Director of Finance for Mayor and City Council of Baltimore v. Charles Towers Partnership

• Decision Date: 01 September 1994
• Docket Number: No. 1422,1422
• Citation: 104 Md.App. 710,657 A.2d 808
• Parties: DIRECTOR OF FINANCE FOR the MAYOR AND CITY COUNCIL OF BALTIMORE v. CHARLES TOWERS PARTNERSHIP, et al. ,
• Court: Court of Special Appeals of Maryland

Page 710

104 Md.App. 710

657 A.2d 808

DIRECTOR OF FINANCE FOR the MAYOR AND CITY COUNCIL OF BALTIMORE v. CHARLES TOWERS PARTNERSHIP, et al.

No. 1422, Sept. Term, 1994.

Court of Special Appeals of Maryland.

May 2, 1995.

Melvin J. Sykes (Otho M. Thompson, Carolyn A. Espy and Abraham M. Schwartz, on the brief), Baltimore, for appellant

Price O. Gielen (Bruce M. Luchansky and Neuberger, Quinn, Gielen, Rubin & Gibber, P.A., on the brief), Baltimore, for appellees Charles Towers, et al.

Kaye Brooks Bushel (T. Scott Basik and Basik, Bushel & Shelton, on the brief), Baltimore, for appellee C & P Christopher M. Lee, Melvin J. Kodenski and Kodenski & Canaras, on the brief, Baltimore, for appellee Santoni's, Inc.

Argued before BISHOP, CATHELL and DAVIS, JJ.

DAVIS, Judge.

This is an appeal from three orders of the Circuit Court for Baltimore City, each affirming a separate decision by the Maryland Tax Court. Pursuant to an ordinance first enacted in 1947, Baltimore City imposes a tax on the "gross sales price" of "sales for consumption" of electricity. In 1991, C & P Telephone, Santoni's, Inc., Charles Towers Partnership, Baltimore Budget Hotel Partnership, Apartment Services, Inc., and United Holdings Co., Inc. (the taxpayers) filed separate claims with appellant, the City's Director of Finance (the Director), seeking a refund of taxes paid on certain portions of their monthly electric bills. After those requests were denied, the taxpayers sought relief in the Maryland Tax Court, where some of the cases were consolidated. The Tax Court rendered three separate decisions, each of which was decided on a motion for summary judgment. In each case, the Tax Court concluded that the customer and demand charges at issue were not for "sales for consumption" of electricity and thus were not taxable under the ordinance. The cases were consolidated on appeal to the circuit court, and the trial judge affirmed.

Appellant presents three questions for our review, which we restate as follows:

I. Did the Tax Court err when it concluded, as a matter of law, that the "customer charge" and "demand charge" are not taxable under the Baltimore City ordinance?

II. Did the Tax Court err by failing to give proper deference to the administrative construction placed on the ordinance by the City's Director of Finance?

III. Did the Tax Court err by awarding interest on the amount of the refunds?

FACTS

In 1947, the Mayor and City Council of Baltimore first levied a tax on sales of electricity delivered to consumers in Baltimore City. ¹ The ordinance, now codified as art. 28, § 55 of the Baltimore City Code, provides in pertinent part:

(a)(1) Artificial or natural gas, electricity, and steam rates. There is hereby levied and imposed on all sales for consumption of artificial or natural gas, electricity and steam delivered in Baltimore City through pipes, wires or conduits within the limits of Baltimore City, hereinafter referred to as "energy sales," and billed after the effective date hereof, a tax at the rate of 8% upon the gross sales price thereof;

(emphasis added). It is undisputed that the taxpayers purchased electricity "for consumption" from Baltimore Gas & Electric Company (BG & E). The issue here is whether the tax may be levied against certain portions of their monthly electric bills that do not vary in direct proportion to the actual amount of electricity consumed.

Before the tax court, the parties stipulated that each monthly electric bill includes:

(a) a "customer charge," billed at a flat monthly rate;

(b) "demand charges," based on the maximum monthly demand in kilowatts (KW) during any single half-hour interval;

(c) "energy charges," based on total monthly consumption in kilowatt-hours (Kwh) (d) "fuel rate charges," calculated by multiplying the total Kwh consumed during the month by the dollar amount of the current fuel rate;

(e) a small environmental surcharge, as mandated by MD.CODE ANN. NATURAL RESOURCES § 3-302; and

(f) the City's electricity tax, which is levied against items (a) through (d).

Those charges were billed pursuant to a rate schedule approved by the Public Service Commission (the PSC). Each of the first four charges is designed to recover some portion of the costs incurred by BG & E in producing and delivering electricity to its customers. For example, the customer charge is intended to recover the costs associated with metering, billing, and other administrative functions. Demand charges, on the other hand, are designed to recover the costs associated with the equipment and facilities needed to produce, transmit, and distribute electricity.

The applicable rate schedule, designated as Schedule GL, applies to all BG & E customers who establish a monthly demand of sixty kilowatts or more. Consumers who are billed under Schedule GL pay the same customer charge each month, regardless of the amount of electricity they actually purchase and consume. To determine the amount of the demand charge, BG & E monitors a customer's electricity use each month and identifies the half-hour period in which the customer's consumption of electricity was greatest. The demand charge is calculated by multiplying the number of kilowatts consumed during that half-hour period by a specified dollar amount. Unlike the energy charges and fuel rate charges, the customer charge and demand charges are not based on the actual amount of electricity consumed.

In 1991, the taxpayers each requested a refund of taxes paid on the customer and demand charges during the preceding three years. After those requests were denied, the taxpayers sought relief in the Maryland Tax Court. In deciding the cases at hand, the Tax Court relied upon its decision in the cases consolidated as Blue Circle Atlantic, et al. v. Baltimore The Blue Circle case involved a Baltimore County ordinance that levied a tax against "sales for consumption of electricity." The Baltimore County ordinance was modelled after the Baltimore City ordinance at issue here, and the language was virtually identical. ³ Blue Circle Atlantic, Inc. and four other corporations alleged that the tax was unlawfully levied against the customer and demand charges on their bill.

                County, et al., Misc.  Nos. 684-688 (August 15, 1990). 2  Accordingly, a brief review of the Tax Court's earlier decision is in order
                

Because the case involved construction of a tax statute, the Tax Court noted that any ambiguity in the statutory language "must be construed strictly against [Baltimore County] and in favor of Petitioners." The Court then quoted from State v. Fabritz, 276 Md. 416, 421-22, 348 A.2d 275 (1975), cert. denied, 425 U.S. 942, 96 S.Ct. 1680, 48 L.Ed.2d 185 (1976), wherein Chief Judge Murphy explained:

[W]here statutory language is plain and free from ambiguity and expresses a definite and sensible meaning, courts are not at liberty to disregard the natural import of words with Applying those principles to the issue presented here, the Tax Court concluded:

a view towards making the statute express an intention which is different from its plain meaning.

Thus we must determine whether the statutory language is "plain and free from ambiguity." We conclude that the words "sales for consumption of electricity" express a "definite and sensible meaning," namely, sales of electricity actually consumed. We find that customer and demand charges, which are not based on KWH consumed, are not "sales for consumption," and therefore are exempt from the county tax.

In each of the cases consolidated under the present appeal, the Tax Court granted the taxpayers' motions for summary judgment. The Tax Court determined that there was no genuine issue of material fact, and concluded as a matter of law that the City ordinance does not authorize the assessment of the electricity tax against the customer and demand charges, "as those charges are not sales of electricity actually consumed." The Director was instructed to refund the pertinent taxes with interest. ⁴ The circuit court affirmed the Tax Court's rulings, and this appeal followed.

LEGAL ANALYSIS

A final order of the Maryland Tax Court is subject to judicial review as provided for contested cases under the Administrative Procedure Act. See MD.CODE ANN., TAX-GENERAL (TG) § 13-532(a) (1988 & Supp.1994). Because the cases before us were decided as a matter of statutory interpretation we must determine whether the Tax Court's decision was "premised solely upon an erroneous conclusion of law." Comptroller of Treas. v. Shell Oil Co., 65 Md.App. 252, 259, 500 A.2d 315 (1985) (quoting Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834, 490 A.2d 1296 (1985)). The standard of review is expansive, and we may freely substitute our judgment for the Tax Court's legal conclusions. Ramsay, Scarlett & Co., 302 Md. at 834, 490 A.2d 1296; Supervisor of Assessments v. Asbury Methodist Home, Inc., 313 Md. 614, 626-27, 547 A.2d 190 (1988).

The cardinal rule of statutory construction is to ascertain and carry out the actual intent of the legislature. Montgomery County v. Buckman, 333 Md. 516, 523, 636 A.2d 448 (1994). As a general rule, statutes involving taxation must be strictly construed. In Fair Lanes, Inc. v. Comptroller, 239 Md. 157, 162, 210 A.2d 821 (1965), the Court of Appeals explained that a reviewing court may not extend the reach of a tax statute "beyond the clear import of the language employed," and where there is doubt as to such a statute's scope, it should be construed "most strongly" in favor of the taxpayer. A strict construction must nonetheless be fair, reasonable, and consistent with the legislative intent. Maryland State Fair v. Supervisor of Assessments, 225 Md. 574, 588, 172 A.2d 132 (1961). See also Supervisor of Assessments v. Trustees of Bosley Methodist Church Graveyard, 293 Md. 208, 212-13, 443 A.2d 91 (1982); Hearst Corp. v. State Dept. of Assessments and Taxation, 269 Md. 625, 643, 308 A.2d 679 (1973). The canon in favor of...