Roach v. Comptroller of Treasury
Decision Date | 01 September 1990 |
Docket Number | No. 76,76 |
Citation | 327 Md. 438,610 A.2d 754 |
Parties | Edward F. ROACH et ux. v. COMPTROLLER OF THE TREASURY. , |
Court | Maryland Court of Appeals |
Kerry W. Kircher (Zuckerman, Spaeder, Goldstein, Taylor & Kolker, both on brief), Washington, D.C., for appellants.
Sheldon H. Laskin, Asst. Atty. Gen. , Baltimore, for appellee.
Argued before ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW and KARWACKI, JJ., and CHARLES E. ORTH, JR. and MARVIN H. SMITH, Judges of the Court of Appeals (retired), Specially Assigned.
Maryland Code (1988), § 10-703(a) of the Tax-General Article, provides, with certain exceptions not here relevant, that
"an individual may claim a credit only against the State income tax for a taxable year in the amount determined under subsection (c) of this section for tax on income paid to another state for the year." (Emphasis added).
This appeal presents the question of whether the District of Columbia's tax on unincorporated businesses, D.C.Code Ann. § 47-1808.1 through § 47-1080.7 (1981, 1990 Repl.Vol.), is a "tax on income" under the above-quoted Maryland statute so that the taxpayers in this case are entitled to claim a credit against their Maryland income taxes.
The pertinent facts of this case are not in dispute. The taxpayers, Edward F. Roach and his wife, Josephine D. Roach, are residents of Annapolis, Maryland. Mr. Roach, during the 1986 tax year, was a 50% owner of a District of Columbia partnership called Roach & Seagraves. Pursuant to § 47-1808.1 of the D.C.Code, Mr. Roach paid taxes to the District of Columbia on income he realized through the partnership. On their 1986 joint Maryland income tax return, pursuant to § 10-703 of the Tax-General Article of the Maryland Code, the Roaches claimed as a credit against their Maryland income tax the amount of the tax on income paid to the District of Columbia. The Maryland Comptroller, however, disallowed the credit, and entered an assessment against the Roaches for unpaid tax, interest and penalties.
The Maryland Tax Court upheld the Comptroller's assessment solely on the basis of this Court's decision in Gardella v. Comptroller, 213 Md. 1, 130 A.2d 752 (1957). Upon the Roaches' action for judicial review, the Circuit Court for Anne Arundel County affirmed the Tax Court's decision, also relying entirely upon Gardella. The Roaches appealed, and this Court issued a writ of certiorari prior to argument in the Court of Special Appeals.
Title 47, Ch. 18, subchapter VIII of the D.C.Code, comprising §§ 47-1801.1 through 47-1808.7, originally enacted by the District of Columbia Council as part of the Revenue Act of 1975, 1 entitled "Tax on Unincorporated Businesses," provides in relevant part as follows:
(1) For 1 taxable year beginning after December 31, 1974, a tax at the rate of 12 per centum upon the taxable income of every unincorporated business, whether domestic or foreign;
Thus, the tax imposed by the above-quoted statutory provisions applies to partnerships, and an individual partner is liable for the tax. The tax is a percentage of "taxable income" which is defined as "net income derived from sources within the District."
In Gardella v. Comptroller, supra, 213 Md. 1, 130 A.2d 752, this Court examined a prior District of Columbia unincorporated business tax which was substantially similar to the present tax on unincorporated businesses. Our predecessors concluded in Gardella that the tax was a franchise tax and not an income tax and that, therefore, a Maryland taxpayer, who was a partner in a District of Columbia business, was not entitled to a credit against his Maryland income tax for the tax paid to the District of Columbia. The Gardella opinion relied upon the District of Columbia's characterization of the tax, set forth in the statutory language, as a "franchise tax" which is "imposed on the privilege of carrying on and engaging in a trade or business in the District of Columbia and of receiving income from sources within said District...." Gardella v. Comptroller, supra, 213 Md. at 4, 130 A.2d at 753. The Court in Gardella stated that, while a jurisdiction's "declaration that a tax shall be of a particular character does not make it such, nevertheless, the declaration of the law making power is entitled to much and respectful weight." Ibid. Although acknowledging that the tax was imposed on "taxable income," the Gardella opinion concluded that merely because a franchise tax is measured by a business's income does not make it an income tax. 213 Md. at 4-5, 130 A.2d at 754.
The taxpayers in Bishop argued, inter alia, that the unincorporated business tax was an income tax and that, therefore, as applied to them it was invalid under the Home Rule Act. The District of Columbia government, on the other hand, insisted that the unincorporated business tax was a franchise tax, and, as such, was not precluded by the Home Rule Act. As stated by the Bishop court, 401 A.2d at 956, "[t]he question is whether [the unincorporated business tax] imposes a tax on the personal income of nonresidents or whether the tax is levied on something other than income (e.g., the privilege of doing business in the District)."
The District of Columbia Court of Appeals held in Bishop that the unincorporated business tax was an income tax and not a franchise tax. Initially, the court stated "that the nature and effect of a tax ... determine if it is an income tax or not." 401 A.2d at 958, citing Dawson v. Kentucky Distilleries, 255 U.S. 288, 292, 41 S.Ct. 272, 274, 65 L.Ed. 638, 645 (1921). The Bishop opinion pointed out that numerous jurisdictions have "styled their tax a franchise tax only to have the courts intercede to reclassify the tax." 401 A.2d at 959, citing Gaulden v. Kirk, 47 So.2d 567, 574-575 (Fla.1950); State ex rel. v. Keller, 140 Fla. 346, 348-349, 191 So. 542, 547-548 (1939); Commissioners of Sinking Fund v. Howard, 248 S.W.2d 340, 342-343 (Ky.1952), aff'd, 344 U.S. 624, 73 S.Ct. 465, 97 L.Ed. 617 (1953); City of Louisville v. Sebree, 308 Ky. 420, 428, 214 S.W.2d 248, 253 (1948); Carter Carburetor Corp. v. City of St. Louis, 356 Mo. 646, 658, 203 S.W.2d 438, 440 (1947). The Court of Appeals in Bishop then emphasized that the unincorporated business tax was a tax upon the net income of the taxpayer instead of upon the gross receipts, and that the purpose...
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