Read v. Supervisor of Assessments

• Citation: 731 A.2d 868,354 Md. 383
• Decision Date: 13 May 1999
• Docket Number: No. 148,148
• Parties: Kenneth READ v. SUPERVISOR OF ASSESSMENTS OF ANNE ARUNDEL COUNTY.
• Court: Court of Appeals of Maryland

731 A.2d 868

354 Md. 383

Kenneth READ v. SUPERVISOR OF ASSESSMENTS OF ANNE ARUNDEL COUNTY.

No. 148, Sept. Term, 1998.

Court of Appeals of Maryland.

May 13, 1999.

Reconsideration Denied June 25, 1999.

Alan Hilliard Legum (Alan Hilliard Legum, P.A., on brief), Annapolis, for appellant.

William K. Hammond, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen. of Maryland, on brief), Baltimore, for appellee.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, RAKER, WILNER and CATHELL, JJ.

CATHELL, Judge.

This case presents two issues of first impression before this Court: the effect of the withdrawal and subsequent sale, closely related in time, of property subject to a Forest Conservation and Management Agreement and the applicability of the step transaction doctrine. Because the Tax Court properly upheld the imposition of a rollback tax with respect to appellant's withdrawal and conveyance of property subject to a Forest Conservation and Management Agreement, we shall affirm.

I. Facts

In 1972, appellant Kenneth F. Read and his now deceased wife, Sondra D. Read, entered into a Forest Conservation and Management Agreement (FCMA or agreement) with the Department of Forests and Parks, which is a part of the Department of Natural Resources (DNR),¹ involving appellant's 34.5 acre tract of waterfront woodland area located in Anne Arundel County. This agreement provided that appellant's property tax assessment on the tract of land would be frozen during the term of the agreement, which was four years.² In return, appellant agreed to preserve his property in its wooded state under a woodland management plan developed by the Department of Natural Resources. Under the past and current provisions of the FCMA program, if FCMA property or a portion thereof is conveyed to another owner and the agreement is not assumed by the new owner, that portion of the conveyed property would be reassessed at market value and a rollback tax imposed.³

Appellant renewed the agreement for a period of ten years on July 17, 1976. The FCMA was amended in 1980 to reflect the withdrawal of a one-acre home site from the agreement, thereby reducing the FCMA acreage to 33.5 acres.⁴ In 1983, appellant renewed the FCMA for a twenty-year term beyond the previous expiration year of 1986 to 2006. Additionally, the acreage was reduced by 0.4 acres, the site of six existing cabins, which decreased the acreage subject to the FCMA to approximately 33 acres.⁵

In 1986, appellant began subdividing an area covered by the agreement. The subdivision was approved in 1989. In 1988, section 8-211 was amended to "clarify" that an owner's removal of land from the FCMA prior to the expiration of the agreement would not enable the owner to avoid the rollback tax. See Md.Code (1985, 1994 Repl.Vol., 1998 Cum.Supp.), § 8-211(i)(1)(iv) of the Tax-Property Article.⁶ Appellant and his wife received notification of this amendment in 1988 or 1989.

In 1990, the FCMA again was amended to reflect a decrease in acreage because appellant had sold and conveyed a subdivided lot (lot three) from the property subject to the FCMA. A rollback tax was imposed pursuant to section 8-211(i)(1)(iii). Appellant paid the rollback tax.⁷ Two other Cherrystone lots were listed for sale by a realtor in March 1991. Sales contracts were executed for lot four on December 30, 1991, and on lot two on February 7, 1992. After the contracts for sale were formalized, appellant's attorney drafted two letters to DNR, one on July 23, 1992, and the other on August 12, 1992, requesting DNR to withdraw lots two and four, respectively, from the FCMA. Thus, at the time of withdrawal, the sales contracts had been executed. Shortly thereafter, lot two was conveyed on July 30, 1992, for $385,000 and lot four was conveyed on November 13, 1992, for $500,000. The assessed value on the lots with the frozen assessment woodland basis would have been $2,668 for lot two and $3,289 for lot four. The FCMA subsequently was amended formally in January of 1993 to reflect appellant's withdrawal of three lots, including lots two and four. The Supervisor of Assessments of Anne Arundel County (Supervisor), appellee, imposed a rollback tax for two of the lots for the period 1972 to 1992, in the amount of $38,695.70 for lot two and $39,358.55 for lot four. This tax was imposed based upon the Supervisor's determination that the lots were sold prior to their withdrawal from the FCMA because they were sold before the agreement amending the FCMA was signed in January 1993.

Appellant paid the taxes assessed but requested a refund. The Supervisor denied the refund request and affirmed the assessment. Appellant appealed to the Maryland Tax Court. There he claimed that the rollback tax should not have been assessed because he had withdrawn lots two and four before they were sold based on the letters submitted by his attorney in 1992; therefore, he alleged, the amendment to the FCMA should have been retroactive to the requests for withdrawal made in July and August 1992. Appellant also argued the 1988 amendment was inapplicable to his FCMA and an unconstitutional impairment of his contract. The Tax Court affirmed the Supervisor's denial in an October 28, 1994, order and found that the lots had been conveyed prior to the January 1993 amendment to the FCMA. Appellant then sought judicial review in the Circuit Court for Anne Arundel County. That court affirmed the Tax Court in a written opinion and order dated September 7, 1995.

Appellant appealed the circuit court's judgment to the Court of Special Appeals. In an unreported opinion, that court held that appellant's removal of the lots from the FCMA was effective retroactively to the date of the letters requesting removal. Turning to the issue of whether the 1988 statutory amendment applied to appellant, the court stated that under the pre-1988 law, appellant could not be assessed the rollback taxes if the lots were withdrawn from the FCMA prior to sale. Because the Tax Court had not addressed the Contract Clause issue, the Court of Special Appeals reversed and remanded the case for factual determinations to be made regarding the application of the 1988 amendment to appellant's FCMA.

Upon remand, the Tax Court found that the 1988 amendment to section 8-211 did not unjustifiably impair appellant's contract rights. Appellant again sought judicial review in the circuit court and that court affirmed. Appellant noted an appeal to the Court of Special Appeals and presented the following question:

Did the 1988 amendment of Md.Code Ann., Tax-Prop. § 8-211(h) [sic] by the Maryland Legislature constitute an unconstitutional impairment of the Appellant's existing contractual rights under a 1983 Forest Conservation and Management Agreement with the Maryland Department of Natural Resources?

This Court issued a writ of certiorari on its own motion before the Court of Special Appeals heard arguments to consider the important issues raised by this appeal. We shall affirm the judgment of the circuit court, but for reasons articulated differently than those stated by the Tax Court, the circuit court, and proffered by the parties in their briefs.⁸ We hold that the Contract Clause is not implicated here because, regardless of the effect of the 1988 amendment to section 8-211, withdrawals of property from the FCMA for the purpose of a conveyance to a new owner always have been subject under the statute to the rollback tax, whether the tax actually had been imposed or not. By applying the step transaction doctrine, the transactions by appellant in subdividing his property, listing the lots with a realtor, accepting sales contracts, withdrawing the property from the agreement, and conveying the property without transferring the FCMA obligations to the buyer all constituted essential and interdependent parts of the conveyances on July 30 and November 13, 1992. When appellant withdrew his property from the FCMA, he did so with the intent to convey the property, an act subject to the rollback tax under the statute. Accordingly, because the 1988 amendment had no effect on appellant's contract with the state, we need not address the constitutional issue raised by appellant.

II. Discussion

A. Standard of Review

We begin by noting the appropriate standard of review. The Maryland Tax Court is an administrative agency. See Prince George's County v. Brown, 334 Md. 650, 658 n. 1, 640 A.2d 1142, 1146 n. 1 (1994). Maryland Code (1988, 1997 Repl.Vol.), section 13-532(a) of the Tax-General Article, provides that the final order of the Tax Court is subject to judicial review as provided in sections 10-222 and 10-223 of the State Government Article, which govern the standard of review for decisions of administrative agencies. The standard of review for Tax Court decisions are generally the same as that for other administrative agencies. Accordingly,

[u]nder this standard, a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law. See, e.g., Supervisor of Assess. v. Carroll, 298 Md. 311, 469 A.2d 858 (1984); Comptroller v. Mandel Re-Election Com., 280 Md. 575, 374 A.2d 1130 (1977). On the other hand, where the Tax Court's decision is based on a factual determination, and there is no error of law, the reviewing court may not reverse the Tax Court's order if substantial evidence of record supports the agency's decision.

Ramsay, Scarlett & Co. v. Comptroller of the Treasury, 302 Md. 825, 834, 490 A.2d 1296, 1301 (1985). Furthermore, the reviewing court may not substitute its own judgment for that of the Tax Court if supported by substantial evidence. See CBS Inc. v. Comptroller of the Treasury, 319 Md. 687, 698, 575 A.2d 324, 329 (1990); Rouse-Fairwood Ltd. Partnership v. Supervisor of Assessments, 120 Md.App. 667, 685, 708 A.2d 19, 27 (1998); see also Comptroller of the Treasury v. Disclosure, Inc., 340 Md. 675, 682-83, 667...