West Capital Associates Ltd. Partnership v. City of Annapolis

• Decision Date: 01 September 1995
• Docket Number: No. 1562,1562
• Citation: 677 A.2d 655,110 Md.App. 443
• Parties: WEST CAPITAL ASSOCIATES LIMITED PARTNERSHIP v. CITY OF ANNAPOLIS. ,
• Court: Court of Special Appeals of Maryland

Page 443

110 Md.App. 443

677 A.2d 655

WEST CAPITAL ASSOCIATES LIMITED PARTNERSHIP v. CITY OF ANNAPOLIS.

No. 1562, Sept. Term, 1995.

Court of Special Appeals of Maryland.

June 5, 1996.

William A. Franch (Franch, Jarashow & Howard, P.A., on the brief), Annapolis, for Appellant

Rignal W. Baldwin, Jr. (Jonathan P. Kagan, Brassel & Baldwin, P.A., and Paul Garvey Goetzke, on the brief), Annapolis, for Appellee.

Argued before WILNER, C.J., and HARRELL and SALMON, JJ.

WILNER, Chief Judge.

This is a dispute between appellant and the City of Annapolis over certain water and sewer fees charged by the City pursuant to an agreement that the parties entered into in 1985. There are two principal issues raised in the appeal: whether the agreement and the ordinances authorizing and ratifying it are valid; and whether the Maryland Tax Court, rather than the Circuit Court for Anne Arundel County, had the primary jurisdiction to resolve the dispute.

BACKGROUND

Appellant owns property known as 2000 Capital Drive. In 1985, a small part of that property was located within the City of Annapolis; most of it lay just outside the City line. At the time, appellant was planning to construct a plant on the property, to be leased to Capital Gazette Communications, Inc., the publisher of newspapers and other journals in the Annapolis area.

Appellant was desirous of having its property annexed by the City, and in 1994 it was, in fact, annexed, but in 1985 annexation was precluded by language in certain industrial The Annapolis City Code authorized the City to provide water and sewer service to customers outside the City limits and set forth the charges for such service. Section 16.08.050 provided that the charge for water service to users outside the City "shall be twice that charged to users within the city" but allowed the City Council, by ordinance, to approve an agreement calling for a rate equal to that charged City residents if the outside user agreed "to make annual payments to the city in amounts equivalent to city real property taxes which would be imposed if the property were in the city." Section 16.16.010 specified that the charges for sewer service to both City and non-City residents would be 122% of the charges for water consumption.

revenue bonds used to finance the project. The parties discussed various options for supplying water and sewer service to the property, including having appellant construct its own treatment facility, but they decided that it was in their mutual interest to have those services supplied by the City.

After arms-length negotiations, a Utility Agreement was signed on September 3, 1985, under which the City agreed to provide water and sewer service to the property. Appellant, in turn, agreed to pay (1) the same rate for water and sewer service as is in effect for customers within the City, from time to time, (2) connection charges customarily charged by the City, (3) capital facility charges and assessments customarily charged by the City, and (4) an annual "fee in an amount equal to the real estate taxes that [appellant] would be liable to pay to the City if the Property and improvements contained thereon had been annexed to and were part of the City." This last fee was to end if and when the property was annexed by the City. The agreement called for it to be ratified by an ordinance of the Annapolis City Council.

Six days after the agreement was signed, the Annapolis City Council adopted Ordinance No. 0-65-85 specifically approving "the form and substance of the Utility Agreement, a copy of which is attached hereto and incorporated herein by reference...."

From 1986 through 1992, appellant dutifully paid the fees called for in the Utility Agreement without protest. For the years 1993 and 1994, however, it refused to pay the real estate tax equivalent. Indeed, in August, 1994, it demanded a refund of all such fees it had previously paid, amounting to nearly $175,000, asserting that those charges "are discriminatory and have been illegally and unconstitutionally imposed by the City because there is no reasonable relationship between the amount of the user charge imposed and the cost of providing such services." On October 7, 1994, the City rejected the claim; in the meanwhile, on September 1, 1994, it filed suit in the Circuit Court for Anne Arundel County for breach of contract, to collect the unpaid fees for 1993 and 1994, then aggregating over $86,000.

Upon the City's rejection of the claim for refund, appellant filed a Petition of Appeal with the Maryland Tax Court, contending that, under the City Code, the City was without authority to impose sewer fees on appellant in excess of those charged to City residents and that the excess fees for both water and sewer service were discriminatory and in violation of the First and Fourteenth Amendments to the U.S. Constitution and art. 40 of the Maryland Declaration of Rights. It then filed a motion to dismiss or stay the City's action in circuit court, arguing that primary jurisdiction over the dispute lay with the Tax Court.

The court denied the motion, concluding that, although the Tax Court might have concurrent jurisdiction, the court was the appropriate forum to decide the contractual and Constitutional issues raised by the parties. Appellant then filed a counterclaim for a refund, alleging that the Utility Agreement was an "illegal and unconstitutional arrangement." Cross motions for summary judgment were filed and, after a hearing, the court granted the City's motion and denied that of appellant. Judgment for the $86,000 plus accrued interest was entered. The court reasoned that the City was under no obligation to provide these services to non-City residents, that it acted solely in its proprietary capacity in providing the

services, and that the charges were fixed by [677 A.2d 658] contract fairly negotiated between the parties.

DISCUSSION

(1) Jurisdiction

The Maryland Tax Court is an administrative unit within the Executive Branch of the State Government created by State statute. See Md.Code Tax-General art., § 3-102; Shell Oil Co. v. Supervisor, 276 Md. 36, 343 A.2d 521 (1975). Its jurisdiction is conferred and limited by § 3-103(a) of the Tax-General article:

"The Tax Court has jurisdiction to hear appeals from the final decision, final determination, or final order of a property tax assessment appeal board or any other unit of the State government or of a political subdivision of the State that is authorized to make the final decision or determination or issue the final order about any tax issue, including:

(1) the valuation, assessment, or classification of property;

(2) the imposition of a tax;

(3) the determination of a claim for refund;

(4) the application for an abatement, reduction, or revision of any assessment or tax; or

(5) the application for an exemption from any assessment or tax."

(Emphasis added.)

Appellant's petition to the Tax Court was purportedly based on Md.Code art. 24, § 9-712(d). Art. 24 of the Code consists of miscellaneous provisions concerning the political subdivisions of the State. Title 9 of that article deals with revenue and taxes; it authorizes various kinds of taxes and provides procedures for their collection and for the resolution of disputes regarding them. Subtitle 7 deals, in particular, with actions to collect taxes. Part III of that subtitle sets forth the procedures for refunds. Unlike the rest of the subtitle, which speaks only of taxes, § 9-710, which introduces Part III, speaks of a "tax, fee, charge, interest, or penalty." It provides that a claimant who has paid to a county or municipal corporation a "tax, fee, charge, interest, or penalty that is erroneously, illegally, or wrongfully assessed or collected in any manner" may file a claim for refund with the tax collector. Section 9-712 provides for investigation and allowance or disallowance of the claim. Subsection (d) authorizes a person aggrieved by the action of the tax collector to appeal to the Maryland Tax Court.

In fact, the tax collector of Annapolis did not process and reject appellant's claim for refund. The City Attorney rejected the claim on the ground that the water and sewer charges provided for in the Utility Agreement did not constitute a tax, fee, charge, interest, or penalty subject to the provisions of § 9-712, or indeed subject to the jurisdiction of the Tax Court, and that remains the City's position.

The City is correct. We are not concerned here with front-foot assessments, but only with charges for the water and sewer service provided to appellant. Water and sewer charges imposed by municipalities are generally not regarded as taxes or fees in the nature of taxes but rather as charges for the sale of a service or commodity. The Court of Appeals so held in Loan Corporation v. Baltimore, 175 Md. 676, 3 A.2d 747 (1939). At 681, the Court, speaking of water service, observed:

"The rates for the service, sometimes referred to as taxes, are literally service charges. They are not taxes, in the ordinary sense of that word ... but are commonly referred to as rates or rents, although the charge is for a commodity actually consumed...."

See also In re Gosman Beverage Company, 163 F.Supp. 810 (D.Md.1958); Lehigh Valley R. Co. v. Jersey City, 103 N.J.L. 574, 138 A. 467 (1927), aff'd, 104 N.J.L. 437, 140 A. 920 (1928); Town of Cicero v. Township High School Dist. No. 201, 299 Ill.App. 237, 20 N.E.2d 114 (1939); Himebaugh v. City of Canton, 145 Ohio St. 237, 61 N.E.2d 483 (1945); Powell v. City of Duluth, 91 Minn. 53, 97 N.W. 450 (1903); Collier v. City of Atlanta, 178 Ga. 575, 173 S.E. 853 (1934); City of Roanoke v. Fisher, 193 Va. 651, 70 S.E.2d 274 (1952); cf. MTA v. Baltimore Co. Revenue Auth., 267 Md. 687, 298 A.2d 413 (1973), holding that a bridge toll is not a tax or charge in the nature of a tax.

This is especially true when, as here, (1) the rates, though higher than those charged to City...