State Dept. of Assessments and Taxation v. Belcher

• Decision Date: 01 September 1987
• Docket Number: No. 25,25
• Citation: 553 A.2d 691,315 Md. 111
• Parties: STATE DEPARTMENT OF ASSESSMENTS AND TAXATION v. Horace E. BELCHER, Jr., et ux. ,
• Court: Maryland Court of Appeals

Page 111

315 Md. 111

553 A.2d 691

STATE DEPARTMENT OF ASSESSMENTS AND TAXATION v. Horace E. BELCHER, Jr., et ux.

No. 25, Sept. Term, 1987.

Court of Appeals of Maryland.

Feb. 28, 1989.

David M. Lyon, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Kaye Brooks Bushel, Asst. Atty. Gen., on the brief), Baltimore, for appellant.

Horace E. Belcher, Jr., Cockeysville, pro se.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, McAULIFFE and ADKINS, JJ., and JAMES F. COUCH, Jr., Associate Judge of the Court of Appeals of Maryland (retired), Specially Assigned.

COLE, Judge.

The sole issue to be decided in this case is whether, a taxpayer, whose net income resulted from his management of his stock portfolio, is entitled to a homeowner's property tax credit pursuant to the Maryland "circuit breaker" law.

The legislative enactment involved is Maryland Code (1957, 1980 Repl. Vol.) Article 81, Section 12F-1. ¹ This section of the Code, also known as the "circuit breaker" law, is a legislative device for granting property tax relief to low-income taxpayers. The term "circuit breaker" is used to characterize the law which is intended to protect the taxpayer's household income from property tax overload similar to the manner in which an electrical circuit breaker protects the wiring in a taxpayer's home from current overload. Stated another way, when the taxpayer's residential property tax bill reaches a set percentage of his annual income, the circuit breaker is automatically activated so that the state government grants him relief from the excess tax load. Maryland grants relief in the form of a credit on the low-income taxpayer's income tax bill.

This law reflects a legislative determination that low-income homeowners should not be forced to sell their homes to satisfy property tax deficiencies. This legislative program is particularly significant in granting relief to elderly taxpayers, whose property has appreciated while their income has remained fixed. However, relief is also available to any taxpayer, regardless of age, whose income is depressed in a particular year. Critical to a determination of whether a taxpayer is entitled to a tax credit is the amount of his annual gross income, which term is defined in § 12F-1(a)(6) of Article 81 and provides as follows:

"Gross income" means total income from all sources, for the calendar year immediately preceding the taxable year, whether or not included in the definitions of gross income for federal or State tax purposes, including but not limited to benefits under the Social Security Act or Railroad Retirement Act as these acts may be amended from time to time, the aggregate of gifts in excess of $300, alimony, support money, nontaxable strike benefits, public assistance received in cash grants, pensions, annuities, unemployment insurance benefits, and workmen's compensation benefits. The term includes the net income received from business, rental, or other endeavors. A loss from business, rental or other endeavor may not be used in the determination of gross income. The term does not include any income tax refund received from the State or the federal government.

[Emphasis added].

In order to place this issue in proper focus, we recite the salient facts. In 1984, Horace E. Belcher, Jr., the appellee-taxpayer, borrowed a substantial amount of money for purposes of investment. Belcher invested the money in various stocks and realized a substantial profit. In particular, he earned $5,879.00 in dividends and $7,036.00 in long term capital gains for a total income of $12,915.00. In that year, Belcher paid $7,580.00 in interest charges on the funds he borrowed, and spent $150.00 to obtain various types of investment advice. These expenses left Belcher with a net income of $5,185.00.

When Belcher filed his 1984 Maryland tax return, he also filed an application for a homeowners' property tax credit. Belcher reported his net income of $5,185.00 on this application and was initially granted a tax credit of $1,186.30 which reduced his real property tax liability.

Shortly thereafter, however, the Homeowners' Tax Credit Office (Credit Office), a division of the State Department of Assessments and Taxation (the Department), conducted an audit of Belcher's return and determined that his tax credit should be reduced to $171.59. The Credit Office's position was that Belcher should have reported $12,915.00 rather than $5,185.00 as his income. The Credit Office determined that Belcher's combined expenses of $7,730.00 should not be considered in determining the amount of property tax credit to which Belcher was entitled. Belcher remitted the difference between the original tax credit and the adjusted tax credit, a total of $1,014.71, and appealed the adjustment to the Property Tax Assessment Appeal Board for Baltimore County (the Board). The Board found in favor of Belcher and remanded the case to the Credit Office for recomputation of the tax credit. The Department appealed this ruling to the Maryland Tax Court.

The Maryland Tax Court ruled as a matter of law that Belcher's investment activities constituted an "endeavor" as that term is utilized within the statute. Accordingly, the Tax Court held that Belcher was entitled to report the net income he derived from his investment activities on his application for the Maryland homeowners' property tax credit. The Circuit Court for Baltimore County affirmed the Tax Court in all respects, ruling that an "endeavor" is an "activity for profit other than traditional business." The Department appealed to the Court of Special Appeals. We granted certiorari prior to consideration by the intermediate appellate court.

Before this Court, the Department suggests that the tax credit statute, like a tax exemption provision, should be strictly construed in favor of the State. Further, the Department asserts that the taxpayer has the burden of establishing his entitlement to the tax credit and must overcome the presumption that the taxing power of the state is not relinquished. As the Department sees it, the management of one's personal stock portfolio is not "business, rental, or other endeavors." Belcher has allegedly failed to establish that the legislature intended that the term "other endeavors" encompasses his personal investment activities. Thus, the Department concludes that the gross income derived from Belcher's investment activities must be utilized in calculating Belcher's tax credit entitlement.

The Department further contends that the rules of statutory construction preclude a finding that the legislature intended to extend the statute to the circumstances of this case. First, the Department asserts that a reasonable interpretation of the phrase "business, rental, or other endeavors" connotes an activity in which "some sort of service or goods [are] offered to the public." Since Belcher's activities were strictly personal, they do not qualify under this phrase.

Next, the Department suggests that the circuit court's ruling that "other endeavors" includes any activity for profit is erroneous. The Department contends that such a broad meaning renders the antecedent words "business" and "rental" superfluous. The Department argues that ejusdem generis, a principle of statutory interpretation, requires that "other endeavors," a general term, be limited in definitional scope to that given the antecedent term "business." The Department concludes that since management of one's own stock portfolio is not a "business" it is, by virtue of ejusdem generis, not an "endeavor." ²

Finally, the Department contends that a broad reading of "other endeavors" will place an unmanageable administrative burden on the Credit Office. The Department asserts that the total number of tax credit applications reviewed by the credit office will diminish by virtue of the fact that more time will have to be spent deciding whether particular activities are "other endeavors" and whether the expenses arising in the course of these "other endeavors" are properly deductible in calculating net income.

Belcher, on the other hand, seeking to have the judgments of the lower courts affirmed, filed a pro se brief with the Court, from which we glean the following arguments. Belcher's primary contention is that the "other endeavors" referred to in § 12F-1(a)(6) do not have to constitute a "business" in the traditional sense of one offering goods or services to the public at large in order to qualify under the statute. If this Court adopts the Department's narrow definition of "other endeavors," Belcher suggests that the economic implications will force him to terminate his profitable investment activities. Belcher proffers that if his tax credits are reduced by $1,014.17, as the Department wishes, he will be unable to pay the full amount of his property taxes. In this regard, Belcher contends that he would be in no worse financial condition if he were to cease investing and seek out the public assistance benefits which he would then be qualified to receive. From Belcher's standpoint, it is difficult to believe that the legislature structured the tax credit program so as to discourage persons like himself from engaging in profitable activities. Rather, he asserts that the proper inquiry under the circuit breaker statute is two-fold: (1) is there a profit motive for the endeavor, and, (2) are the related expenses ordinary and necessary to conduct the endeavor.

Under the facts presented in this case we agree with the courts below that Belcher's investment activity constitutes "other endeavors" as that term is used within § 12F-1(a)(6). We explain.

The standard of review to be applied in cases appealed from the Maryland Tax Court is set forth in Md.Code (1957, 1980 Repl.Vol., 1987 Cum.Supp.) Art. 81, § 229(o ) which provides in pertinent part: "The circuit court shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported...