Montgomery Cnty. v. Maryland Econ. Dev. Corp., 2673

Decision Date30 March 2012
Docket NumberNo. 2673,Sept. Term,2010.,2673
Citation40 A.3d 1066,204 Md.App. 282
PartiesMONTGOMERY COUNTY, Maryland v. MARYLAND ECONOMIC DEVELOPMENT CORPORATION.
CourtCourt of Special Appeals of Maryland

OPINION TEXT STARTS HERE

Scott R. Foncannon (Marc P. Hansen, Co. Atty., Karen L. Federman Henry, Division Chief on the brief), Rockville, MD, for appellant.

G. Vann Canada, Jr. (James J. Demma, Miles & Stockbridge PC, on the brief), Rockville, MD, for appellee.

Panel: KRAUSER, C.J., ZARNOCH, and WATTS, JJ.

WATTS, J.

This is an administrative appeal from a decision of the Maryland Tax Court (the “tax court) regarding a request for a refund of State recordation tax paid by appellee, the Maryland Economic Development Corporation (“MEDCO”). Appellant, Montgomery County, Maryland (the “County”) denied the request for a refund and MEDCO appealed to the tax court. The tax court agreed with the County that no exemption applied and affirmed the denial of the refund. MEDCO petitioned for judicial review in the Circuit Court for Montgomery County. The circuit court reversed the tax court and remanded for further proceedings consistent with the circuit court's conclusion that the recordation tax falls within an exemption. The County noted a timely appeal, raising one issue, which we quote:

I. Did the tax court properly interpret the law and find that MEDCO was not exempt from paying recordation tax on a deed of trust, where the tax is imposed on the privilege of recording the document and not on a particular party to the transaction?

We answer this question in the affirmative and, as such, we reverse and vacate the decision of the Circuit Court for Montgomery County with instructions to affirm the judgment of the Maryland Tax Court.

FACTUAL AND PROCEDURAL BACKGROUND

In 2009, MEDCO entered into a loan agreement with PNC Bank, National Association (“PNC Bank”) in which MEDCO borrowed $3,300,000 from PNC Bank. 1 On March 26, 2009, MEDCO's Executive Director, Robert Brennan, signed a document titled “Leasehold Deed of Trust,2 Assignment and Security Agreement.” In this document, MEDCO was identified as the grantor, PNC Bank was identified as the bank, as well as the beneficiary of the Deed of Trust, and Richard Woo, who was listed at the same address as PNC Bank, was identified as the trustee. The Leasehold Deed of Trust, Assignment and Security Agreement contained the following provision:

14. Expenses. The performance of each and every obligation on the Grantor's part under the Loan Documents shall be at the sole expense of the Grantor, and neither the Bank nor the Trustee shall have any obligation for any such expenses. In addition to any other amounts required to be paid by the Grantor under the Loan Documents or with respect to the Property, the Grantor shall pay the following (collectively called the Expenses): (a) all filing, registration and recording costs and fees and all federal, state, county and municipal stamp taxes and other taxes, duties, imposts, assessment and charges in connection with the recordation or filing of any Loan Documents or related instruments, and any documents in connection with any foreclosure....

In April 2009, the Leasehold Deed of Trust, Assignment and Security Agreement, dated March 26, 2009, from MEDCO as grantor for the benefit of PNC, was presented to the County Transfer Office for processing, prior to the deed being recorded among the County Land Records. At the time the deed of trust was presented, MEDCO claimed an exemption from the recordation tax pursuant to Md.Code Ann., Economic Development (“Econ.Dev.”) § 10–129.3 The Transfer Office denied the exemption and imposed the recordation tax.

On April 6, 2009, MEDCO filed a “Transfer/Recordation Tax Refund Claim” with the County Department of Finance and a request for a hearing. In the refund claim, MEDCO alleged it was improperly required to pay $31,450, representing the recordation tax on the deed of trust. MEDCO stated that it was entitled to a refund because the transaction involved the recording of a deed of trust, an act which was exempt from taxation based on MEDCO's tax-exempt status under State law.

On May 20, 2009, an administrative hearing was held on the refund claim. In a letter dated June 19, 2009, Timothy L. Jones, Tax Operations Manager, Division of Treasury, for the County, denied the request for a refund. The letter contained a section captioned the “Basis of Decision,” which provided as follows:

Recordation tax is an excise tax computable on the amount of consideration on the privilege of recording a document among the Land Records.... The taxes become due when the instrument of writing is presented for recording.... State law does not require any particular party to pay the recordation tax. The tax is imposed on the privilege of recording the document among the Land Records.

The Tax–Property Article in Section 12–108 also lists several transactions that are exempt from recordation tax. There is an exemption that applies to a transfer to a state entity; however, there is no exemption that applies to a transfer from a state agency.

The Claimant has relied on the argument that because MEDCO's activities are exempt from tax, there is no tax due on this transfer. ( [Eco. Dev. §] 10–129) The reliance on this section is misplaced. The County agrees that MEDCO is exempt from the requirement to pay taxes on its property, activities, or any revenue derived from its property or activities. Because the recordation tax is not a tax on its property, activities or revenues, this general exemption from payment of taxes to MEDCO is not available to prevent imposition of the recordation tax on the recording of the Deed of Trust because the recordation tax is not imposed on a particular party. MEDCO may have contractually agreed to be responsible for the recordation tax, but that contractual commitment to pay a tax cannot create an exemption from recordation tax. Only the General Assembly can create an exemption from recordation tax. In this particular case, there is no exemption from recordation tax for transfers from a state agency to a private commercial lender.

MEDCO appealed to the tax court, and on May 10, 2010, the tax court issued a Memorandum and Order, agreeing with the County and denying the refund. The tax court explained, in pertinent part, as follows:

It is [MEDCO's] contention that when MEDCO borrowed money for this particular project in Montgomery County and those funds were secured by a Deed of Trust to PNC Bank, this action was an activity as referred to in [Econ. Dev. § 10–129(a) ]. [MEDCO's] theory of the case is that the recordation tax generated by recording the Deed of Trust from MEDCO to PNC Bank is exempt pursuant to [Econ. Dev. § 10–129(a).]

It is the [County's] position that there was no requirement in the statute that the grantor or a Deed of Trust pay the recordation tax, and that the payment of that tax may be negotiated between the parties. That is to say, it is just as likely that PNC Bank could pay the recordation tax without the claim of any exemption. The [County] further argues that Section 12–108 of the Tax–Property Article, exempts from recordation tax, instruments of writing that transfers property to or grants a security interest to an agency of the State.

Lastly, Tax–Property Section 116, indicates that a governing body of a County may exempt, by law, from recordation tax an instrument of writing that transfers property from or grants a security interest from an agency of the State. Further evidence established by the [County] was that [the County] had not, by law, created an exemption as set forth in Sections 112–116, supra.

The interpretation of tax exemptions are to be strictly construed and resolved and any doubt found in the taxing authority's favor....While [MEDCO] claims that the payment of the recordation tax in this matter is exempt under [Econ. Dev. § 10–129(a) ], by virtue of the fact that this action was one of the Corporation's regular activities, strictly construing a tax exemption, this Court cannot find under Tax–Property Section 12–108 where [MEDCO] is specifically exempt from granting a secured interest to a private third party. In Tax–Property Section 12–116, the Legislature recognized that there was not a specific exemption from a recordation tax on an instrument of writing which transfers property or grants a security interest from an agency of the State and enables the governing bodies of the County, as well as the City of Baltimore the opportunity to grant an exemption if they saw fit. In this particular case, Montgomery County did not enact the legislation referred to above. Based on the specific exemptions contain[ed] in the Tax–Property Article and mindful of the law which requires the Court to narrowly construe tax exemptions and to resolve any doubt in the favor of the taxing authority, it is this 10th day of May, 2010, by the Maryland Tax Court ORDERED that the Petition for Appeal is hereby DENIED.

On June 2, 2010, MEDCO filed a Petition for Judicial Review in the circuit court. On November 30, 2010, the circuit court held a hearing. On December 27, 2010, the circuit court issued an Order reversing and remanding the tax court's decision. On January 25, 2011, the County noted an appeal.

DISCUSSION

The County contends that this Court should affirm the tax court's decision denying MEDCO an exemption from payment of the recordation tax in this case. In support of this contention, the County makes three overarching arguments: (1) “that MEDCO was not exempt from paying the recordation tax on a deed of trust, because the tax is imposed on the privilege of recording the document and not on a particular party to the transaction”; (2) [n]either MEDCO's status as a State agency nor its enabling statute creates an exemption from payment of the recordation tax”; and (3) even if an exemption existed in this case, MEDCO waived its right to claim the exemption by entering into a consensual...

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3 cases
  • Md. Econ. Dev. Corp. v. Montgomery Cnty.
    • United States
    • Maryland Court of Appeals
    • 9 Abril 2013
    ...and vacated the Circuit Court's decision, affirming the judgment of the Maryland Tax Court. Montgomery Cnty. v. Md. Econ. Dev. Corp., 204 Md.App. 282, 285, 40 A.3d 1066, 1068 (2012). On August 20, 2012, this Court granted a writ of certiorari, Maryland Economic Development Corp. v. Montgome......
  • Md. Econ. Dev. Corp. v. Montgomery Cnty.
    • United States
    • Court of Special Appeals of Maryland
    • 9 Abril 2013
    ...reversed and vacated theCircuit Court's decision, affirming the judgment of the Maryland Tax Court. Montgomery Cnty. v. Md. Econ. Dev. Corp., 204 Md. App. 282, 285, 40 A.3d 1066, 1068 (2012). On August 20, 2012, this Court granted a writ of certiorari, Maryland Economic Development Corp. v.......
  • Md. Econ. Dev. Corp. v. Montgomery Cnty.
    • United States
    • Maryland Court of Appeals
    • 20 Agosto 2012
    ...County, Maryland *No. 151 Sept.Term 2012Court of Appeals of MarylandAugust 20, 2012 OPINION TEXT STARTS HERE Reported below: 204 Md.App. 282, 40 A.3d 1066. Disposition: Granted. * September Term, ...

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