Comptroller v. Science Applications

• Decision Date: 16 June 2008
• Docket Number: No. 101, Sept. Term, 2007.,101, Sept. Term, 2007.
• Parties: COMPTROLLER OF the TREASURY v. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION.
• Court: Court of Special Appeals of Maryland

950 A.2d 766

405 Md. 185

COMPTROLLER OF the TREASURY v. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION.

No. 101, Sept. Term, 2007.

Court of Appeals of Maryland.

June 16, 2008.

Gerald Langbaum, Asst. Atty. Gen. (Douglas F. Gansler, Atty. Gen. of Maryland, John K. Barry, Asst. Atty. Gen., Annapolis), on brief, for appellant.

Eric J. Coffill (Morrison & Foerster, LLP, Sacramento, CA; Harry D. Shapiro of Saul Ewing, LLP, Baltimore), on brief, for appellee.

Argued before BELL, C.J.,^* RAKER, HARRELL, BATTAGLIA, GREENE, MURPHY and DALE R. CATHELL (Retired, specially assigned), JJ.

RAKER, J.

The primary issue we must decide in this appeal, filed by the Comptroller of the Treasury, is whether the Tax Court erred in requiring the Comptroller to pay interest on a tax refund to Science Applications International Corporation (SAIC). The Comptroller also raises a jurisdictional challenge to the Tax Court's review of the Comptroller's disallowance of SAIC's refund claim for interest. We shall hold that the Tax Court has jurisdiction to hear a claim for interest on a refund, and, on the merits, because the Tax Court committed no errors of law and its conclusions were supported by substantial evidence, we shall affirm.

I.

On or about October 15, 2000, Appellee, SAIC filed its Maryland corporation income tax return for the fiscal year beginning February 1, 1999 and ending January 31, 2000. SAIC reported that it owed $4,216,431. Because SAIC had previously remitted estimated tax payments of $4,901,759, the return reflected a refund of $685,328, which the State paid in a timely manner. Three years later, on October 14, 2003, SAIC amended its 1999 return. The amendment claimed a further refund of $4,274,519 based on the argument that a gain from the sale of shares of stock of Network Solutions, Inc. (NSI), which SAIC had held for investment purposes, lacked a sufficient nexus to Maryland for the gain to be taxable under the United States Constitution and Maryland law. See Hercules v. Comptroller, 351 Md. 101, 109, 716 A.2d 276, 279-80 (1998). SAIC had included the gain on NSI stock on its original return. By amending its 1999 tax return to eliminate the $715,850, 753 gain on the sale of NSI stock, SAIC reduced its Maryland income tax liability for the tax year to zero and claimed a refund of the full amount of taxes that it had previously paid. The entire $4,274,519 claim for refund represents Maryland income tax paid by SAIC to the Comptroller attributable to SAIC's capital gain of $715,850,753 realized on SAIC's sale of its NSI stock.

The Comptroller denied SAIC's claim for refund by letter dated December 18, 2003, based on the Comptroller's determination that a portion of the NSI gain was taxable in Maryland. Following an informal hearing, pursuant to § 13-510 of the Tax-General Article, Maryland Code (1988, 2004 Repl. Vol.),¹ the Comptroller issued a Notice of Final Determination denying SAIC's refund claim on October 5, 2004.

SAIC filed a petition of appeal in the Maryland Tax Court, contesting the Comptroller's denial of its claim for a refund. After an evidentiary hearing, the Tax Court reversed the decision of the Comptroller's denial of SAIC's claim for a refund, based on the Tax Court's finding that there was no nexus between SAIC's capital gain of the stock sale and the State of Maryland. The Comptroller did not seek judicial review of the Tax Court's refund decision and paid to SAIC the full amount of the refund.

SAIC filed a motion in the Tax Court to compel the Comptroller to pay interest on the refund. The Tax Court ruled in favor of SAIC, holding that interest was due on the refund from the time that SAIC filed the claim for refund and the time that the Comptroller's office paid the refund, and that no interest on the interest was due.

The Comptroller filed a petition for judicial review in the Circuit Court for Baltimore City.² The Circuit Court affirmed the Tax Court.

The Comptroller noted a timely appeal to the Court of Special Appeals. This Court granted certiorari on its own initiative prior to any decision of the intermediate appellate court to consider whether the Tax Court erred in exercising jurisdiction to hear and decide SAIC's motion to compel payment of interest, whether SAIC's motion was barred by res judicata, and whether the Tax Court erred in requiring the Comptroller to pay interest on the refund due to SAIC. Comptroller v. Science Applications, 402 Md. 355, 936 A.2d 852 (2007).

II.

Before this Court, the Comptroller argues that SAIC's claim for interest was barred by res judicata because SAIC failed to raise the issue of interest on the refund in its original petition in the Maryland Tax Court. He maintains that the Tax Court does not have jurisdiction to compel payment of interest on a refund because § 3-103(a) and § 13-510(a) do not mention interest on the refund. Finally, the Comptroller argues that SAIC's refund claim fits into an exception to § 13-603's general provision for interest on the refund, which reads, in pertinent part, as follows:

"(b) Exceptions. — A tax collector may not pay interest on a refund if the claim for refund is:

* * *

(2) based on:

(i) an error or mistake of the claimant not attributable to the State or a unit of the State government ..."

It is the Comptroller's position that § 13-603 precludes granting interest on a refund that was made due to an error by the taxpayer. The Comptroller contends that SAIC made a mistake on its original tax return filing that could not be "attributable to the State" because the Comptroller did not compel SAIC by assessment or any active involvement with the original filing. He objects primarily to the Tax Court's application of DeBois Textiles v. Comptroller, 1985 WL 6117 (1985), where the Tax Court stated "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 the tax is owed." The Comptroller argues that the Tax Court erred as a matter of law in using the DeBois standard and that the Tax Court's finding that SAIC's mistake was "attributable to the State" was not supported by substantial evidence.

Appellee, SAIC, counters that the doctrine of res judicata is inapplicable in this case because there is no second action — the motion to compel interest on the refund arises out of the enforcement of the Tax Court's order reversing the Comptroller's denial of a refund. SAIC further contends that the Tax Court had jurisdiction to compel interest on the refund because there is a direct relationship between refunds and interest on those refunds, and the Tax Court is explicitly granted jurisdiction over the denial of a refund. Appellee contends that interest on the refund was mandated by § 13-603 because any error made by SAIC was attributable to the State.

III.

When reviewing the decision of an administrative agency, such as the Tax Court,³ we review the agency's decision directly, not the decision of the circuit court. Anderson v. General Casualty, 402 Md. 236, 244, 935 A.2d 746, 751 (2007). A reviewing court will affirm the decision of the Tax Court when it is supported by substantial evidence appearing in the record and it is not erroneous as a matter of law. Comptroller v. Blanton, 390 Md. 528, 535, 890 A.2d 279, 283 (2006); Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834, 490 A.2d 1296, 1300-01 (1985). Because an agency's decision is presumed prima facie correct, we review the evidence in the light most favorable to the agency. Comptroller v. Citicorp, 389 Md. 156, 163, 884 A.2d 112, 116 (2005). Indeed, "it is the agency's province to resolve conflicting evidence and where inconsistent inferences can be drawn from the same evidence it is for the agency to draw the inferences." Id. at 163-64, 884 A.2d at 116 (quoting Ramsay, 302 Md. at 835, 490 A.2d at 1301). When we review an agency decision that is a mixed question of law and fact, we apply "the substantial evidence test, that is, the same standard of review it would apply to an agency factual finding." Longshore v. State, 399 Md. 486, 522 n. 8, 924 A.2d 1129, 1149 n. 8 (2007).

IV.

We consider first the Comptroller's jurisdictional argument. The Comptroller argues that the Tax Court lacked jurisdiction to hear SAIC's claim for a refund of interest because the agency's statutory jurisdiction does not extend to interest claims.

The Maryland Tax Court is established by § 3-102 which states as follows:

"There is a Maryland Tax Court, which is an independent administrative unit of the State government."

The Tax Court's subject matter jurisdiction is governed by § 3-103(a), which states as follows:

"(a) In general. — The Tax Court has jurisdiction to hear appeals from the final decision, final determination, or final order of a property tax assessment appeal board or any other unit of the State government or of a political subdivision of the State that is authorized to make the final decision or determination or issue the final order about any tax issue, including:

(1) the valuation, assessment, or classification of property;

(2) the imposition of a tax;

(3) the determination of a claim for refund;

(4) the application for an abatement, reduction, or revision of any assessment or tax; or

(5) the application for an exemption from any assessment or tax."

Section 13-510(a) delineates specific decisions that are appealable to the Tax Court, and provides, in pertinent part, as follows:

"(a) In general — Except as provided in subsection (b) of this section and subject to § 13-514 of this subtitle, within 30 days after the date on which a notice is mailed, a person or governmental unit that is aggrieved by the action in the notice may appeal to the Tax Court from:

(1) a final assessment of tax, interest, or penalty under this article;

(2) a final determination on an application for revision or claim for...