Meade Heights, Inc. v. State Tax Commission, 96

• Decision Date: 13 March 1953
• Docket Number: No. 96,96
• Parties: MEADE HEIGHTS, Inc. et al. v. STATE TAX COMMISSION.
• Court: Maryland Court of Appeals

Page 20

202 Md. 20

95 A.2d 280

MEADE HEIGHTS, Inc. et al. v. STATE TAX COMMISSION.

No. 96.

Court of Appeals of Maryland.

March 13, 1953.

Hilary W. Gans, Baltimore (A. Herman Siskind, Harry S. Kruger and C. Edward Jones, Baltimore, on the brief), for Meade Heights, Inc. and others.

Berryman Green, Sp. Asst. Atty. Gen. of United States (Charles S. Lyon, Asst. Atty. Gen. of United States of Ellis N. Slack, Sp. Asst. Atty. Gen. of United States, on the brief), for United States, intervenor.

Robert M. Thomas, Asst. Atty. Gen. (Edward D. E. Rollins, Atty. Gen., on the brief), for appellee.

Before SOBELOFF, C. J., and DELAPLAINE, COLLINS and HENDERSON, JJ.

HENDERSON, Judge.

Appellants are three domestic corporations of the State of Maryland who leased five parcels of land from the United States of America and constructed apartment projects thereon, the land in each case being located within military or other reservations over which the Federal Government has exclusive jurisdiction. The County Commissioners of Anne Arundel County and Harford County assessed appellants for ordinary taxation both as to the land and the buildings. Appellants then took an appeal to the State Tax Commission, which reversed the assessments as to the land, but sustained the assessments as to the buildings. The appellants appealed to the Baltimore City Court; there was no cross-appeal. The court affirmed the assessments, and the appeal comes here. It is conceded that the principles in all five cases are the same, so we shall discuss only the facts relating the Meade Heights, Inc.

The lease between the Secretary of the Army, representing the Federal Government, and Meade Heights, Inc. provided for the lease of 28 1/2 acres of land at Fort Meade, to be used for the erection of 348 housing units by the lessee, according to approved plans. It was made under the authority of Public Law 364, 80th Congress, passed in 1947 and codified as Title 10 U.S.C.A. § 1270, which authorized the Secretary of the Army 'to lease such real or personal property under the control of his Department * * * to such lessee or lessees and upon such terms and conditions as in his judgment will promote the national defense or will be in the public interest.' Sec. 1270d provides that the 'lessee's interest, made or created pursuant to the provisions of sections 1270-1270d of this title, shall be made subject to State or local taxation.' Title 12 U.S.C.A. § 1748 et seq., passed two years later, established a system of mortgage insurance to encourage private interests to build and operate housing projects on military reservations. To be eligible the mortgagor had to be approved and to agree to restrictions as to sub-rents and tenants, who were to be primarily military personnel.

The lease of the land was for a period of 75 years, at a ground rental of $720 per annum, with a provision that title to all improvements erected thereon should be and remain in the lessee. At the termination of the lease, the lessee was to have the right to remove the improvements if it so elected. If it should not elect to do so, they would become the property of the government without compensation to the lessee. During the term of the lease the lessee was to fully insure the improvements for its own benefit and the benefit of any mortgagee. The government agreed to provide certain services, such as police and fire protection and garbage collection, on a reimbursement basis. The lessee agreed to comply with all applicable State, county and municipal laws as to construction, sanitation, licenses, permits and all other matters. The lease provided that the lessee should pay 'all taxes, assessments, and similar charges which, at any time during the term of this lease, may be taxed, assessed or imposed upon the government or upon the lessee with respect to or upon the leased property. In the event any taxes, assessments, or similar charges are imposed with the consent of the Congress of the United States upon the property owned by the government and included in this lease (as opposed to the leasehold interest of the lessee therein), this lease shall be renegotiated so as to accomplish an equitable reduction in the rental provided above, which shall not be greater than the difference between the amount of such taxes, assessments or similar charges and the amount of any taxes, assessments or similar charges which were imposed upon such lessee with respect to his leasehold interest in the leased property prior to the granting of such consent * * *.' As we read this provision, it called for renegotiation only in the event that Congress should consent to taxation of the government's interest in addition to that of the lessee, which is recognized as fully taxable as of the date of execution.

The State Tax Commission and the court below held that the appellant had the only substantial interest in the buildings erected by it under the terms of the lease, and could be assessed on the full value thereof. Appellant contends that the lessee does not hold a complete interest in the buildings and, therefore, an assessment measured by the full value of the buildings goes beyond the permissible limits of state taxation, as fixed by Congress. Appellant also contends that the law of Maryland does not authorize the taxation of any interest in property less than a fee simple interest. The United States, as intervenor, supports the first contention, but takes no position as to the second. We shall deal with the contentions in inverse order.

Section 7(1), Article 81, Code of 1951, provides for the 'assessment to the owner and taxation for ordinary taxes' of 'All real properties in this State, by whomsoever owned, including that owned or leased by the United States, or any department or agency of the United States to the fullest extent possible under the Constitution of the United States and laws of the United States pursuant thereto and in conformity therewith * * *.' Section 2(12) of said Article provides: 'Real Estate shall include leaseholds, unless such construction would be unreasonable.' It has been consistently held that limited estates in real property are taxable. Cf. Williams' Case, 3 Bland 186, 259. In Appeal Tax Court v. Western Md. R. Co., 50 Md. 274, the railroad had leased for 99 years, renewable forever, certain property from the City, the improvements on which had been erected by the City. The reversionary interest of the City was exempt. The court held that the Railroad 'must be regarded for practical purposes as the substantial owner of the leasehold interest in the property', and said: 'We are of opinion that the Company is liable to be assessed with the leasehold interest; * * *.' A similar conclusion was reached in the case of Philadelphia, W. & B. R. Co. v. Appeal Tax Court, 50 Md. 397, where the owner of the leasehold was assessed and taxed on the full value of the improvements which it erected, though the fee was tax-exempt. See also, as to the taxation of easements, Consolidated Gas Co. v. City of Baltimore, 101 Md. 541, 61 A. 532, 1 L.R.A.,N.S., 263; Consolidated Gas Co. v. Baltimore City, 102 Md. 43, 65 A. 628; and United Rys. & Electric Co. v. Baltimore City, 111 Md. 264, 73 A. 633.

In Baltimore Shipbuilding & Dry Dock Co. v. City of Baltimore, 97 Md. 97, 54 A. 623, 624, land previously conveyed to the United States was conveyed by it to a private corporation, on condition that the latter should build a drydock according to prescribed specifications and operate it, giving free dockage to government vessels. The conveyance provided that the property should revert to the United States absolutely, if the property should be used for any other purpose, or if the drydock were unfit for use for a period of six months. The court said: 'Under this conveyance the appellant did not acquire the absolute fee-simple title to the land, but took only an estate therein limited to a particular use under special conditions, and liable to be defeated upon a misuser or nonuser, yet it did take a valuable interest in the land, of which it has been in full possession and enjoyment ever since. * * * We hold that the conditional interest or estate of the appellant in this land, subject to the rights of the United States therein, constitutes property, within the meaning of section 2 of article 81 of the Code of Public General Laws, and is taxable by the state and the city of Baltimore.' The decision was sustained by the Supreme Court in an opinion by Mr. Justice Holmes. Baltimore Shipbuilding & Dry Dock Co. v. City of Baltimore, 195 U.S. 375, 25 S.Ct. 50, 49 L.Ed. 242.

The appellant contends, however, that the law was changed by the repeal of the so-called omnibus clause of the tax law in 1929. We do not agree. Section 2, Article 81, prior to 1929, provided that certain types of property should be exempt, and then stated that 'All other property of every kind, nature and description within this State * * * shall be valued and assessed for the purpose of State, county and municipal taxation to the respective owners thereof'. The amendments adopted by Chapter 226, Acts of 1929, undertook to list the types of taxable property and then spell out the exceptions. But it is clear from the report of the Revision Commission of 1928, that no change in substance was intended. As stated in the preamble to Section 1, the intention was to codify and clarify not to make changes in substance. The right of taxation is never to be presumed to be surrendered. Mayor & City Council of Baltimore v. Baltimore & O. R. Co., 6 Gill 288; Frederick County Com'rs v. Sisters of St. Joseph, 48 Md. 34; Sindall v. Baltimore City, 93 Md. 526, 530, 49 A. 645; Clarke v. Union Trust Co. of D. C., 192 Md. 127, 134, 63 A.2d 635.

The language we have quoted making real property, including leaseholds, taxable to the owner was not designed to create an exemption. The provisions of Section 3(c), Article 81, Code of 1951,...