Maizel v. Comptroller of the Treasury

• Decision Date: 29 April 2021
• Docket Number: No. 508, Sept. Term, 2018,508, Sept. Term, 2018
• Citation: 250 A.3d 329,250 Md.App. 360
• Parties: Jonathan A. MAIZEL, et ux. v. COMPTROLLER OF the TREASURY
• Court: Court of Special Appeals of Maryland

250 Md.App. 360

250 A.3d 329

Jonathan A. MAIZEL, et ux.

v.COMPTROLLER OF the TREASURY

No. 508, Sept. Term, 2018

Court of Special Appeals of Maryland.

April 29, 2021

Argued by: Jonathan A. Maizel (Beatriz E. Maizel, Rockville, MD), all on the brief, for Appellant.

Argued by: Brian L. Oliner (Brian E. Frosh, Atty. Gen., on the brief), on the brief, for Appellee.

Panel: Meredith,^* Graeff, Reed, JJ.

Meredith, J.

Jonathan Maizel and Beatrize Maizel, appellants, have appealed from a judgment of the Circuit Court for Montgomery County which, upon judicial review of a ruling of the Maryland administrative agency known as the Maryland Tax Court, affirmed the denial of the Maizels’ application for income tax refunds, which was the position urged by the Maryland Comptroller of the Treasury, appellee.

The Maizels had filed amended income tax returns seeking refunds because, they asserted, they had overpaid Maryland income taxes for the calendar years 2006 through 2011. At the time the Maizels filed their original returns for those years, the deduction that Maryland allowed for income taxes they had paid in other states where they owed income tax was structured in a manner that was later recognized as being in violation of the dormant Commerce Clause of the United States Constitution. After the Maizels filed their original returns for 2006 through 2011, a challenge to the Maryland tax provision was successfully raised by taxpayers named Brian and Karen Wynne. See Maryland State Comptroller of Treasury v. Wynne , 431 Md. 147, 64 A.3d 453 (2013), aff'd , 575 U.S. 542, 135 S.Ct. 1787, 191 L.Ed.2d 813 (2015) (hereinafter " Wynne I "), and Wynne v. Comptroller of Maryland , 469 Md. 62, 228 A.3d 1129 (2020) (hereinafter " Wynne II "). In Wynne II , 469 Md. at 67, 228 A.3d 1129, the Court of Appeals summarized the Wynne I litigation very briefly as follows:

The litigation began when the Wynnes challenged an aspect of the Maryland income tax law – in particular, the credit allowed by State law against a Maryland resident's income tax liability based on taxes the resident paid to other states on income derived from those states. The Wynnes argued that the Maryland tax scheme discriminated against interstate commerce and thus violated what is known as the dormant Commerce Clause of the federal Constitution. Both this Court and the Supreme Court, in closely divided decisions, agreed with that argument.

Beginning in October 2013, the Maizels attempted to take advantage of the Wynnes’ success by seeking refunds for the portion of the taxes that the Maryland Court of Appeals had declared unconstitutional in Wynne I . But, because more than three years had elapsed between the time the Maizels paid their taxes (without receiving full credit for taxes paid to other states) and the date the Maizels filed amended returns seeking to take advantage of the Wynne I ruling, the Comptroller denied the refunds because the Maizels’ claims were filed after the three-year statute of limitations prescribed by Maryland Code (1988, 2016 Repl. Vol.), Tax – General Article ("TG"), § 13-1104(c)(1). That statute provides that, subject to exceptions that are not pertinent here, "a claim for refund or credit of overpayment of ... income tax may not be filed after the periods of limitations for filing claims for refund or credit of overpayment set forth in [ 26 U.S.C.] § 6511 of the Internal Revenue Code," which requires such claims to be filed "within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later."

Although all of the Maizels’ amended returns seeking refunds were filed beyond the time limit prescribed by TG § 13-1104(c)(1), the Maizels argued that their refund claims should nevertheless be considered timely pursuant to the exception provided in TG § 13-1104(j), which states:

Notwithstanding subsection (c) of this section, a claim for refund or credit for overpayment of income tax attributable to a right to a reduction in a person's Maryland income tax that is established by a decision of an administrative board or by an appeal of a decision of an administrative board may be filed within 1 year after the date of a final decision of the administrative board or a final decision of the highest court to which an appeal of a final decision of the administrative board is taken.

The Maizels took the position that they were entitled to file claims for refunds of all taxes they had overpaid (because of not receiving full credit for the taxes they had paid to other states) at any point in the past so long as they filed those claims for refunds within one year after the date the Supreme Court issued its decision in Wynne I on May 18, 2015.

After the Comptroller rejected the Maizels’ argument that, without regard to the normal statute of limitations, they were entitled to file their refund claims within one year after the Supreme Court's decision in Wynne I , the Maizels appealed to the Maryland Tax Court, which heard the matter de novo and concluded that, because the Maizels were not parties in Wynne I , they were not entitled to the extra one-year provided by TG § 13-1104(j).

The Maizels filed a petition for judicial review in the Circuit Court for Montgomery County. After that court affirmed the ruling of the Tax Court, the Maizels filed this appeal, in which they have raised the following questions for our review:

1. Did the Tax Court err in concluding that § 13-1104(j) does not apply to appellants’ amended Maryland income tax returns seeking Wynne refunds for the relevant years?

2. Does denial of appellants’ Wynne refunds for the relevant years violate appellants’ rights to due process under the 14th Amendment and/or the Maryland Constitution?

3. Did the Tax Court abuse its discretion or otherwise commit reversible error in allowing appellee's assertion of privilege in respect of certain documents sought by appellants in discovery?

Because we conclude that the Tax Court correctly ruled that the extra time for filing a refund claim pursuant to TG § 13-1104(j) is available only to the parties to the administrative proceeding described in that section, we shall affirm the Tax Court's ruling denying the Maizels’ claims for refunds.

FACTS AND PROCEDURAL HISTORY

During the relevant period of 2006 through 2011, the Maizels resided in Montgomery County, Maryland. Mr. Maizel was a partner in a law firm that had offices in New York and California, and he paid income taxes in those states as well as in Maryland.

The Court of Appeals explained in Wynne I , 431 Md. at 154, 64 A.3d 453, that a 1975 amendment to Maryland tax law limited the credit against income tax liability that could be claimed by Maryland residents who earned taxable income that was also subject to taxation in other states, noting: "The Maryland income tax law reaches all of the income of a Maryland resident. The State income tax law allows a credit against an individual's State tax liability for income taxes paid to other states based on the income earned in those states." But, the Court explained in Wynne I , after the General Assembly amended Maryland's tax law in 1975, the credit was no longer allowed to be claimed against Maryland's "county" income tax for income taxes Maryland residents had paid to other states. Id . at 157, 64 A.3d 453 (citing TG § 10-703(a) ; Comptroller v. Blanton , 390 Md. 528, 890 A.2d 279 (2006) ).

When the Wynnes claimed the full credit on their 2006 tax return against all Maryland income tax, including the county portion, the Comptroller assessed them for a deficiency in the amount of Maryland taxes paid. Id . at 159, 64 A.3d 453. The Wynnes appealed to the Maryland Tax Court and argued "that the limitation of the credit to the State tax for tax payments made to other states discriminated against interstate commerce in violation of the Commerce Clause of the United States Constitution." Id. at 160, 64 A.3d 453. The Tax Court rejected the Wynnes’ argument, but, upon judicial review, the Circuit Court for Howard County reversed the Tax Court and ruled that the tax scheme was in violation of the dormant Commerce Clause. Id .

The Court of Appeals granted the Comptroller's petition for certiorari and affirmed the circuit court's ruling, holding in Wynne I that "the failure of the Maryland income tax law to allow a credit against the county tax for a Maryland resident taxpayer with respect to pass-through income of an S corporation that arises from activities in another state and that is taxed in that state violates the dormant Commerce Clause of the federal Constitution." Wynne I , 431 Md. at 176-77, 64 A.3d 453 (footnote omitted). The Court emphasized:

[T]he county income tax itself is not unconstitutional. Nor is the credit, which serves to ensure that the Maryland income tax scheme operates within constitutional constraints. Nor is the Maryland income tax law generally. What is unconstitutional is the application—or lack thereof—of the credit to the county income tax [for residents who paid income taxes to other states].

Id. at 177-78, 64 A.3d 453. The case was remanded to the Tax Court for recalculation of the Wynnes’ tax liability.

The opinion of the Court of Appeals in Wynne I was filed on January 28, 2013, and refiled May 17, 2013, with minor revisions made in response to a motion for reconsideration. The United States Supreme Court granted certiorari on May 27, 2014, 572 U.S. 1134, 134 S.Ct. 2660, 189 L.Ed.2d 208 (2014), and affirmed the ruling of the Maryland Court of Appeals on May 18, 2015, 575 U.S. 542, 135 S.Ct. 1787, 191 L.Ed.2d 813 (2015). The majority opinion of the Supreme Court observed:

This case involves the constitutionality of an unusual feature of Maryland's personal income tax scheme. Like many other States, Maryland taxes the income its residents earn both within and outside the State, as well as the income that nonresidents earn from sources within Maryland. But unlike most other States, Maryland

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