Decision Date01 November 2001
Docket NumberNo. 2217,2217
Citation795 A.2d 124,143 Md. App. 356
CourtCourt of Special Appeals of Maryland

James G. Bennett of Silver Spring, for appellant.

David M. Lyon, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen. on brief) Baltimore, for appellee.


In this case, we must determine whether a mortgage securing a homeowner's primary residence constituted a liability for purposes of calculating the homeowner's "net worth" and eligibility for a Homeowner's Tax Credit. Pursuant to Md.Code (1986, 1994 Repl.Vol.), § 9-104 of the Tax-Property Article ("T.P."), James Bennett, appellant, pro se, applied for a Homeowners' Tax Credit for the 1996 tax year, based on his income and net worth for calendar year 1995. The State Department of Assessments and Taxation ("SDAT"), appellee, rejected Bennett's application on the ground that he failed to satisfy the statutory criteria as to net worth. SDAT reached that conclusion because it did not consider the mortgage for Bennett's primary residence as a liability. The Maryland Tax Court upheld that determination on October 27, 1999, and, by order dated September 19, 2000, the Circuit Court for Montgomery County affirmed.

On appeal, appellant presents several questions for our review, which we have combined and rephrased:

In calculating appellant's net worth to determine his eligibility for a Homeowners' Tax Credit, did the Tax Court err in excluding as a liability the mortgage balance on appellant's home?

For the reasons that follow, we shall affirm.


T.P. § 9-104 establishes a property tax credit for eligible homeowners, known as a Homeowner's Tax Credit ("HTC"), by which a portion of the homeowner's tax bill is absorbed by the State. Eligibility for the tax credit depends upon several factors, including the applicant's net worth as of the year preceding the request. T.P. § 9-104(i) disqualifies an applicant for the HTC if the applicant's net worth exceeds $200,000. T.P. § 9-104(i) provides, in part:

A property tax credit under this section may not be granted to a homeowner whose combined net worth exceeds $200,000 as of December 31 of the calendar year that precedes the year in which the homeowner applies for the property tax credit.

Net worth is defined in T.P. § 9-104(a)(12) as "the sum of the current market value of all assets, less any outstanding liability." But, for purposes of calculating net worth, T.P. § 9-104(a)(2) excludes "the dwelling for which the property tax credit is sought" from consideration as an asset. The statute does not address whether any corresponding mortgage or debt is omitted from consideration as a liability. Nor is the term "liability" specifically defined in the statute. Nevertheless, because the taxpayer's primary residence is not considered as an asset in the calculation of net worth, SDAT has consistently excluded the mortgage liability on the corresponding dwelling from the calculation of net worth. That position is at issue here.

Under T.P. § 9-104, appellant applied for an HTC for the tax year 1996, based on his income and net worth for calendar year 1995. In order to determine Bennett's eligibility, SDAT calculated his net worth. In doing so, SDAT excluded the value of appellant's home as an asset. Consequently, SDAT also excluded as a liability the mortgage balance on that home. SDAT subsequently rejected Bennett's application because, based on its calculations, his combined net worth exceeded $200,000, which disqualified him from obtaining the HTC under the net worth test in T.P. § 9-104(i).

Bennett maintained that, in its net worth calculation, SDAT properly excluded his home as an asset, but erroneously excluded as a liability his outstanding mortgage balance on that home. Had SDAT included the mortgage liability, the parties agree that appellant's net worth would have fallen below the $200,000 statutory threshold.

Bennett appealed SDAT's decision to the Maryland Tax Court, reiterating that his mortgage balance should have been included as a liability in the net worth calculation. Although the Maryland Tax Court found some ambiguity in the statute, it noted that exemptions from taxation are strictly construed in favor of the State. The Tax Court was of the view that if a dwelling is not considered as an asset for purposes of calculating net worth, it made no sense to include in the calculation, as a liability, the mortgage on that same home. The Tax Court reasoned: "There's no rational way to allow you to eliminate the assets as part of the net worth calculation but still include the liability on that." Further, the Tax Court said:

Based on the standard that we have to work with and what I would consider a reasonable interpretation of what net worth is, if you exclude the home [as an asset,] you have to not count the liability on the home at the same time.

The circuit court subsequently affirmed. It stated, in relevant part:

There's no dispute in this case that the only issue was the proper calculation of the net worth of the Petitioner, and therefore this is a decision of law. And the Court is really looking to see whether, in this Court's opinion, the Tax Court made an error of law.
We looked at Tax Property Article, Section 9-104. "Eligibility for the credit is determined by gross income and net worth, both of which are calculated to determine the applicant's ability to pay the tax that's otherwise due.["]
"The statute excludes the home as an asset in calculation of net worth."
And this was the basis of SDAT's position that both the value of the home and the mortgage thereon, are excluded from the calculation of net worth under the statute.
This Court is going to find that this position is supported by the language and intent of the statute, the legislative history, and also the longstanding administrative practice of SDAT.
Courts have considered tax credits similarly to exemptions and have specifically held that the rules of strict statutory construction for exemptions are equally applicable to tax credits.
The burden of persuasion is placed on the applicant to show affirmatively that the alleged exemption or credit has been clearly allowed by law.
* * *
Since this is a credit created by statute, the statute also defines the eligibility criteria, which can be generally described as being based on income and the assets available to pay the applicant's property taxes.
The legislative intent is also available to the Court to assist the Court in determining what the purpose of the legislative [sic] is meant to accomplish, and this Court finds, based on what's presented in the record, that the intent of this statute was to assist those who did not have the financial ability to pay, by measuring the financial ability as represented by the net worth of the particular applicant.
The statutory definition of assets specifically excludes the residence that is the subject of the credit application.
* * *
Finally, case law does direct this court to give great deference to the manner in which a statute is implied [sic] and interpreted by the agency that is charged with carrying it out.
* * *
I am going to find that the Tax Court did not err as a matter of law, and I will affirm the decision of the Tax Court.

Appellant disputes the way in which SDAT calculated his net worth. Although the primary residence is not considered as an asset under T.P. § 9-104(a)(2) for purposes of calculating net worth, appellant argues that the outstanding mortgage for that same dwelling should have been included as a liability for purposes of calculating net worth. Therefore, he complains that the Tax Court erred by excluding his mortgage liability in the calculation of net worth. As we noted, the parties agree that if SDAT had included Bennett's mortgage as a liability, his net worth would have been less than $200,000. Conversely, they agree that appellant's net worth exceeds the $200,000 threshold if his mortgage liability is omitted from the net worth calculation.

Appellant asserts: "[T]he basic disagreement in the case is the nature of the relationship between a dwelling and the indebtedness secured by the dwelling. Disagreement arises in the calculation of a net worth limitation because the Statute excludes the dwelling for which the tax credit is sought since the dwelling is not an `Asset'!" Bennett adds: "[T]wo perspectives of the statutory language have arisen with respect to how the liability for a debt relates to a dwelling, when the dwelling is used as security for payment of that debt." Moreover, appellant contends that the statute "does not exclude any liabilities in this calculation...." He urges that the "security is collateral to the debt—not lineal. The debt exists regardless of whether or not there is security given."

We begin our analysis with a review of the principles that govern judicial review of an administrative agency's decision. We recently discussed these principles in Rouse-Fairwood Development Limited Partnership v. Supervisor of Assessments for Prince George's County, 138 Md.App. 589, 617-618, 773 A.2d 535, cert. denied, 365 Md. 475, 781 A.2d 780 (2001). See also Rouse-Fairwood Limited Partnership v. Supervisor of Assessments of Prince George's County, 120 Md.App. 667, 684-89, 708 A.2d 19 (1998).

The Maryland Tax Court is an administrative agency. See Md.Code (1988, 1997 Supp.), § 3-102 of the Tax-General Article ("T.G."); Supervisor of Assessments of Baltimore County v. Keeler, 362 Md. 198, 207, 764 A.2d 821 (2001); State Dep't of Assessment and Taxation v. North Baltimore Ctr., Inc., 361 Md. 612, 616 n. 5, 762 A.2d 564 (2000); Read v. Supervisor of Assessments of Anne Arundel County, 354 Md. 383, 391, 731 A.2d 868 (1999). On appeal from a decision...

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