MEPT St. Matthews, LLC v. Dist. of Columbia

• Docket Number: 22-TX-0329
• Decision Date: 20 July 2023
• Parties: MEPT St. Matthews, LLC, et al., Appellants, v. District of Columbia, Appellee.
• Court: D.C. Court of Appeals

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MEPT St. Matthews, LLC, et al., Appellants,
v.
District of Columbia, Appellee.

No. 22-TX-0329

Court of Appeals of The District of Columbia

July 20, 2023

Argued January 31, 2023

Appeal from the Superior Court of the District of Columbia (2021-CVT-000674) (Hon. John McCabe, Trial Judge)

Thomas T. Locke, with whom Renee B. Appel was on the brief, for appellants.

Arjun P. Ogale, Assistant Attorney General, with whom Karl A. Racine, Attorney General for the District of Columbia (at the time the brief was filed), Caroline S. Van Zile, Solicitor General, Ashwin P. Phatak, Principal Deputy Solicitor General, Carl J. Schifferle, Deputy Solicitor General, and Richard S. Love, Senior Assistant Attorney General, were on the brief, for appellee.

Before BLACKBURNE-RIGSBY, Chief Judge, DEAHL, Associate Judge, and STEADMAN, Senior Judge.

BLACKBURNE-RIGSBY, CHIEF JUDGE

In this tax case regarding a commercial real estate transaction, appellants are MEPT St. Matthews, LLC ("MEPT") and TFG 1717 Rhode Island Avenue Property, LLC ("TFG"). MEPT sold its "right, title,

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interest, and obligations" in 1717 Rhode Island Avenue N.W. to TFG for $58,800,000. Appellants and the District of Columbia agree that MEPT and TFG are responsible for recordation and transfer taxes on this transaction. The dispute is how to calculate the taxes.

Appellants contend that they are only responsible for taxes based on the amount of consideration, or $58,800,000. The District contends that appellants are also responsible for taxes on the assignment of a leasehold interest in the property, the value of which is calculated separately. The difference is a sum of $1,933,934, which appellants paid under protest. The trial court granted summary judgment to the District, agreeing that the transaction encompassed two separate interests that must be taxed differently, pursuant to D.C. Code §§ 42-1103 &47-903 (recordation and transfer tax statutes). We affirm the trial court's conclusion that, based on the plain language of these statutes, there were two separately taxable interests that comprised the real estate transaction. However, we remand for the trial court to address whether any of the $58,800,000 consideration can be attributable to the leasehold interest.

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I. Factual Background

The Roman Catholic Archbishop of Washington is the owner of land at 1717 Rhode Island Avenue, NW. In 2002, the Archbishop and MEPT entered into an agreement for the lease of the land to MEPT until December 1, 2099 ("the Ground Lease").^[1] MEPT constructed a 10-story office building ("the Improvements") upon the land as permitted by the Ground Lease, and MEPT was to be the owner of the Improvements until the end of the lease.

In December 2020, MEPT agreed to sell its "right, title, interest and obligations" in the property to TFG for $58,800,000. Appellants contacted the D.C. Office of Tax and Revenue ("OTR") to determine the correct amount of recordation and transfer taxes on this transaction. Appellants contended that the total taxable

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value was the consideration for the sale, or $58,800,000. Appellants expected to pay $2,940,000 in recordation and transfer taxes.

In response, OTR told appellants that the $58,800,000 sale price would be subject to transfer and recordation taxes as the consideration for the Improvements; additionally, the Ground Lease would also be subject to recordation and transfer taxes, based on 150% of the assessed 2021 value of the land. See D.C. Code §§ 42-1103(a)(1)(B)(ii) &47-903(a)(3). OTR's total valuation of the transaction was $97,478,685. By OTR's calculation, appellants were responsible for $4,873,934 in transfer and recordation taxes.^[2]

Appellants paid the assessed transfer and recordation taxes under protest and then submitted a joint refund request of $1,933,934, which was denied. Appellants filed an appeal of the assessment in the superior court. Appellants and the District moved for summary judgment. The trial court granted summary judgment to the District of Columbia and denied summary judgment to appellants. The trial court agreed with the District of Columbia that "the sale of the Improvements and the transfer of the Ground Lease are separately taxable under the plain language of D.C. Code §§ 42-1103 and 47-903."

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The trial court highlighted that "MEPT sold both the Improvements and its interest in the Ground Lease to TFG." Appellants noted a timely appeal.^[3]

II. Discussion

"Decisions of the Superior Court in civil tax cases are reviewable in the same manner as other decisions of the court in civil cases tried without a jury." D.C. Code § 47-3304(a). "This court reviews summary judgment rulings de novo. The court is to conduct an independent review of the record in considering whether the motion was properly granted.'" Expedia, Inc. v. District of Columbia, 120 A.3d 623, 630 (D.C. 2015) (internal quotation marks and citations omitted).

"Generally, when a deed is filed in the District of Columbia, the parties to the deed must pay transfer and recordation taxes." Aziken v. District of Columbia, 194 A.3d 31, 34 (D.C. 2018). "That act-submitting a deed for recordation-is what

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triggers the assessment of the two taxes, which are typically calculated as a percentage of the consideration paid for the transfer." Design Ctr. Owner, 286 A.3d at 1021. The center of this dispute is the proper interpretation and application of D.C. Code § 42-1103, the recordation tax statute, and D.C. Code §...