutory interpretation and going further still,

endorsing the Tax Court’s bucket-sorting on remand and the Appellate Court’s affirmance

of it in Potomac Edison II and reaching a result that Potomac Edison’s own witnesses said

was not possible.

To sustain Potomac Edison I, the Majority makes a series of analytical moves, each

of which I disagree with. It treats the Appellate Court’s 2019 dictionary-driven

interpretation as a fixed point in the analysis, despite its silence on the legislative history

that gave rise to the tax provision at issue in the first place. It reaches across seven decades

to extract dicta from an Alabama case discussed in passing in a 1954 Maryland decision

while ignoring what that 1954 Maryland decision actually held. It adopts a definition of

“processing” so broad it has no limiting principle, then disclaims this Court’s judicial tests

in a footnote to escape the implications of that choice. It adopts a novel rule that the

standard of review is the agency’s to forfeit, holding that the Comptroller’s interpretation

of the statute loses the deference it is owed because the Comptroller never asked for it by

name.

It reads the canon of strict construction as ornamental rather than operative. It

renders Tax-General § 11-101(f)(1)(ii) as surplusage. It accords equipment used to perform

a “taxable service” an exemption reserved for equipment used in a “production activity”

— a designation the statute expressly forecloses. It does not cite Tax-General § 11-101(m)(11), the provision that classifies the very activity at issue here as a taxable service.

And it applies substantial evidence review asymmetrically, denying deference to the Tax

Court when it ruled against Potomac Edison in 2015 and embracing deference to the same

Tax Court when it was obligated to rule for Potomac Edison in 2022. Together, these moves

work to preserve a 2019 decision that should not be saved.

The burden was on Potomac Edison—by statute, Tax-General § 11-103(b), and by

longstanding precedent, State Dep’t of Assess. & Tax’n v. Belcher, 315 Md. 111, 118

(1989)—to establish its entitlement to the exemption. It has not carried that burden. It

cannot, because the General Assembly never authorized this exemption for the

transmission and distribution of electricity.

The Tax Court got this case right the first time in 2015; Potomac Edison I got it

wrong; and Potomac II compounded the mistake. The appropriate disposition is to overrule

Potomac Edison I, restore the agency’s well-reasoned determination, and reverse. The

remand framework, the bucket analysis, the substantial evidence questions about findings

on remand, the limitations question, the interest question—none of these need to be

addressed at all. There is no transmission and distribution exemption. There never was such

an exemption. Everything that has happened since 2015 is the consequence of an error this

Court should have corrected. The Majority opinion does not do that. Therefore, I

respectfully dissent.

Standard of Review

Because this case came before the intermediate appellate court on two separate

occasions, it is within this Court’s power to review the entire record, including the initial

appellate decision in Potomac Edison I. See Loveday v. State, 296 Md. 226, 234 (1983).

The Majority agrees on this point. Maj. Slip Op. at 12 n.1. The questions presented in this

Court’s grant of certiorari are broad enough to encompass the statutory interpretation

question decided in Potomac Edison I, and this Court has both the authority and obligation

to correct any error of law in that decision.

When reviewing a decision of an administrative agency, this Court “looks through

the decision of the circuit court and intermediate appellate court and evaluates the decision

of the agency.” Comptroller of Maryland v. FC-GEN Operations Invs. LLC, 482 Md. 343,

359 (2022) (citing Gore Enter. Holdings, Inc. v. Comptroller, 437 Md. 492, 503 (2014)).

The Tax Court is an adjudicatory administrative agency. Id. at 358. This Court reviews the

Tax Court’s factual findings under the substantial evidence standard, which asks whether

“a reasoning mind reasonably could have reached the factual conclusion the agency

reached.” Frey v. Comptroller, 422 Md. 111, 137 (2011). The agency’s decision is

interpreted “in the light most favorable to the agency[.]” Broadway Servs., Inc. v.

Comptroller, 478 Md. 200, 214 (2022).

Deference here runs on two tracks, and they belong to two agencies. The factual

track belongs to the Tax Court: its findings are reviewed for substantial evidence, with the

reviewing court “defer[ring] to the facts found and the inferences drawn by the agency

when the record supports those findings and inferences,” FC-GEN Operations Invs. LLC,

482 Md. at 359, and its decision read “in the light most favorable to the agency,” Broadway

Servs., Inc., 478 Md. at 214–15. The Tax Court need not administer the statute to earn that

review; it earns it as the tribunal that heard the evidence. Gore Enter. Holdings, Inc., 437

Md. at 503-04 (the Tax Court “receive[s] the same judicial review as other administrative

agencies[,]” and “[i]t is not [this Court’s] place to make an independent original estimate

of or decision on the evidence” (internal citations and quotation marks omitted)). The

interpretive track belongs to the Comptroller. When a tax statute is construed, the agency

owed deference is the Comptroller—the agency that administers the sales and use tax and

promulgates the regulations under it—and its construction is entitled to “great weight.”

FC-GEN Operations Invs. LLC, 482 Md. at 377; Frey, 422 Md. at 138.

The Majority withholds both. It denies the Comptroller the deference its

interpretation of the tax statute is owed, and it denies the Tax Court the substantial-evidence

deference its findings are owed—but only the findings it made in 2015. The same court’s

findings on remand in 2022 receive full deference. Maj. Slip Op. at 24–26. A departure of

that kind requires explanation. The Majority offers none.

Most importantly here, this Court “strictly construe[s] tax exemptions against the

taxpayer[,]” resolving ambiguities in favor of the State. Broadway Servs., Inc., 478 Md. at

215. “[B]efore any claimant can obtain an exemption, it is incumbent upon him to show

affirmatively that the alleged exemption has been clearly allowed by law.” Belcher, 315

Md. at 118; see Tax-General § 11-103(b). “It is only where the deliberate purpose of the

Legislature to grant an exemption is expressed in clear and unequivocal terms that a claim

to an exemption can be maintained.” Belcher, 315 Md. at 118. “To doubt an exemption is

to deny it.” Suburban Propane Gas Corp. v. Tawes, 205 Md. 83, 87 (1954); State Dep’t of

Assess. & Tax’n v. Consol. Coal Sales Co., 382 Md. 439, 455 (2004) (internal quotation

marks and citations omitted). These rules are not optional, and they are not boilerplate.

They place the burden squarely on Potomac Edison to demonstrate that the General

Assembly clearly and unequivocally exempted the equipment at issue. As discussed in

detail below, Potomac Edison cannot meet that burden.

Statutory and Regulatory Framework

Eight provisions and one regulation drive this case. They are collected here for ease

of reference:

Tax-General § 11-210(b)(1) — The production activity exemption.

Equipment used directly and predominantly in a production activity is

exempt from sales and use tax. This is the provision Potomac Edison invokes.

Tax-General § 11-101(f)(1)(i) — Defines “production activity” to include

“assembling, manufacturing, processing, or refining tangible personal

property for resale.” The general provision on which the Majority relies.

Tax-General § 11-101(f)(1)(ii) — Defines “production activity” to include

“generating electricity for sale or for use in another production activity.” The

electricity-specific provision. Potomac Edison concedes it does not generate

electricity in Maryland and does not qualify under this provision. See

Potomac Edison Co. v. Maryland Comptroller of the Treasury, No. 1645,

Sept. Term, 2016, 2019 WL 1897463 at *4 n.2.

Tax-General § 11-101(f)(2)(ii) — Expressly excludes “maintaining tangible

personal property” from the definition of production activity.

Tax-General § 11-101(k)(2)(iii) — Defines “tangible personal property” to

include electricity.

Tax-General § 11-101(m)(11) — Classifies “a transportation service for

transmission, distribution, or delivery of electricity” as a taxable service on

the condition that “the sale or use of the electricity . . . is subject to sales and

use tax.” This is the General Assembly’s explicit policy choice about what

Potomac Edison does: the activity is taxed, not exempted. Equipment used

to perform a taxable service cannot also be exempt as equipment used in a

production activity.

Tax-General § 11-103(b) — Places the burden of proving exemption on the

taxpayer.

COMAR 03.06.01.32-2(B)(2) — Defines “used directly and predominantly

in a production activity” to require that the property be “integral and essential

to the production activity” and “used more than 50 percent of the time

directly in production activities.”

Discussion

I. The Deregulation Context That Potomac Edison I Ignored and the

Majority Now Inherits.

The Appellate Court’s analysis in Potomac Edison I omitted the statutory history of

Section 11 of the Tax-General Article, and the Majority opinion repeats this oversight.

Understanding this history is crucial because it reveals why subsections (f)(1)(ii) and

(m)(11) were enacted and exposes the central interpretive flaw in Potomac Edison I.

Without this context, the statute’s legislative purpose is overlooked.

Prior to the deregulation of the electric power industry in Maryland in the late 1990s,

electricity was billed through a “bundled transaction,” meaning the utility company

“included a single charge that was subject to the sales tax for the generation and

transmission and distribution of electricity.” With “the onset of the deregulation of the

industry,” however, “it was possible for one company . . . to generate the electricity while

another company would be transmitting . . . that electricity.” As the Assistant Director of

the Compliance Division in the Comptroller’s office testified, this change created an

opening whereby a utility company that only transmits and distributes electricity could now

potentially claim an exemption from sales and use tax, resulting in a “20 to 25 million a

year” revenue loss for the State. To ameliorate this problem, the Department of Legislative

Services and the Comptroller brought it to the General Assembly’s attention. The General

Assembly responded by amending Tax-General § 11-101 in two complementary ways: it

narrowed the production activity exemption for electricity to “generating electricity for sale

or for use in another production activity,” TG § 11-101(f)(1)(ii), and it classified “a

transportation service for transmission, distribution, or delivery of electricity” as a taxable

service, TG § 11-101(m)(11). Per the Assistant Director’s testimony, the bill that

ultimately passed “acknowledge the position of the Comptroller” and “clarified . . . the

intent of the legislature” to ensure that the sales and use exemption “remained limited to

the generation of electricity when it was for sale and for use in another production

activity[.]” In short, generation is exempted; transmission and distribution are taxed. These

provisions reflect a coherent policy choice directly responding to structural changes in the

industry.

The Potomac Edison I opinion does not mention this legislative history. Instead, it

relied on a 1968 dictionary to find a generic definition of “processing” and declared the

statute “plain and unambiguous.” Potomac Edison I, 2019 WL 1897463 at *9. However, a

court does not establish that a statute is plain and unambiguous merely by consulting a

dictionary. Proper interpretation requires reading the text in light of the statutory structure

and the legislative context that shaped it. The Appellate Court failed to consider why the

General Assembly amended Tax-General § 11-101 in the late 1990s, why it classified

transmission and distribution as taxable services in § 11-101(m)(11), and why it

simultaneously narrowed the production activity exemption for electricity to generation

alone in § 11-101(f)(1)(ii). The deregulation history provides a single, coherent explanation

for these legislative choices. The Appellate Court’s omission of this history suggests that

its “plain and unambiguous” reading is disconnected from the statute’s legislative reality.

The Majority inherits this defect. It does not mention deregulation. It does not

explain why the General Assembly chose to address the transmission and distribution of

electricity at all in the 1990s. It does not explain why § 11-101(m)(11) exists or even cite

that provision. A statute that the General Assembly deliberately amended to close a specific

revenue gap cannot be read in a way that re-opens that gap by judicial construction. Yet

that is precisely what the Majority’s reading accomplishes. Under the Majority’s holding,

a utility that does nothing but transmit and distribute electricity—the very activity the

General Assembly singled out as taxable—is exempt from sales and use tax on the

equipment used to perform that activity. The deregulation history makes that result not

merely doubtful but impossible: it is the very outcome the General Assembly amended the

statute to prevent. The consequence for this case follows directly from the line the

legislature drew. Potomac Edison performs an activity the legislature classified as a taxable

service. Equipment used to perform that taxable service cannot simultaneously be exempt

as equipment used in a production activity. The two designations are mutually exclusive,

and the General Assembly chose between them in 1999.

The Tax Court in 2015 understood this history and said so. That understanding was

not a creative gloss; it was the product of the Tax Court doing exactly what tax courts exist

to do—reading a tax statute in light of the legislative purpose it was enacted to serve. The

Majority’s silence on that history—like the Appellate Court’s before it—leaves the statute

the General Assembly actually enacted uninterpreted.

II. The 2015 Tax Court Ruling Was Correct.

On January 22, 2015, after a contested evidentiary hearing and full briefing, the Tax

Court issued a reasoned opinion concluding that Potomac Edison’s transmission and

distribution of electricity is not a “production activity” within the meaning of Tax-General

§ 11-210(b)(1). Instead, the Tax Court held that Potomac Edison’s transmission and

distribution of electricity was a taxable service pursuant to Tax-General § 11-101(m)(11).

The Tax Court grounded that conclusion in the structure of the statute, the legislative

history, and the Comptroller’s long-standing administrative practice. As the Tax Court

explained:

Following the deregulation of electricity, there was concern that the

definition of “Taxable price” in Tax-General Article 11-101(l)(3)(i)(1)

would render charges for transmission of electricity exempt from tax. To

address that concern, legislation was enacted that narrowed the definition of

“production activity” in Tax-General Article 11-101(f)(1)(ii) to “generating

electricity for sale or for use in another production activity” and expanded

the definition of “taxable service” in Tax-General Article 11-101(k)(1)(11)[2]

to include “a transportation service for transmission, distribution, or delivery

of electricity or natural gas, if the sale or use of the electricity or natural gas

is subject to the sales and use tax.” Thus, the transmission of electricity is a

taxable service and not a production activity . . . .

That was a careful, considered, and reasoned interpretation—grounded in the very

kind of agency expertise to which this Court has historically extended deference. Prior to

the Tax Court’s 2015 decision, the Comptroller’s hearing officer had reached the same

conclusion through similar reasoning, finding that there was no “legislative history or

revisor’s notes indicating that the inclusion of electricity within the definition of tangible

personal property within Tax-General Article § 11-101(f)(i-ii) was an effort to expand the

scope of Tax-General Article § 11-210.” The circuit court affirmed the Tax Court on

judicial review.

Then the intermediate appellate court intervened. The Appellate Court reversed—

not on substantial evidence grounds and not by identifying any defect in the Tax Court’s

reasoning. Rather, the intermediate appellate court adopted a generic dictionary definition

of “processing” and announced that this definition applied to electricity as a matter of law.

See Potomac Edison I, 2019 WL at 1897463 *9. It did so without engaging the Tax Court’s

structural reading of the statute. It did so without acknowledging the Comptroller’s

consistent administrative position. It did so without engaging the deregulation history that

When the Tax Court issued its January 22, 2015 opinion, the taxable services provision was codified at Tax-General Article § 11-101(k)(1)(11). It has since been recodified to § 11-101(m)(11). The substance is identical; only the subsection designation has changed. For clarity and consistency with the Majority opinion, I cite the current location, § 11-101(m)(11), throughout this dissent.

prompted the General Assembly to amend the statute in the first place. And it did so

without grappling with the most obvious problem with its reading: that subsection (f)(1)(ii)

specifically addressed electricity and limited the exemption to generation and that

subsection (m)(11) classified the transmission and distribution of electricity as a taxable

service.

Indeed, the Potomac Edison I opinion is striking not just for what it overlooked, but

also for what it acknowledged and then set aside. The Appellate Court expressly

recognized “that the Tax Court is entitled to deference with respect to its interpretations of

the tax statutes it administers.” Potomac Edison I, 2019 WL 1897463 at *9 (citing Frey,

422 Md. at 138). It expressly recognized that tax exemptions are strictly construed. Id.

(citing Comptroller of Treasury v. Disclosure, Inc., 340 Md. 675, 683 (1995). It expressly

recognized that “if any real doubt exists as to the propriety of [a tax] exemption that doubt

must be resolved in favor of the State.” Id. (quoting Green v. Church of Jesus Christ of

Latter-Day Saints, 430 Md. 119, 135 (2013)). Each of those doctrines, properly applied,

would have required affirmance of the Comptroller’s decision, as accepted by the Tax

Court. The Appellate Court swept all three aside in a single sentence: “At the same time,

we are being asked to interpret statutory language that appears plain and unambiguous.”

Id.

That single sentence does the work that the rest of the Appellate Court’s analysis

cannot. By declaring the text “plain and unambiguous,” the Appellate Court excused itself

from applying deference, strict construction, and the taxpayer’s burden of proof—all in

one stroke—without examining the statute’s structure or history or the factual record. The

Appellate Court did not ask whether subsections (f)(1)(ii) and (m)(11), read together,

foreclose its reading. It did not ask whether the deregulation history that produced those

provisions illuminated their meaning. It consulted a dictionary and declared the question

answered. That is reasoning by assertion, not statutory interpretation. And it is precisely

what the Majority now repeats—acknowledging the doctrines that favor the Comptroller,

then declaring the text plain enough to set them aside.

Having created that legal predicate as a matter of law, the Appellate Court then

remanded—requiring the Tax Court to take the next implausible step. It directed the Tax

Court to determine which categories of Potomac Edison’s equipment were used “directly

and predominantly” in the “processing” of electricity, an activity the Appellate Court had

now conjured into the statute. The Tax Court, doing its best within an impossible

framework, sorted the equipment into “buckets” and found that some equipment qualified

while others did not. But Potomac Edison’s own expert had testified that no such sorting

was possible, because the T&D System is “a single thing” with “no predominance” among

its functions and a “sole purpose” of transmitting energy to customers. The framework

demanded a result the record could not support.

The Majority now defends this entire structure. It does so by applying substantialevidence deference to the Tax Court’s findings on remand, characterizing the bucketsorting exercise as a permissible exercise of agency fact-finding. Maj. Slip Op. at 23, 29-30). But this defense rests on a defect the Majority does not address: the asymmetry

between how the Tax Court’s work has been treated. The Tax Court in 2015 ruled against

Potomac Edison, expressly adopting the Comptroller’s 2012 legal analysis in a decision

grounded in the statutory text, legislative history, and agency expertise; that ruling received

no deference and was reversed as a matter of law. The Tax Court ruled for Potomac Edison

on November 30, 2021, by implementing the bucket-sorting required by the remand

framework; that ruling now receives full substantial evidence deference. The doctrine of

agency deference does not operate that way. Either the Tax Court’s careful work is entitled

to respect, or it is not. It cannot be entitled to respect only when it produces a particular

outcome.

III. The Majority Withholds Deference That the Record Plainly Establishes Is

Owed

A. The Majority Recites the Governing Standard, Then Sets it Aside

The Majority correctly states where interpretive deference lies. “[I]n the context of

interpreting tax laws, the agency to which deference may be owed is the Comptroller, not

the Tax Court.” Maj. Slip Op. at 11 (citing FC-GEN Operations Invs. LLC, 482 Md. at

377). That is a fair reading of FC-GEN. The Comptroller administers the sales and use tax,

promulgates the regulations under it, and issues the determinations that construe it. When

a tax statute is interpreted, the Comptroller’s construction is the one to which a reviewing

court owes deference. On that point there is no disagreement.

But the Comptroller’s final determination of Potomac Edison’s request for a tax

credit was “No.” The Comptroller stated that: “The crux of the dispute in this case is

whether the equipment such as conductor cables, transformers, substations, support

structures, and other items are involved in a ‘production activity.’ Stated otherwise, the

issue is whether these items ‘produce’ electricity.” Construing the statute and the

regulation, the Comptroller held that the regulation segregates “assembling,

manufacturing, processing, or refining” of tangible personal property from “generating

electricity,” and that the equipment is not on a “production activity site[,]” because it does

not perform a production activity. That is the Comptroller construing the statute and its

own regulation. It is the heartland of interpretive deference, not the periphery.

The Tax Court agreed with the Comptroller’s legal conclusion that Tax-General §

11-210(b)(1) excludes the transmission and distribution of electricity from the production

activity exemption. That construction—the construction of the only agency the Majority

concedes is entitled to interpretive deference—resolves this case. The transmission and

distribution of electricity is a taxable service, not a production activity. Under the rule the

Majority recites, that interpretation was owed deference and required affirmance. The

Majority states the rule in a single sentence and then proceeds as though it had not.

The Majority’s stated reason for setting the rule aside is that “the Comptroller did

not contend, let alone demonstrate, that the conditions warranting agency deference are

satisfied here.” Maj. Slip Op. at 11. That reason cannot be reconciled with this Court’s

precedent. The standard of review is not the litigants’ to waive. “[A] party cannot ‘waive’

the proper standard of review by failing to argue it . . . because it is the court, not the parties,

which must determine the standard of review.” Baltimore Police Department v. Open

Justice Baltimore, 485 Md. 605, 655 (2023) (citations and internal quotation marks

omitted). The Comptroller’s interpretation is owed the deference the law provides whether

or not the Comptroller asked for it by name. Whether the conditions for that deference are

satisfied is a question for the record, and the record answers it.

Interpretive deference is not the only deference the Majority withholds. The Tax

Court’s factual findings are reviewed for substantial evidence. Gore Enter. Holdings, 437

Md. at 503; FC-GEN, 482 Md. at 359. FC-GEN did not disturb that standard. It addressed

only which agency’s interpretation controls—not whether the Tax Court’s findings receive

the deference every administrative factfinder receives. The Tax Court need not administer

the statute to earn substantial-evidence review of what it finds. It earns that review because

it is the tribunal that heard the evidence.

The Majority concedes as much in practice. It defers to the Tax Court’s 2021

findings on remand, treating the bucket-sorting exercise as permissible agency factfinding.

Maj. Slip Op. at 24–26. But the 2015 ruling rested on factual findings too—on the operation

of Potomac Edison’s T&D System, on the competing expert testimony, on the deregulation

history that produced the statutory amendments. The Majority gave those findings no

substantial-evidence review at all. The same tribunal, performing the same factfinding

function, received full deference in 2021 and none in 2015. The only variable is the

outcome each ruling produced.

That variable is an important consideration that the Majority ignores because the

2021 findings the Majority credits were extracted under a framework the record could not

support. Potomac Edison’s own expert testified that the T&D System is “a single thing,”

with “no predominance” among its functions and a “sole purpose” of delivery. The remand

required the Tax Court to do precisely what that testimony said could not be done: sort the

system by predominance. The Majority extends deference to the findings the record could

not support and denies it to the findings the record sustained. A standard of review that

turns on the result it produces is not a standard of review.

B. The Conditions for Deference Are Satisfied on This Record

The Majority’s analysis of the production activity exemption begins by setting aside

the conclusions of the three prior decision-makers—the Comptroller’s hearing officer, the

Tax Court in 2015, and the circuit court—that the exemption does not apply. The Majority

cannot avoid that construction by observing the Comptroller did not request deference by

name. What remains is whether the conditions that make the Comptroller’s construction

binding are present. FC-GEN supplies the test. Deference is owed “when the interpretation

resulted from a process of reasoned elaboration by the agency, when the agency has applied

that interpretation consistently over time, or when the interpretation is the product of

contested adversarial proceedings or formal rule making.” 482 Md. at 363 (citations and

quotation marks omitted). The triggers are disjunctive; any one of them would suffice. All

three are present.

Consistency

The Comptroller’s reading of the production-activity exemption—generation

qualifies, transmission and distribution do not—is not a litigating position devised for this

appeal. It is the agency’s settled construction. The Assistant Director of the Compliance

Division testified that the Comptroller has applied that reading for years, not to Potomac

Edison alone but uniformly across electric-utility taxpayers. The hearing officer applied it

in 2012. The Tax Court confirmed it in 2015. The agency defended it through judicial

review and defends it still. An interpretation the agency has held and applied consistently

over time is owed deference on that ground independently of any other, and this one has

held without deviation from the audit through this Court.

What makes the consistency trigger more apparent in this case is that the

Comptroller and the Tax Court reached the same legal conclusion by different routes. The

Comptroller grounded the result in Maryland’s manufacturing cases, reasoning that voltage

transformation no more produces a new product than the pressure reduction this Court

declined to call manufacturing in Suburban Propane. The Tax Court grounded the same

result in the structure of the deregulation amendment, which narrowed “production

activity” in § 11-101(f)(1)(ii) to “generating electricity” while expanding “taxable service”

in § 11-101(m)(11) to capture the transmission and distribution of electricity. One path

runs through a line of Maryland cases stretching back more than a century; the other

through the text the General Assembly enacted in response to deregulation. Both reach the

same conclusion as a matter of law: the tax exemption does not extend beyond generation.

The Majority engaged none of this. It did not weigh whether the denial of Potomac

Edison’s request for a tax exemption was the result of a consistent application of the statute

and regulation because it never reached the question. Its threshold ruling—that the

Comptroller forfeited deference by not requesting it—excused the Majority from the FCGEN inquiry before that inquiry began. So, a construction the administering agency has

held without deviation from the 2012 audit through this Court, confirmed by a neutral

adjudicator and grounded independently in both the transformation cases and the

deregulation amendment, received no deference at all. Not because the conditions for

deference were examined and found wanting, but because, on the Majority’s view, the

agency neglected to ask.

Elaboration

The Comptroller’s determination was supported by an elaborate and detailed legal

analysis. Where the Appellate Court in Potomac I reversed by consulting a dictionary and

declaring the question answered, the hearing officer worked through the statute’s structure

and history: the segregation of “processing or refining” from “generating electricity” in

both § 11-210 and COMAR 03.06.01.32-2, the parallel segregation in the predecessor

statute, Article 81, § 324(s), and the absence of any legislative history3 or revisor’s note

Especially pertinent in this case is the fact that the Comptroller’s reading of the legislative rationale for the exemption was to promote the generation of electricity in Maryland, not to have it imported from out of state:

The purpose of the expansion of the production activity exemption

to generation of electricity was to encourage electricity companies to build

power generating facilities in the State of Maryland. The operation of large

power generation facilities requires numerous employees that require

technical skill and thus are higher wage paying jobs. Moreover, with modern

advances in technology, a power plant can be built in one state and the power

distributed to residents in another state. The State of Maryland is relatively

small in size and located next to several other states. Thus, the exemption is

to encourage companies to build facilities in Maryland to generate power

in Maryland.

Conductor cables, transformers, substations, support structures, and

other items are used to distribute the electricity to residential and

commercial customers in Maryland. Regardless of whether the electrical

generating plant is located in Maryland or a surrounding state, the items are

necessary to transmit and distribute the power from the generating facility

to the customer’s location. The presence of the claimed items in the State is

entirely dependent upon the number of residences and businesses located in

the State who require electricity. Thus, there is no benefit to the State of

suggesting that the later inclusion of electricity in the definition of tangible personal

property was meant to expand the exemption beyond generation. From that structural

reading the hearing officer drew the conclusion: Potomac Edison’s “equipment does not

perform a production activity and thus, is not located a production activity site.” That is

interpretation of the kind FC-GEN rewards—reasoned, grounded in text and history, the

product of an agency working through the statute it administers rather than around it.

Adversarial Process

The Comptroller’s determination issued from a contested administrative hearing

with competing evidence and argument, and the Tax Court’s 2015 ruling followed

contested proceedings involving expert testimony, briefing, and argument. The

construction was forged in the adversarial crucible FC-GEN identifies, not announced in

the abstract.

* * * *

Each trigger is independently satisfied, and the Majority engaged none of them. It

did not ask whether the agency had applied it consistently, whether the Comptroller’s

construction was the product of reasoned elaboration, or whether it emerged from an

adversarial process. It asked only whether the Comptroller had requested deference, found

that it had not, and stopped there. So, a construction the administering agency has held

without deviation from the 2012 audit through this Court—confirmed by a neutral

Maryland to provide tax exemption for the purchase and location of these

items. As such, the hearing officer does not believe that the Maryland

legislature intended to expand the exemption to cover these pieces of

equipment. (emphasis added).

adjudicator, grounded independently in both the manufacturing/transformation cases and

the deregulation amendment—received no deference at all. Not because the conditions

were examined and found incorrect, but rather because, in the Majority’s view, the agency

neglected to ask. FC-GEN directs the opposite inquiry, and on that inquiry the record runs

one way.

IV. The Majority’s Definition of “Processing” Has No Limiting Principle

When interpreting a statute, this Court does not begin with a layman’s dictionary. It

begins with the text, taking into account the structure of the statutory scheme as a whole.

Sabisch v. Moyer, 466 Md. 327, 350 (2019); see also Comptroller of Treasury v. John C.

Louis Co., Inc., 285 Md. 527, 538 (1979) (holding that a tax statute is unambiguous “when

read in context and in light of the purposes of the Act”). Where the text as understood

within its proper place in the greater structure of the statutory scheme is unambiguous, the

analysis ends there. Where the text remains ambiguous, however, this Court applies the

canons of construction—including, most importantly here, the rule that tax exemptions are

construed strictly against the taxpayer and that the burden of demonstrating entitlement to

an exemption falls on the party claiming it. Belcher, 315 Md. at 118; Consol. Coal Sales

Co., 382 Md. at 455 (citation and quotation marks omitted). Only when text, statutory

structure, and canon all fail to resolve a question does a court turn to general purpose

dictionaries—and even then, this Court has cautioned against the “mechanical application

of dictionary definitions to words in a statute.” Morris v. Prince George’s County, 319 Md.

597, 606 (1990). The dictionary is “a starting point in the work of statutory construction,

but not necessarily the end.” Id.; see also Marriott Emps. Fed. Credit Union v. Motor

Vehicle Admin., 346 Md. 437, 447 (1997) (“[D]ictionary definitions do not provide

dispositive resolutions of the meaning of statutory terms[.]” (citation omitted)).

The Majority inverts this sequence. It begins with the dictionary—pulling general

purpose definitions from 1963 and 1968—and asks whether voltage stepping constitutes

“processing” within the meaning of a “production activity” pursuant to Tax-General § 11-101(f)(1)(i). Maj. Slip Op. at 14–15. It does not first ask whether the structure of § 11-101(f)(1) resolves the question. And it does not ask whether the canon of strict construction

supplies the answer. That is not the proper order of analysis. The General Assembly

addressed electricity specifically and exclusively in subsections (f)(1)(ii) and (m)(11). In

TG § 11-101(m)(11), the General Assembly unambiguously designated “a transportation

service for transmission . . . of electricity” as a taxable service and therefore not as a

production activity. Notably, neither the Majority nor the Respondent mention subsection

(m)(11), let alone explain how it fits in their understanding of the statutory regime. And

even if ambiguity remains, the canon of strict construction places the burden on Potomac

Edison and resolves doubt in favor of the State. These two propositions, applied in the

order the law requires, dispose of the case before the dictionary even comes into play.

Going outside the statutory scheme to consult a general purpose dictionary produces

exactly the problem this case illustrates. The Majority defines “processing” as “a series of

actions or operations conducing to an end” or “a systematic series of actions directed to

some end.” Maj. Slip Op. at 14–15 (citing WEBSTER’S SEVENTH NEW COLLEGIATE

DICTIONARY 678 (1963) and THE RANDOM HOUSE DICTIONARY OF THE ENGLISH

LANGUAGE, COLLEGE EDITION 1055 (1968)). It applies this definition to find that voltage

stepping is “a series of actions designed for the specific objective of delivering, over long

distances, electricity generated out of State, to Maryland customers at a voltage suitable

for their use.” Id. Voltage stepping, therefore, is “processing,” and the equipment

performing it qualifies for the exemption. Id.

The Majority acknowledges that this definition “can encompass a broad range of

activities,” id. at 15, but concludes that breadth does not equal ambiguity. With respect, the

problem with the Majority’s definition is not ambiguity in the abstract. The problem is that

a general dictionary definition—untethered from any statutory context—is a poor

instrument for defining what “processing” means in a tax exemption statute.4 Standard

dictionary entries are inherently agnostic to context; they fail to supply the specialized

meaning and boundaries that the body of statutory text, legislative history, and

administrative practice has supplied for tax purposes. Because the Majority relies on a tool

that lacks this context, it adopts a definition that has no stopping point. Once “processing”

is defined as a “series of actions directed to some end,” virtually every commercial activity

ever undertaken qualifies. Consider:

• A UPS driver picks up a package from a warehouse and delivers it to a

customer’s home. That is a series of actions directed to an end—delivering the

The dictionary, untethered from statutory context, produces familiar mistakes. A botanist will tell you that a tomato is a fruit. In Nix v. Hedden, 149 U.S. 304, 307 (1893), the U.S. Supreme Court held that under the Tariff Act of 1883, a tomato was a “vegetable” notwithstanding the dictionary definition. Dictionary definitions, the Court held, “are admitted, not as evidence, but only as aids to the memory and understanding of the court.” Id. at 307. So too here. The dictionary definition of “processing” cannot displace the categorical line the General Assembly drew in §§ 11-101(f)(1)(ii) and (m)(11) between activities that are exempt and activities that are taxed.

package. Under the Majority’s definition, the driver is “processing” the package,

and the truck used to deliver it is exempt as tangible personal property used in a

production activity.

• A water utility pumps water from a reservoir through pipes to customers’ homes,

adjusting pressure along the way. That is a series of actions directed to an end—

delivering water at a usable pressure. Under the Majority’s definition, the utility

is “processing” water, and the pumping equipment is exempt.

• A natural gas utility moves gas through pipelines, adjusting pressure as needed

for distribution. Under the Majority’s definition the utility is “processing” gas,

and the entire distribution network is exempt.

The Majority’s reading is not just theoretically overbroad. It is overbroad on the

actual record before this Court. The capital audit schedules in this case show that Potomac

Edison sought to exempt, among other things, treated yellow pine wood utility poles

(“POLE, SYP 50’, CLASS-3” and “POLE, SYP 35’, CLASS-5”), concrete manholes

(“MANHOLE, CONC, 06X12X07”), and nylon self-locking cable ties (“TIE, CABLE,

NYL, SELFLOC”). A statutory term that classifies utility poles, concrete manholes, and

nylon cable ties as production equipment is not a term doing meaningful work. It is a term

applied with no limiting principle at all.

None of this can be what the General Assembly intended when it enacted a

production activity exemption to attract manufacturing industry to Maryland. Yet the

Majority’s definition produces all of these results, and the Majority offers no limiting

principle to exclude them. The Majority sidesteps this implication by disclaiming in

footnote 7 that the Comptroller “does not explain how the meaning of ‘processing’ can be

narrowed for the electricity industry without also narrowing it for every other industry

covered by the exemption.” Maj. Slip Op. at 21 n.7. But this shifts a burden meant to be

borne by the taxpayer onto the Comptroller. The law charged Potomac Edison with the task

of demonstrating how “processing,” properly construed, reaches the activities at issue here.

Potomac Edison’s definition, which now has the imprimatur of this Court, fails to discharge

this task.

In any case, the traditional answer—and the only answer that supplies a limiting

principle—is that “processing,” like its statutory neighbors “assembling,”

“manufacturing,” and “refining,” describes industrial activity that transforms tangible

personal property into something materially different. The canon of noscitur a sociis

requires no less. “[A] word is given more precise content by the neighboring words with

which it is associated[.]” Turenne v. State, 488 Md. 239, 285 (2024). The four verbs in §

11-101(f)(1)(i) form a coherent category: they describe activities at the production end of

a commercial supply chain, all of which involve a change in the form, composition, or

character of the raw material. That coherence is the limiting principle the Majority’s

definition lacks.

Maryland law has also long supplied a complementary test for whether an activity

falls within the production activity exemption: this standard asks whether the activity falls

within the “common understanding” of “manufacturing” or “processing.”5 Macke Co. v.

State Dep’t of Assess. & Tax’n, 264 Md. 121, 130 (1972); State Dep’t of Assess. & Tax’n

v. Consumer Programs, Inc., 331 Md. 68, 74 (1993). In Consumer Programs, this Court

explained that street paving was not “manufacturing” primarily “because the average

person would not consider it manufacturing[.]” 331 Md. at 74. The same principle disposes

of this case. “Processing” is not the word an ordinary person would use to describe the

movement of electricity from a power plant to a customer’s home through a network of

wires and transformers. The record confirms it: both parties’ experts disclaimed that

“processing” is even a term of art within the electric power industry to describe what

Potomac Edison does. Potomac Edison’s expert, Dr. Billy Don Russell, testified that “we

don’t use [processing] to describe the [transmission and distribution] system in normal

capacity.” If the parties’ experts do not call what Potomac Edison does “processing,”

neither should this Court—particularly when it owes deference to the Comptroller and the

Tax Court, both of which read the statute the same way.

The legislative history confirms this understanding. The 1968 committee report that recommended the production activity exemption described the proposed exemption as covering “machinery used in manufacturing, industrial processing, research and development and air and water pollution control.” SPECIAL JOINT LEGISLATIVE COUNCIL EXEC. COMM. ON THE MD. SALES, USE, AND ADMISSIONS TAXES, REPORT OF THE SPECIAL JOINT LEGISLATIVE COUNCIL EXECUTIVE COMMITTEE ON THE MARYLAND SALES, USE, AND ADMISSIONS TAXES, AN IN-DEPTH STUDY, at 37 (Nov. 1968) (emphasis added). The same report further emphasized the industrial focus, noting that “industry would still pay a substantial tax on purchases of property other than that used in manufacturing, research and development, and industrial processing.” Id. (emphasis added). The General Assembly enacted the production activity exemption against this backdrop. “Processing,” as used in § 11-101(f)(1)(i), means industrial processing—not commercial movement of a finished product through a distribution network.

The Majority’s reading cannot survive the common-understanding test. Nor can it

survive the more specific test this Court has applied to the production activity exemption

itself. In Comptroller of Treasury v. Disclosure, this Court held that the operative question

for the production activity exemption is “whether a product has gone through a substantial

transformation in form and uses from its original state.” 340 Md. at 684. The Majority

disclaims this test in footnote 8, reasoning that Disclosure’s substantial transformation test

applies only to “manufacturing” and not to “processing.” Maj. Slip Op. at 21 n.8. But

Disclosure characterized the entire production activity exemption—not just the

manufacturing clause—as “a tax exemption for manufacturing activities.” 340 Md. at 683.

The transformation requirement was not limited to one verb; it described the overall

character of the statutory scheme. The Majority’s reading of Disclosure elides that pivotal

characterization.

Once the substantial transformation requirement is reinstated to its proper place, the

analysis becomes straightforward. Generation of electricity satisfies the test easily. Both

parties’ experts agreed that, at a power plant, raw materials—coal, natural gas, water,

nuclear fuel—are converted into electric power through a process of energy conversion.

The raw material goes in; an entirely different product comes out. That is transformation

in the most literal sense, and it explains why the General Assembly’s specific exemption

for “generating electricity” in § 11-101(f)(1)(ii) makes perfect sense: generation qualifies

because it transforms something into something else.

Transmission and distribution are different in kind. Consider an analogy that has

long operated as a matter of common knowledge. Con Edison has operated a district steam

system in Manhattan since 1882, heating thousands of buildings by generating steam at

central plants and distributing it through underground pipes to customers. New York

exempts the generation of steam under its production activity exemption. N.Y. Tax Law §

1115(a)(12). But New York’s tax authority draws the line at distribution: equipment used

in the “distribution phase” does not qualify. See N.Y. Dep’t of Taxation & Finance, Tax

Bulletin ST-121. The reason is intuitive. Generation transforms water into steam—raw

material in, different product out. Distribution simply moves the steam through pipes to

the customer. The product is the same at both ends. No one would call distribution a

production activity, whatever the temperature or pressure of the steam being moved.

Potomac Edison’s operations are no different in principle. Voltage is stepped up at

the point of transmission—like converting water to steam—to move electricity efficiently

over long distances, then stepped down at the point of delivery—like condensing steam

back to water—for the customer’s use. The electricity is the same product at both ends.

And, as the record makes plain, Potomac Edison’s own expert, Dr. Ewald Fuchs, admitted

that voltage stepping is not even necessary to make electricity usable; it is necessary only

for efficient long-distance transmission. When asked whether a step-down transformer at

the generating plant could reduce voltage to 120 volts before the electricity entered the

T&D System, making it immediately usable without further voltage manipulation, Dr.

Fuchs said yes—electricity could be delivered 500 meters away at that voltage. “[E]xactly

what Edison did in New York[,]” he said. He then conceded explicitly that the voltage

changes occurring during long-distance transmission “are not necessary to produce usable

energy.”

This is the same Edison who, in 1882, simultaneously built New York’s first

electrical distribution system—sending electricity through wires from Pearl Street Station

to nearby customers—and a cogeneration plant at that same station that supplied steam

heating to neighboring buildings through underground pipes, the direct predecessor of Con

Edison’s modern steam system. Neither system substantially transformed its product. Both

moved it. Neither was a production activity. Both were delivery. The same is true of

Potomac Edison’s T&D System today.

The Comptroller’s expert confirms what Potomac Edison’s own expert admitted.

Dr. Saifur Rahman testified that a transformer “receives a given amount of power, it all has

defined quality, streaming electron, that’s what it gets. And it delivers on the secondary

side same amount of power at a different voltage and different current.” As Dr. Rahman

explained: “Electrons have . . . fixed property. That did not change. Because if it came out

unchanged in terms of [its] property[,] my answer is nothing has been processed.” Id. The

molecular and physical properties of the electricity are unchanged through the T&D

System. And, more remarkably, Potomac Edison’s own lead expert agreed. Dr. Russell

testified, in candor: “My friend Dr. Rahman . . . and I . . . on the matters of electrical

science, we’re in total agreement . . . I don’t have any disagreement at all with the electrical

science that he has put forward.” Dr. Russell maintained Potomac Edison’s position only

by “translat[ing] electrical science into . . . the opinion language”—that is, by reading the

term “processing” through the lens of Potomac Edison I’s judicial gloss rather than through

the science of what the equipment actually does. When the parties’ experts agree on the

science and disagree only on whether the law requires bending that science to fit a prior

judicial opinion, the better reading is the one that does not require bending it.

The transport-and-logistics framing supplied by the Comptroller’s expert further

confirms the point. Dr. Rahman described the T&D System using the language of road

infrastructure: “We have roads, streets in neighborhoods, we have intersections, traffic

light . . . If traffic light fails the cars all of them don’t stop. They go. They go slowly.” That

is the right mental picture. The T&D System is a delivery infrastructure. The “machine”

theory advanced by Potomac Edison—that the entire grid is a single integrated processing

machine—is at odds with how the equipment actually functions. It is shipping, not

manufacturing.

V. The Majority’s Reading of Suburban Propane Treats Dicta as Holding

To sustain its reading of “processing,” the Majority places significant weight on this

Court’s 1954 decision in Suburban Propane. The Majority reads Suburban Propane to

support the proposition that “manufacturing” and “processing” are distinct activities, and

that “processing” may reach activities like voltage transformation that fall short of

manufacturing. Maj. Slip Op. at 18–20. The Majority draws this conclusion principally

from this Court’s passing reference in Suburban Propane to the Alabama Supreme Court’s

decision in State v. Alabama Gas Corp., 62 So.2d 454 (Ala. 1952), which held that gas

regulators “process” gas. Maj. Slip Op. at 19-20. With respect, this reading transforms dicta

into holding—and selects a foreign court’s reasoning over the actual reasoning of the

Maryland decision it inhabits.

The actual holding of Suburban Propane is quite different than what the Majority

would have us believe. In that case, the taxpayer was a propane distributor who argued

that its activities—storing liquid propane, adding chemicals for safety and transportation,

delivering it to customers in tanks, and using valves and regulators to convert it from liquid

to gaseous form for use—constituted manufacturing or compounding within the meaning

of Article 81, § 370(f) of the 1951 Code. Suburban Propane, 205 Md. at 85–87. This Court

rejected the claim. Id. at 93–94. Adding odorant and antifreeze to liquid propane was not

compounding because it did not change the propane’s BTU content. Id. at 86–89. Reducing

the pressure on liquid propane to convert it into a gaseous form was not manufacturing. Id.

Suburban Propane was about the manufacturing and compounding exemptions. Id. It said

nothing about the term “processing” and its relationship to the manufacturing exemption.

Yet, the Majority extracts a different meaning by focusing on the Court’s twosentence reference to Alabama Gas Corp. The Majority reads this Court’s observation that

the Alabama court had distinguished manufacturing from processing—and had held that

gas regulators “process” gas—as a Maryland recognition of that distinction with binding

implications for the present case. More specifically, the Majority construes the Suburban

Propane’s threadbare reference to Alabama Gas Corp. as an “acknowledge[ment] that

‘manufacturing’ gas . . . and ‘processing’ gas . . . were two different activities” and as

“reflect[ing] this Court’s awareness that this distinction was based on a similar distinction

drawn by the Supreme Court of Alabama between generating electricity and the ‘stepping

down’ process necessary to bring electricity in a useable form to consumers.” Maj. Slip.

Op. at 19-20. But Suburban Propane did not adopt the Alabama framework as Maryland

law. And, it was not about electricity at all. In fact, the Court only mentioned Alabama Gas

Corp. in order to distinguish it from the facts of Suburban Propane—Alabama Gas Corp.

applied the “manufacturing” and “processing” exemptions to the gas industry while

Suburban Propane interpreted the terms “compounding” and “manufacturing” for

purposes of propane gas production. Suburban Propane, 205 Md. at 89-90. It noted the

Alabama court’s reasoning while resolving a totally different question on different

grounds. As this Court itself made clear in Suburban Propane, the taxpayer in Alabama

Gas Corp. proceeded solely under the theory that its equipment was used in processing,

and made “[n]o contention . . . that such regulators were used in compounding or

manufacturing.” 205 Md. at 89–90 (citation omitted). The Alabama Gas Corp. reference

was illustrative, not adoptive.

What is more, the Majority misses another case discussed in the same paragraph as

the Alabama Gas Corp. reference, one whose holding undercuts their reading of Suburban

Propane. Along with Alabama Gas Corp., the Suburban Propane court also cites Peoples’

Gas & Electric Co. v. State Tax Commission, an Iowa Supreme Court case deciding

whether a utility company’s electric distribution system, the very equipment at issue in the

instant case, fell within the processing exception to Iowa’s use tax. Suburban Propane,

205 Md. at 90-91 (citing 238 Iowa 1369, 1386-87 (1947)). In Peoples’ Gas & Electric

Co., the Iowa Supreme Court held that “the poles, wires, transformers and other equipment

in the distribution system were not directly used in . . . servicing the electric energy within

the meaning of the processing exception” and denied the utility company’s exemption

claim. 238 Iowa at 1386. Suburban Propane explicitly quotes this case. Suburban

Propane, 205 Md. at 90-91 (quoting Peoples’ Gas & Elec. Co., 238 Iowa at 1386-87). If

indeed this Court’s passing reference to Alabama Gas Corp. in Suburban Propane “reflects

this Court’s awareness” that the distinction between the “manufacturing” and “processing”

in Maryland tracks the one adopted by the Supreme Court of Alabama, Maj. Slip Op. at

20, this Court would have reconciled it with the Iowa Supreme Court decision, a decision

that, at the very least, casts doubt on the Majority’s reading of Suburban Propane. This

omission is a critical clue. This Court never took up this reconciliation project, because

Suburban Propane was not concerned with the distinction between “manufacturing” and

“processing” in any manner relevant to the issues presented in this case. Its sole focus was

on applying the terms “manufacturing” and “compounding” to propane gas production.

Despite the Majority’s best attempt to portray its decision as continuous with this

Court’s prior holdings, the issue presented here is a novel one. This Court has never held

that transformers “process” electricity. It has never held that gas regulators “process” gas.

It has never resolved whether the kind of pressure-or-voltage manipulation involved in

distribution constitutes processing under Maryland law. The correct approach is to take

Suburban Propane for what it held: pressure reduction in gas distribution is not

manufacturing or compounding. Nothing more. Nothing less.

VI. The Majority’s Reading Renders Subsection (f)(1)(ii) Surplusage and

Cannot Be Reconciled with the Statutory Scheme

The Majority’s reading of “processing” also produces an irreconcilable conflict

within Tax-General § 11-101(f)(1) itself.

The General Assembly addressed electricity in this statute deliberately, specifically,

and in its own subsection: § 11-101(f)(1)(ii) defines the production activity exemption for

the electricity industry as “generating electricity for sale or for use in another production

activity.” Potomac Edison concedes it does not generate electricity in Maryland. It

therefore does not qualify under subsection (ii). The question becomes whether the General

Assembly—having already addressed electricity with surgical precision in subsection

(ii)—silently extended a second, broader exemption to the transportation of electricity by

burying it within the word “processing” in subsection (i). Under the canon that “ordinarily

the specific prevails over the general,” Murphy v. Liberty Mut. Ins. Co., 478 Md. 333, 383

(2022), subsection (ii) is the specific provision governing electricity, and it controls over

the general “processing” language in subsection (i). The Majority’s reading inverts this

canon: it allows the general to swallow the specific entirely.

Worse, if electricity were already covered under subsection (i) as tangible personal

property that can be “processed,” then generating electricity—which is plainly a more

transformative activity than voltage stepping—would already qualify as a production

activity under (i), making (ii) entirely redundant. The legislature does not draft redundant

provisions. The presumption is that each subsection serves a distinct purpose. See Newell

v. Runnels, 407 Md. 578, 642 (2009) (“[C]ourts loathe interpreting a statute in a manner

that renders any of its language surplusage[.]”). The only reading that gives both

subsections independent effect is that (i) does not apply to electricity, and (ii) brings only

the specific activity of generating electricity within the exemption’s reach. Any other

reading reduces subsection (ii) to surplusage—a result this Court has consistently refused

to countenance. Doe v. Catholic Relief Servs., 484 Md. 640, 652 (2023).

The legislative history confirms this structure. Before 1968, neither the generation

nor the processing of electricity qualified for any tax exemption as a production activity.

This Court held in Frederick Electric Light & Power Co. v. Frederick City, 84 Md. 599

(1897), that electricity generation does not constitute “manufacturing” for purposes of a

tax exemption. No Maryland court has ever held that processing electricity qualifies for

any tax exemption either. Both activities were outside the exemption before 1968. The

1968 enactment changed the legal status of one of these activities and only one: it added

“generating electricity” as a separate, specifically enumerated production activity. TG §

11-101(f)(1)(ii). The General Assembly said nothing about processing electricity. Nothing.

The Majority reads the 1968 enactment as a broad legislative move that abrogated

Frederick Electric Light and thereby brought electricity-related activities within the scope

of the production activity exemption—including, in the Majority’s view, “processing.”

Maj. Slip Op. at 18. That reading misunderstands what legislative abrogation can do. The

General Assembly may abrogate a judicial holding. It cannot abrogate a judicial holding

the court never made. Frederick Electric Light held that the generation of electricity does

not constitute “manufacturing.” 84 Md. at 603. That holding addressed generation. It did

not address processing because that issue was not before the Court.

The 1968 enactment did exactly what a targeted legislative response can do: it

displaced the specific judicial holding the General Assembly chose to address. The General

Assembly added “generating electricity” to the list of production activities and thereby

abrogated Frederick Electric Light’s holding as to generation. Tax-Gen. § 11-101(f)(1)(ii).

The General Assembly did not and could not abrogate a Frederick Electric Light holding

on processing, because no such holding exists. The 1968 enactment changed the legal status

of generation. It did not change the legal status of processing. The Majority’s contrary

reading attributes to the General Assembly an abrogation it had no occasion to perform.

The Majority has, in effect, judicially created a tax exemption the General Assembly never

actually enacted.

Potomac Edison’s own attempt to harmonize subsections (i) and (ii) only deepens

the problem. Potomac Edison argues that subsections (i) and (ii) are coextensive rather than

operating on different planes, because clause (ii) covers “generating electricity” “for sale

or for use in another production activity,” while clause (i) covers “manufacturing” or

“processing” electricity “for resale.” That argument generates more puzzles than it solves.

Why would the General Assembly use the term “manufacturing” in clause (i) to describe

the production of electricity intended “for resale,” but then switch to the more precise term

of art “generating” in clause (ii) when describing the production of electricity intended “for

sale or for use in another production activity”? And if the General Assembly intended to

provide a production activity exemption for the “processing” of electricity under clause (i),

why would it exclude the “processing” of electricity “for sale or use in another production

activity” from the exemption? No coherent reading of the statute answers these questions.

The only coherent reading is the one I urge: clause (i) does not apply to electricity at all.

The Majority’s reading produces a further anomaly, and this one goes to the

coherence of the statutory scheme. Section 11-101(m)(11) classifies “a transportation

service for transmission, distribution, or delivery of electricity” as a taxable service. Yet

the Majority’s reading would have the General Assembly classify transmission and

distribution as a taxable service in one provision while exempting the equipment used to

perform that activity in another—two incompatible commands in a single scheme, with

nothing in the text to reconcile them. Potomac Edison has never explained how both can

be true. A statute that taxes an activity and exempts the means of performing it needs some

textual or structural basis for the distinction, and none appears here.

The difficulty traces to the provision the Majority’s analysis leaves aside. The

opinion cites § 11-101(k)(2)(iii), which defines electricity as tangible personal property,

but does not reach § 11-101(m)(11), the provision classifying its transmission and

distribution as a taxable service. The Appellate Court in Potomac Edison I at least

acknowledged that (m)(11) existed, acknowledged the Tax Court’s reliance on it, and

explained why it read the statute differently. Potomac Edison I, 2019 WL 1897463 at *5,

9. Confronting the provision and disagreeing with the Tax Court’s reading of it is a

contestable choice. The Majority’s reading does not reach that question, and so the tension

between taxing the activity and exempting the equipment goes unaddressed.

Potomac Edison advances a more basic argument that warrants direct response: that

even though transmission and distribution of electricity is classified as a taxable service

under § 11-101(m)(11), the equipment used to perform that taxable service may

nonetheless be exempt as production equipment under § 11-210(b)(1). The argument is

untenable. A tax statute does not work by accident. When the General Assembly classifies

the transmission, distribution, and delivery of electricity as a taxable service, it is making

a policy choice about how those activities are treated under the sales and use tax regime.

The equipment used to perform a taxable service is, by definition, equipment used to

perform a non-production activity. The two designations cannot coexist for the same

activity in the same statute. To accept Potomac Edison’s argument is to accept that the

General Assembly enacted contradictory provisions in the same statutory scheme—taxing

an activity in one breath and exempting the equipment used to perform it in the next. The

General Assembly does not work that way. The provisions read together produce a single

coherent rule: transmission and distribution of electricity is a taxable service, and the

equipment used to perform that service is not exempt as used in a production activity.

The comparison with other states underscores the point. When legislators want to

exempt the transmission and distribution of electricity, they say so. California does—

expressly granting an exemption for “electric power generation, storage, or distribution.”

Maryland did not. New York went further: in 2019, it made the transmission and

distribution of electricity explicitly taxable under a comparable statutory scheme. See 2019

N.Y. Laws ch. 59, part V. Maryland’s General Assembly used the words “transmission”

and “distribution” too—in § 11-101(m)(11), where it classified those very activities as

taxable services. Maryland is not silent on transmission and distribution. It addressed those

activities directly and deliberately—not to exempt them, but to tax them.

VII. The Majority’s Treatment of the “Maintaining” Exclusion Begs the

Question

Even setting aside everything I have said about the Majority’s reading of

“processing,” there is an additional and independent ground for denying the exemption:

Tax-General § 11-101(f)(2)(ii) expressly excludes “maintaining tangible personal

property” from the definition of “production activity.” The ordinary meaning of

“maintain” is to preserve or keep in existence—to prevent something from declining or

being lost. That is precisely what Potomac Edison’s T&D System does. The system

preserves the amount of electricity against line loss as it travels from the generating plant

to the customer. The record confirms it: Potomac Edison’s own evidence shows that

voltage is stepped up specifically to reduce line loss during transmission, and that without

this preservation effort, a substantial portion of the electricity would be lost as heat before

reaching the customer. Preserving a product against loss as it travels is maintenance,

expressly excluded from the exemption.

The Majority rejects this argument on the ground that “[a]n activity that transforms

the product does not become maintenance merely because the transformation preserves, to

the extent possible, the amount of product.” Maj. Slip Op. at 22. But that response assumes

the very point in dispute. The question whether voltage stepping “transforms” the product

is the central question in the case. If voltage stepping transforms the electricity, the

maintenance argument fails. If it does not transform the electricity—as Dr. Fuchs admitted,

and as the Comptroller’s expert Dr. Rahman testified, the electricity that enters the T&D

System exits the T&D System unchanged in its intrinsic properties—then preserving the

electricity against line loss is precisely maintenance, expressly excluded from the

exemption.

The Majority cannot defeat the maintenance argument by assuming the

transformation that the maintenance argument denies. At minimum, where an activity falls

within both a possible exemption and an express exclusion, we resolve the ambiguity in

favor of the State. See Broadway Servs., Inc., 478 Md. at 215 (“When determining if tax

exemptions apply, we do not presume that the State surrendered its taxing power.

Therefore, we strictly construe tax exemptions against the taxpayer.” (internal citations

omitted)). Here the tension is resolved the other way—in favor of the taxpayer claiming

the exemption rather than the State, which strict construction does not permit.

VIII. The Majority’s Decision Cannot Be Reconciled with the Rule of Strict

Construction

This Court has reiterated that tax exemptions are construed strictly against the

taxpayer; that the burden falls on the taxpayer to demonstrate that an exemption was

“clearly allowed by law”; and that “to doubt an exemption is to deny it.” Belcher, 315 Md.

at 118 (citation and quotation marks omitted); Consol. Coal Sales Co., 382 Md. at 455

(citation and quotation marks omitted); see also Broadway Servs., Inc., 478 Md. at 215

(citations omitted) (same). The Majority acknowledges these rules. Maj. Slip Op. at 13.

But it does not apply them.

Applied here, these rules point the other way. The statutory text is at best ambiguous

as applied to transmission and distribution. Subsection (f)(1)(ii) addresses electricity

specifically and limits the exemption to generation; subsection (m)(11) classifies

transmission and distribution as a taxable service. Three independent decision-makers—

the Comptroller’s hearing officer in 2012, the Tax Court in 2015, and the circuit court on

judicial review—read the statute the same way. The parties’ experts agreed on the

underlying electrical science, with Potomac Edison’s own expert conceding that voltage

stepping is not necessary to produce usable electricity and that his disagreement with the

Comptroller’s expert was confined to “translat[ing] the electrical science into . . . the

language of the opinion.”. At a minimum, this record leaves doubt about whether the

exemption applies. Consolidated Coal supplies the consequence: “to doubt an exemption

is to deny it[.]” 382 Md. at 455 (citation and quotation marks omitted). That consequence

points to denial here.

Strict construction requires more. The taxpayer must show that the exemption was

“clearly allowed by law,” and that the “deliberate purpose of the Legislature to grant an

exemption is expressed in clear and unequivocal terms.” Belcher, 315 Md. at 118. Potomac

Edison cannot make that showing. The General Assembly did not grant this exemption to

the transmission and distribution of electricity in clear and unequivocal terms. It granted

the exemption to the generation of electricity in clear and unequivocal terms. To reach

transmission and distribution, the exemption must be extended beyond those terms by

construction—which strict construction does not allow.

Conclusion

Potomac Edison is not entitled to a tax exemption for transmitting and distributing

electricity to Maryland. Section 11-101(m)(11) states this as plainly as the General

Assembly can make it: the transmission and distribution of electricity is a taxable service.

The Comptroller and the Tax Court have read it that way for decades. A tax statute cannot

simultaneously tax an activity and exempt the equipment used to perform it. The Majority

does not engage this reality. Instead, it takes great care to unwind, one by one, a tangle of

legal and factual questions that exists only because of an error this Court should have

addressed at its source: Potomac Edison I was wrong as a matter of statutory interpretation,

and the Majority now defends it with a sequence of doctrinal moves—some novel, some

strained, all in service of a result the statute cannot support.

What the Comptroller and the Tax Court identified, and what Potomac Edison I and

the Majority have lost sight of, is that the General Assembly enacted a coherent tax scheme

for the electricity industry. Companies that generate electricity in Maryland receive a

production activity exemption under § 11-101(f)(1)(ii). Companies that transmit,

distribute, or deliver electricity do not—and § 11-101(m)(11) explicitly classifies those

very activities as taxable services. Generation is exempt; transmission and distribution are

taxed. The two provisions work in tandem. They reflect a single, logical legislative

judgment: production deserves an incentive because it transforms raw material into a

marketable product, whereas delivery does not, because moving a finished product from

producer to consumer is not production. The Comptroller has applied that scheme

consistently. The Tax Court ratified it in 2015. The circuit court affirmed it on judicial

review. This scheme is not just defensible; it is the only reading of the statute that gives

both provisions independent effect, respects the canon of strict construction, and aligns

with the legislative history. The Majority’s reading dismantles it entirely.

The simplest answer is the best one. This Court should overrule Potomac Edison I,

deny the tax exemption in full, and hold that the taxpayer failed to meet its burden of

proving entitlement to an exemption. The intermediate appellate court erred in two related

respects: it set aside the rule of strict construction to infer an exemption the statute does

not grant, and it withheld the deference owed to the specialized determinations of the

Comptroller and the Tax Court.

This Court has now compounded those errors rather than correcting them. It has

adopted a definition of “processing” with no limiting principle. It has read Disclosure

narrowly to avoid that decision’s substantial-transformation test. It has treated a passing

reference to an Alabama case as the holding of Maryland law, without engaging what

Suburban Propane actually held or the contrary Iowa decision cited in the very same

paragraph on materially identical facts. Subsection (f)(1)(ii) is left as surplusage.

Substantial-evidence review is applied to the Tax Court’s 2022 findings but withheld from

its 2015 findings. And a novel rule emerges along the way—that an agency forfeits

deference unless it expressly requests it. None of this is reconciled with the strictconstruction canon or the deference principles that should have governed from the start.

The lower courts have been telling us this for years. On remand, the Tax Court

described its own difficulty with the framework Potomac Edison I imposed: “[There is]

really no processing after it leaves the power station, but that seems to be in direct conflict

with the language which I’m required to follow in the [Appellate Court’s] opinion. . . . I

am complexed, frankly, on how I can just pick out certain items or personal property when

it sounds to me like both expert witnesses have determined that it’s . . . an all or nothing

choice . . . [This is] the quandary the Court is in as a result of this opinion.” The circuit

court, at the conclusion of judicial review, asked the General Assembly to step in: “I would

suggest the legislature deal with this issue because . . . it seems like it’s much more complex

than the law provides.” Two courts, working in good faith within the framework Potomac

Edison I imposed, have said the framework does not work. It was a plea for help. We

should have heard them.

I respectfully dissent.

Comptroller v. Potomac Edison

Authorities cited

Opinion · public domain