Shelter Senior Living Iv, LLC v. Balt. Cnty. Md.

• Decision Date: 01 July 2021
• Docket Number: No. 1276, Sept. Term, 2019,1276, Sept. Term, 2019
• Citation: 254 A.3d 88,251 Md.App. 129
• Parties: SHELTER SENIOR LIVING IV, LLC, v. BALTIMORE COUNTY MARYLAND, et al.
• Court: Court of Special Appeals of Maryland

251 Md.App. 129

254 A.3d 88

SHELTER SENIOR LIVING IV, LLC,

v.BALTIMORE COUNTY MARYLAND, et al.

No. 1276, Sept. Term, 2019

Court of Special Appeals of Maryland.

July 1, 2021

Argued by: Paul S. Caiola (Ella R. Aiken, Gallagher, Evelius & Jones LLP, on the brief), Baltimore, MD, for Appellant.

Argued by: Joseph Dudek (Brian E. Frosh, Atty. Gen., on the brief), Baltimore, MD, for Appellee.

Panel: Reed, Friedman, Gould, JJ.

Gould, J.

The General Assembly has enacted a statute imposing recordation and transfer taxes on the transfer of real property. The General Assembly has also delegated to certain counties—including the two involved here, Montgomery and Baltimore Counties—the authority to impose transfer taxes on the sale of real property. Neither the General Assembly nor the county legislative bodies have, however, imposed a tax on the transfer of intangible property.

This case comes to us in the context of the sale of three senior living facilities. To accomplish the transaction, the sellers conveyed to the buyers the real property where the centers operate, as well as specified items of both tangible and intangible property. In each of the three transactions, the total purchase price was agreed up front in the contracts, and then prior to closing, the parties were required to agree on an allocation of the purchase price across the various asset classes, which they did.

The question before us is whether the consideration attributed to the intangible property may factor into the calculation of the state and county transfer and recordation taxes—both of which are determined as a percentage of the consideration paid. Here, given the difficulty associated with valuing intangible property, the tax collectors concluded that such consideration could not be unbundled from the consideration attributed to the real property. Thus, they calculated the taxes based on the consideration allocated to both the real property and intangible property. Although sellers disagreed with the calculation, to complete the transactions and record the deeds of conveyance, they paid the taxes as required by the taxing authorities, and then pursued their right to request a refund, which was denied. The Tax Court upheld the denial of the refund, and the Circuit Court of Baltimore County affirmed the Tax Court on the sellers’ petitions for judicial review.

We shall reverse. The transfer of intangible property is not taxable under the relevant statutes and county codes. The occasion of a business transaction involving the sale of both real property and intangible property does not permit the tax imposed on the transfer of real property to serve as a Trojan horse for taxing the transfer of intangible property. Accordingly, for the reasons explained below, we disagree with the Tax Court and hold that consideration properly attributable to intangible property is not included in the calculation of the recordation and transfer taxes.

BACKGROUND

In July of 2014, Brightview Rockville, LLC ("Brightview Rockville"), Brightview Towson, LLC ("Brightview Towson"), and Brightview White Marsh, LLC ("Brightview White Marsh") (collectively "Sellers" or the "Brightview LLCs")¹ contracted to sell three senior living facilities located in Montgomery and Baltimore Counties. The buyer of the three facilities was SHP, IV, LLC ("Buyer").

The three transactions were governed by separate contracts. The purchase price for each transaction was broken down into three asset categories: real property, tangible personal property, and intangible personal property. The real property was transferred through deeds, the tangible personal property was transferred through bills of sale, and the intangible personal property was transferred through written assignments.

The purchase prices and allocations across the three asset categories for each of the three transactions were as follows:

Brightview Rockville	Brightview Towson	Brightview White Marsh	Total
Real property & improvements	$14,519,800	0 $14,486,000	$11,136,400	$40,142,200
Tangible personal property	$1,587,643	$997,127	$558,809	$3,143,579
Intangible personal property	$13,392,557	$16,516,873	$20,204,791	$50,114,221
Total	$29,500,000	$32,000,000	$31,900,000	$93,400,000

Consistent with the above allocations, the consideration reflected in each of the three deeds was based on the value attributed to the real property and improvements, as follows:

Brightview Rockville: $14,519,800;

Brightview Towson: $14,486,000; and

Brightview White Marsh: $11,136,400.

Sellers presented the deeds to appellees Baltimore County, Montgomery County, and the Clerks of Court for Baltimore County and Montgomery County (collectively, the "Taxing Authorities") for recording. The Taxing Authorities refused to record the deeds based on the consideration stated therein. Instead, they insisted that the transfer and recording taxes needed to be calculated based on the consideration allocated to both the real and intangible property.²

Because Sellers couldn't get the deeds recorded unless they paid the full amount of taxes assessed, they paid the taxes and then filed refund requests with the Directors of Finance for both Baltimore and Montgomery Counties, seeking reimbursement for the recordation and transfer taxes paid on the consideration exchanged for the intangible personal property. The requests for reimbursement were denied, and the Sellers subsequently appealed to the Maryland Tax Court.

The Tax Court bifurcated the proceedings into two phases, described as follows:

First, there will be a discovery phase and evidentiary hearing on the issue of whether, for the transfer of a senior living community, transfer and recordation taxes may be charged on the value of the intangible assets of the going concern. If the Court finds in favor of [Sellers], there will be a second phase of discovery followed by an evidentiary hearing on the issues of the value of the intangible assets in transactions that are the subjects of this appeal and what refund and interest if any, are owed to [Sellers].

The Tax Court resolved the appeal by denying Sellers’ refund request in the first phase, holding that "State law and the relevant county codes permit the State and local tax collectors to impose transfer and recordation tax based on the total amount of consideration paid, including any consideration paid for assets categorized by the buyer or seller as intangible property."

Sellers sought judicial review of the Tax Court's decision in the Circuit Court for Baltimore County.³ The circuit court affirmed the Tax Court's decision, and Shelter filed a timely notice of appeal.

Shelter now presents us with the following question:

Did the Tax Court err in ruling that where an operating senior living business is transferred, and the transfer includes both real property transferred by deed to be recorded in the land records as well as intangible business assets (i.e. , intangible personal property) transferred by assignment, state and county transfer taxes and state recordation taxes are imposed based on the total consideration paid for both the real property and intangible business assets, given that only the real property is or can be transferred by an "instrument of writing" under the relevant statutes?

We answer that question in the affirmative and reverse.

DISCUSSION

I.STANDARD OF REVIEW

"On appeal, we review the decision of the Tax Court, rather than the circuit court." Blue Buffalo Co., Ltd. v. Comptroller of Treasury , 243 Md. App. 693, 701, 221 A.3d 1130 (2019). "The Maryland Tax Court is an adjudicatory administrative agency[,]" and as such, it "receive[s] the same judicial review as other administrative agencies." Gore Enter. Holdings, Inc. v. Comptroller of Treasury , 437 Md. 492, 503, 87 A.3d 1263 (2014) (cleaned up). We look through the circuit court's decision and concentrate our attention on the Tax Court's decision. Id . As the scope of our review is cabined to the Tax Court's analysis, we "cannot uphold the Tax Court's decision on grounds other than the findings and reasons set forth by [the Tax Court]." Id . (internal quotations omitted).

The standard of review we apply turns on whether the Tax Court's decision was a question of fact, law, or mixture of both. Id. at 504-05, 87 A.3d 1263. Here, the Tax Court's decision rested entirely on its interpretation of provisions of the Tax-Property Article of the Maryland Annotated Code. Generally, we will afford "great weight" to the Tax Court's legal conclusions regarding the statutes that it administers. Id. at 505, 87 A.3d 1263. But, as recently explained by the Court of Appeals, "[t]hat degree of deference ... is not determinative; ‘a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law.’ " Travelocity.com n/k/a TVL LP v. Comptroller of Maryland , 473 Md. 319, 250 A.3d 175, 181 (2021). Here, the Tax Court's decision was predicated on statutes that it administers, but it did not concern a matter that required expertise in tax matters. Rather, the interpretation of the statutes we adopt here rests on our plain language review of the relevant provisions that, on their face, do not involve complicated concepts in the law of taxation. Accordingly, we shall review the Tax Court's legal conclusion without deference. Id . at 181.

II.ANALYSIS

There are four taxes at issue in this case: the Maryland recordation tax, the Maryland transfer tax, the Baltimore County transfer tax, and the Montgomery County transfer tax. Although the relevant statutes imposing these taxes differ in some respects, the question of statutory interpretation is virtually the same for each, namely, whether the recordation and transfer taxes incurred in the sale of a business are properly calculated against the value of both the intangible assets and the real property conveyed in the transaction.

Our journey into the weeds of the relevant statutory provisions will be easier if we first gain an understanding of what is...