Aziken v. Dist. of Columbia

• Decision Date: 20 September 2018
• Docket Number: No. 16-TX-675,16-TX-675
• Citation: 194 A.3d 31
• Parties: Smart AZIKEN, Appellant, v. DISTRICT OF COLUMBIA, Appellee.
• Court: D.C. Court of Appeals

194 A.3d 31

Smart AZIKEN, Appellant,

v.DISTRICT OF COLUMBIA, Appellee.

No. 16-TX-675

District of Columbia Court of Appeals.

Argued April 5, 2018

Decided September 20, 2018

Wendell C. Robinson argued for appellant.

Richard D. Caldwell and Patrick C. Horrell, Washington, DC, filed the brief for appellant.

Mary L. Wilson, Senior Assistant Attorney General, Office of the Solicitor General, with whom Karl A. Racine, Attorney General for the District of Columbia, and Todd S. Kim, Solicitor General at the time the brief was filed, and Loren L. AliKhan, Deputy Solicitor General at the time the brief was filed, were on the brief, for appellee.

Before Easterly and McLeese, Associate Judges, and Ruiz, Senior Judge.

Ruiz, Senior Judge:

Appellant Smart Aziken refinanced a mortgage on a property deeded to his sole proprietorship and, as a condition to obtain the loan, was required to transfer the property to a limited liability company ("LLC"). Appellant paid transfer and recordation taxes to record the transfer, but claims he is entitled to a refund of those taxes pursuant to an exemption for certain conversions from one form of business entity to another. Appellant argues that the trial court erred in its interpretation of the exemption statutes when it held that "no conversion was effectuated under the law covering tax exemptions," because, appellant claims, he met all the statutory criteria to be eligible for the tax exemption. Appellant also argues that the trial court erred in granting summary judgment for the District because it used an incorrect standard to evaluate the motion and, if the correct standard had been applied, appellant could have "ma[d]e out, at the least, a prima facie case for an estoppel argument." We affirm.

I. Background¹

Appellant purchased the real property in 2002 for $505,000 and recorded the deed in the name of Smart E. Aziken T/A Friendship Limousine Transportation Service, his sole proprietorship. Ten years later, in order to refinance a mortgage on the property, the bank required that the property be owned by an incorporated entity to insulate it from appellant's personal liabilities. Appellant filed articles of incorporation for his LLC on July 6, 2012, and he attempted to obtain a Conversion Certificate from the D.C. Department of Consumer and Regulatory Affairs ("DCRA") in August of 2012, that would permit appellant to claim eligibility for a tax exemption at the Office of Tax and Revenue ("OTR"), but the Conversion Certificate was not issued.²

To obtain the refinancing, appellant transferred the property to the LLC on September 19, 2012, by means of a "No Consideration Deed." In total, appellant was required to pay $59,225.26 in transfer and recordation taxes in connection with the deed. Still trying to obtain the Conversion Certificate, appellant attended a workshop with DCRA's Corporations Division, where Mr. Josef Gasimov, the Assistant Superintendent of Corporations, informed appellant that he would have to dissolve his LLC and reestablish it to receive the Conversion Certificate, which appellant claimed Gasimov said "should have been issued at the time that the articles of organization were filed ...." As instructed, appellant dissolved the LLC and created a new one on October 19, 2012, and a Conversion Certificate was issued the same day. Appellant applied for a refund of the transfer and recordation taxes, claiming the transfer was exempt; however, his request for a refund was denied by OTR on the ground that the Conversion Certificate was issued "one month after the ‘No Consideration Deed’ had been recorded."

Appellant sued the District of Columbia on December 7, 2012, claiming that the transfer of the property to the LLC was eligible for an exemption from transfer and recordation taxes and asserting estoppel against the District. The District filed a motion to dismiss for failure to state a claim and appellant filed a motion for summary judgment. After a hearing, the motions judge, the Honorable John Campbell, treated the District's Motion to Dismiss as a motion for summary judgment and granted summary judgment for the District.

II. Standard of Review

Interpretation of statutes presents a question of law that we consider de novo. See Cherry v. District of Columbia , 164 A.3d 922, 925 (D.C. 2017). This court also reviews a grant of summary judgment de novo , applying the same standard as the trial court in considering the motion for summary judgment. See District of Columbia v. District of Columbia Pub. Serv. Comm'n , 963 A.2d 1144, 1155 (D.C. 2009). A party is entitled to summary judgment if, when the facts are viewed "in the light most favorable to the non-moving party ... there [are] no genuine issue[s] of material fact and [ ] the moving party is entitled to judgment as a matter of law." Super. Ct. Civ. R. 56 (c) ; Hosp. Temps Corp. v. District of Columbia , 926 A.2d 131, 134 (D.C. 2007). On appeal, this court is required to "conduct an independent review of the record ... [to] determine whether any relevant factual issues exist by examining and taking into account the pleadings, depositions, and admissions along with any affidavits on file, construing such material in the light most favorable to the party opposing the motion." District of Columbia v. District of Columbia Pub. Serv. Comm'n , 963 A.2d at 1155 (quoting Graff v. Malawer , 592 A.2d 1038, 1040 (D.C. 1991) ). Decisions of the tax division of D.C. Superior Court are considered under the same standard of review as appeals from the court's other civil divisions. Hosp. Temps Corp. , 926 A.2d at 134 ; Square 345 Ltd. P'ship v. District of Columbia , 927 A.2d 1020, 1023-24 (D.C. 2007) (stating that summary judgment principles apply equally in tax cases).

III. Discussion

A. Statutory Interpretation

Generally, when a deed is filed in the District of Columbia, the parties to the deed must pay transfer and recordation taxes. D.C. Code §§ 47-903 (a)(1) & (c) (2012 Repl.) (transfer tax), 42-1103 (a)(1) & (c) (2012 Repl.) (recordation tax). There are enumerated exceptions to these taxes. See D.C. Code §§ 47-902, 42-1102 (2012 Repl.). In 2011, the District adopted an exemption that applies when a property transfer is made "in connection with the conversion of a converting entity to a converted entity." D.C. Code §§ 29-204.06 (h) (2013 Supp.), 42-1102 (22)(A), and 47-902 (16)(A) (2013 Supp.).³ This recent exemption is part of a broad recodification of the law pertaining to business organization that included a subchapter, the "Entity Transactions Act of 2010," D.C. Code § 29-201.01 et seq. (2012 Repl.), and is based on the Model Entity Transactions Act ("META"). D.C. Council, Committee on Public Services and Consumer Affairs, Report on Bill No. 18-500, District of Columbia Code Title 29 (Business Organizations) Enactment Act of 2010 at 9-10, 19 (Dec. 2, 2010).

The Act defines a "conversion" as involving a domestic or foreign "entity." D.C. Code §§ 29-201.02 (defining "conversion"), -204.01 (authorizing certain conversions by domestic entities). As defined in D.C. law, "[t]he term ‘entity’ does not include [ ] [a]n individual." D.C. Code § 29-101.02 (10)(B)(i) (2012 Repl.). The commentary to the META makes clear that "[s]ubparagraph (B)(i) of this definition [defining the term "entity"] excludes a sole proprietorship from the concept of an ‘entity.’ " NAT'L CONF. OF COMM'R ON UNIFORM STATE LAWS, 6A UNIFORM LAWS ANNOTATED 15 (2016). This is because in a sole proprietorship an individual owns the business assets directly, rather than through a partnership or corporation. "The sole proprietorship form of business provides ‘complete identity of the business entity with the proprietor himself,’ " and "has no legal existence apart from its owner." Bushey v. N. Assur. Co. of Am. , 362 Md. 626, 766 A.2d 598, 603 (2001) (quoting 1 Z. Cavitch, Business Organizations § 1.04 [1], at 1-23 (Matthew Bender 2000) ).⁴ Thus, the plain meaning of the statute's language is clear that a sole proprietorship, being equivalent to the individual owner, is not an "entity" that can transfer or receive property without having to pay recordation and transfer taxes.

Appellant nonetheless asks this court to interpret the tax exemption at issue to include transfer of a property as part of the change of his sole proprietorship into a single-member LLC, arguing that: (1) he met "all of the requirements listed on the Affidavit of Transfer Pursuant to Entity Conversion ,"⁵ (2) to interpret the term "entity" as excluding sole proprietorships is at odds with the District's "characterization of a Sole Proprietorship as a corporate form,"⁶ and (3) the type of conversion he completed "d[id] not violate the spirit of the law." These arguments run counter to the statutory language and are unsupported by the legislative history.

When the plain language of a statute is "unambiguous" and "does not produce an absurd result" that language dictates how a court interprets the statute. District of Columbia v. Brookstowne Cmty. Dev. Co. , 987 A.2d 442, 447 (D.C. 2010) ; Jackson v. District of Columbia Bd. of Elections & Ethics , 999 A.2d 89, 101 (D.C. 2010) ("The words used in a statute are the primary, and ordinarily the most reliable, source of interpreting the meaning of the statute." (internal quotation marks omitted) ). Tax exemptions, in particular, "will never be implied" in a statute, but instead, must be "expressed in clear and unmistakable terms, or must appear by necessary implication from the language used." District of Columbia Office of Tax & Revenue v. BAE Sys. Enter. Sys., Inc. ("BAE "), 56 A.3d 477, 484 (D.C. 2012) (noting that tax exemptions are "construed strictly against the claiming party"). If the statute is ambiguous, secondary sources will be consulted. See id. at 485 (consulting legislative history for the purpose behind ambiguous tax statute); Brookstowne , 987 A.2d at 448-49.

Here, no express language in the statute exempts appellant's transfer from an individual...