Stern v. Comptroller of Treasury

• Decision Date: 19 March 1974
• Docket Number: No. 219,219
• Citation: Stern v. Comptroller of Treasury, 316 A.2d 240, 271 Md. 310 (Md. 1974)
• Parties: Gerald D. STERN et ux. v. COMPTROLLER OF the TREASURY, State of Maryland.
• Court: Maryland Court of Appeals

Page 310

271 Md. 310

316 A.2d 240

Gerald D. STERN et ux. v.COMPTROLLER OF the TREASURY, State of Maryland.

No. 219.

Court of Appeals of Maryland.

March 19, 1974.

Albert S. Barr, III and G. Van Velsor Wolf, Baltimore (Piper & Marbury, Baltimore, on the brief), for appellants.

Jon F. Oster, Asst. Atty. Gen. (Francis B. Burch, Atty. Gen., Baltimore, on the brief), for appellee.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE and ELDRIDGE, JJ.

SINGLEY, Judge.

Gerald D. Stern and Doris Stern, his wife, are residents of Montgomery County.This case raises a narrow question: are the Sterns entitled to claim a credit for income taxes paid another state (in this case the State of New York) against that portion of their Maryland income tax which would be collected by the Comptroller and paid to the county where the Sterns reside?

The relevant statutory material is found in Maryland Code(1957, 1969 Repl.Vol.) Art. 81.The credit allowed Mayland residents for income taxes paid another state was provided by Chapter 277, § 12 of the Laws of 1939, which became section 224 of article 81, and survives unchanged as section 290:

'Whenever a resident individual of this State has become liable for income tax to another state upon such part of his net income for the taxable year as is properly subject to taxation in such state, the amount of income tax payable by him under this subtitle shall be reduced by the amount of the income tax so paid by him to such other state upon his producing to the Comptroller satisfactory evidence of the fact of such payment; but application of such credit shall not operate to reduce the tax payable under this subtitle to an amount less than would have been payable if the income subjected to tax in such other state were ignored. . . .'(Emphasis supplied.)

Provision was first made for the imposition of a local income tax by the several counties and the City of Baltimore, to be collected by the Comptroller of the Treasury, by Chapter 142, § 6 of the Laws of 1967.As amended, the provision now appears in section 283.Code(1957, 1969 Repl.Vol., 1973 Cum.Supp.) Art. 81, § 283(a) provides in part:

'The county council or board of county commissioners of any county and the mayor and city council of Baltimore, by ordinance or resolution enacted pursuant to their ordinary and regular legislative procedure, shall adopt, by reference, a local income tax imposed upon the residents of any county or Baltimore City as a percentage of the liability of such resident for State income tax.Any ordinance or resolution so enacted shall impose a rate of tax for any current calendar year and may provide that such tax rate shall continue in effect for each succeeding calendar year, unless and until such tax rate is changed or modified by a subsequent ordinance or resolution.Any income tax so adopted shall not be less than twenty (20) percent nor more than fifty (50) percent of the State income tax liability of such resident, and any such tax imposed, and any increase or decrease in any tax so imposed, shall be in increments of five (5) percent.'

As we pointed out in Katzenberg v. Comptroller, 263 Md. 189, 191-192, 282 A.2d 465, 466-467(1971), Maryland's income tax law was completely restructured in 1967, by adopting as a base for Maryland income tax purposes the adjusted gross income of an individual taxpayer and the taxable income of a corporate taxpayer, as determined under the Internal Revenue Code, to which certain amounts are added, and from which other amounts are deducted.On the resulting figure, a graduated tax is imposed in the case of an individual, and a non-graduated tax, in the case of corporations.The 1967 revision also incorporated the concept of a local tax for the first time.Despite the sweeping revision, however, the scheme of exemptions, exclusions, and deductions contained in the prior law remained, with some modifications.Of particular significance here is the fact that section 290 remained unchanged.

For the calendar years 1969 and 1970, the Sterns filed Maryland income tax returns on which they took as a credit against both the State and local income tax the amount of income taxes paid the State of New York.For example, in 1970, they reported for Maryland tax purposes, taxable net income of $72,561.00, of which $72,453.00 was subject to income tax in New York, on which a New York State income tax of $8,678.00 was paid.¹The Sterns calculated their total Maryland income tax, before claiming the credit under section 290, at $5,352.00, of which $3,568.00 was payable to the State of Maryland and $1,784.00 and payable to the Comptroller for the account of Montgomery County.²Accordingly, their pro forma Maryland income tax liability was $3,326.00 less than the amount paid the State of New York.

The Comptroller assessed a deficiency of $1,684.08 together with penalty and interest respecting the Sterns' 1970 return, for a total of $1,903.01.A deficiency of $260.73 plus interest had been similarly assessed for 1969.On appeal to the Maryland Tax Court, the Comptroller's assessments for 1969 and 1970 were affirmed, and this appeal followed.

We think that the case turns simply on a question of statutory construction.When section 290 provides that 'the amount of income tax payable by him under this subtitle shall be reduced by the amount of the income tax so paid by him to such other state'(emphasis supplied), reference is clearly being made to taxes imposed by sections 729 through 323A of article 81, subtitled 'Income Tax.'While the argument that the tax is actually imposed by the ordinance or resolution adopted by the political subdivision is liminally attractive, its appeal is considerably attenuated by the provision of section...