Comptroller of the Treasury v. Science Applications International Corp.

¹⁸⁹ RAKER, J. The primary issue we must decide in this appeal, filed by the Comptroller of the Treasury, is whether the Tax Court erred in requiring the Comptroller to pay interest on a tax refund to Science Applications International Corporation (SAIC). The Comptroller also raises a jurisdictional challenge to the Tax Court’s review of the Comptroller’s disallowance of SAIC’s refund claim for interest. We shall hold that the Tax Court has jurisdiction to hear a claim for interest on a refund, and, on the merits, because the Tax Court committed no errors of law and its conclusions were supported by substantial evidence, we shall affirm. I. On or about October 15, 2000, Appellee, SAIC filed its Maryland corporation income tax return for the fiscal year beginning February 1, 1999 and ending January 31, 2000.

SAIC reported that it owed $4,216,431. Because SAIC had previously remitted estimated tax payments of $4,901,759, the return reflected a refund of $685,328, which the State paid in a timely manner. Three years later, on October 14, 2003, SAIC amended its 1999 return. The amendment claimed a further refund of $4,274,519 based on the argument that a gain from the sale of shares of stock of Network Solutions, Inc. (NSI), which SAIC had held for investment purposes, lacked a sufficient nexus to Maryland for the gain to be taxable under the United States Constitution and Maryland law.

See Hercules v. Comptroller, 351 Md. 101, 109 , 716 A.2d 276, 279-80 (1998). SAIC had included the gain on NSI stock on its original return. By amending its 1999 tax return to eliminate the $715,850,753 gain on the sale of NSI stock, SAIC reduced its Maryland income tax liability for the tax year to zero and claimed a refund of the full amount of taxes that it had previously paid. The entire $4,274,519 claim for refund represents Maryland income tax paid by SAIC to the Comptroller ¹⁹⁰ attributable to SAIC’s capital gain of $715,850,753 realized on SAIC’s sale of its NSI stock.

The Comptroller denied SAIC’s claim for refund by letter dated December 18, 2003, based on the Comptroller’s determination that a portion of the NSI gain was taxable in Maryland. Following an informal hearing, pursuant to § 13-510 of the Tax-General Article, Maryland Code (1988, 2004 Repl. Vol.), 1 the Comptroller issued a Notice of Final Determination denying SAIC’s refund claim on October 5, 2004. SAIC filed a petition of appeal in the Maryland Tax Court, contesting the Comptroller’s denial of its claim for a refund.

After an evidentiary hearing, the Tax Court reversed the decision of the Comptroller’s denial of SAIC’s claim for a refund, based on the Tax Court’s finding that there was no nexus between SAIC’s capital gain of the stock sale and the State of Maryland. The Comptroller did not seek judicial review of the Tax Court’s refund decision and paid to SAIC the full amount of the refund. SAIC filed a motion in the Tax Court to compel the Comptroller to pay interest on the refund. The Tax Court ruled in favor of SAIC, holding that interest was due on the refund from the time that SAIC filed the claim for refund and the time that the Comptroller’s office paid the refund, and that no interest on the interest was due.

The Comptroller filed a petition for judicial review in the Circuit Court for Baltimore City. 2 The Circuit Court affirmed the Tax Court. ¹⁹¹ The Comptroller noted a timely appeal to the Court of Special Appeals. This Court granted certiorari on its own initiative prior to any decision of the intermediate appellate court to consider whether the Tax Court erred in exercising jurisdiction to hear and decide SAIC’s motion to compel payment of interest, whether SAIC’s motion was barred by res judicata, and whether the Tax Court erred in requiring the Comptroller to pay interest on the refund due to SAIC. Comptroller v. Science Applications, 402 Md. 355 , 936 A.2d 852 (2007).

II

Before this Court, the Comptroller argues that SAIC’s claim for interest was barred by res judicata because SAIC failed to raise the issue of interest on the refund in its original petition in the Maryland Tax Court. He maintains that the Tax Court does not have jurisdiction to compel payment of interest on a refund because § 3-103(a) and § 13-510(a) do not mention interest on the refund. Finally, the Comptroller argues that SAIC’s refund claim fits into an exception to § 13-603’s general provision for interest on the refund, which reads, in pertinent part, as follows: “(b) Exceptions.—A tax collector may not pay interest on a refund if the claim for refund is: (2) based on: (i) an error or mistake of the claimant not attributable to the State or a unit of the State government ...” It is the Comptroller’s position that § 13-603 precludes granting interest on a refund that was made due to an error by the taxpayer. The Comptroller contends that SAIC made a mistake on its original tax return filing that could not be “attributable to the State” because the Comptroller did not compel SAIC by assessment or any active involvement with the original filing.

He objects primarily to the Tax Court’s application of DeBois Textiles v. Comptroller, 1985 WL 6117 (1985), ¹⁹² where the Tax Court stated “an error is attributable to the State when a taxpayer, using reasonable judgment under the circumstances, is led by the laws, regulations, or policies expressed by the State to the mistaken conclusion that the tax is owed.” The Comptroller argues that the Tax Court erred as a matter of law in using the DeBois standard and that the Tax Court’s finding that SAIC’s mistake was “attributable to the State” was not supported by substantial evidence. Appellee, SAIC, counters that the doctrine of res judicata is inapplicable in this case because there is no second action— the motion to compel interest on the refund arises out of the enforcement of the Tax Court’s order reversing the Comptroller’s denial of a refund. SAIC further contends that the Tax Court had jurisdiction to compel interest on the refund because there is a direct relationship between refunds and interest on those refunds, and the Tax Court is explicitly granted jurisdiction over the denial of a refund. Appellee contends that interest on the refund was mandated by § 13-603 because any error made by SAIC was attributable to the State.

III

When reviewing the decision of an administrative agency, such as the Tax Court, 3 we review the agency’s decision directly, not the decision of the circuit court. Anderson v. General Casualty, 402 Md. 236, 244 , 935 A.2d 746, 751 (2007). A reviewing court will affirm the decision of the Tax Court when it is supported by substantial evidence appearing in the record and it is not erroneous as a matter of law. Comptroller v. Blanton, 390 Md. 528, 535 , 890 A.2d 279, 283 (2006); Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834 , 490 A.2d 1296, 1300-01 (1985).

Because an agency’s decision is presumed prima facie correct, we review the evidence in the light most favorable to the agency. Comptrol ¹⁹³ ler v. Citicorp, 389 Md. 156, 163 , 884 A.2d 112, 116 (2005). Indeed, “it is the agency’s province to resolve conflicting evidence and where inconsistent inferences can be drawn from the same evidence it is for the agency to draw the inferences.” Id. at 163-64 , 884 A.2d at 116 (quoting Ramsay, 302 Md. at 835 , 490 A.2d at 1301 ). When we review an agency decision that is a mixed question of law and fact, we apply “the substantial evidence test, that is, the same standard of review it would apply to an agency factual finding.” Longshore v. State, 399 Md. 486 , 522 n. 8, 924 A.2d 1129 , 1149 n. 8 (2007).

IV

We consider first the Comptroller’s jurisdictional argument. The Comptroller argues that the Tax Court lacked jurisdiction to hear SAIC’s claim for a refund of interest because the agency’s statutory jurisdiction does not extend to interest claims. The Maryland Tax Court is established by § 3-102 which states as follows: “There is a Maryland Tax Court, which is an independent administrative unit of the State government.” The Tax Court’s subject matter jurisdiction is governed by § 3-103(a), which states as follows: “(a) In general.—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 ¹⁹⁴ (5) the application for an exemption from any assessment or tax.” Section 13-510(a) delineates specific decisions that are appeal-able to the Tax Court, and provides, in pertinent part, as follows: “(a) In general—Except as provided in subsection (b) of this section and subject to § 13-514 of this subtitle, within 30 days after the date on which a notice is mailed, a person or governmental unit that is aggrieved by the action in the notice may appeal to the Tax Court from: (1) a final assessment of tax, interest, or penalty under this article; (2) a final determination on an application for revision or claim for refund under § 13-508 of this subtitle; (3) an inheritance tax determination by a register or by an orphans’ court other than a circuit court sitting as an orphans’ court; (4) a denial of an alternative payment schedule for inheritance tax or Maryland estate tax; (5) a final determination on a claim for return of seized property under § 13-839 or § 13-840 of this title; or (6) a disallowance of a claim for refund under § 13-904 of this title.” The Tax Court ruled that the Comptroller was required to pay interest on the refund, based upon § 13-603(a), “Interest on refunds.” The Tax Court reasoned as follows: “A consideration of both statutes [Section 3-103 and Section 13-603] when read together make it clear that there is a direct relationship between tax refunds and interest on refunds. In the result of that relationship, it is clear that the issues regarding refunds and interest on refunds are certainly within the jurisdiction of this Court.” Section 13-603 reads, in pertinent part, as follows: “(a) In general.—Except as otherwise provided in this section, if a claim for refund under § 13—901(a)(1) or (2) or (d)(l)(i) or (2) of this title is approved, the tax collector shall ¹⁹⁵ pay interest on the refund from the 45th day after the claim is filed in the manner required in Subtitle 9 of this title to the date on which the refund is paid. “(b) Exceptions.—A tax collector may not pay interest on a refund if the claim for refund is: (1) made under any provision other than § 13-901(a)(l) or (2) or (d)(1)© or (2) of this title; (2) based on: © an error or mistake of the claimant not attributable to the State or a unit of the State government; (ii) withholding excess income tax; (iii) an overpayment of estimated financial institution franchise tax or estimated income tax; or (iv) an overpayment of Maryland estate tax based on an inheritance tax payment made after payment of Maryland estate tax;.... ” As the Tax Court noted, there is a direct relationship between the determination of whether a refund was denied properly and whether interest is due on the refund.

Because the question of interest on the refund is part of the inquiry resulting from an appeal of disallowance of a claim for refund, the Tax Court had jurisdiction to consider the interest issue, and, therefore, did not err as a matter of law in finding that it had jurisdiction to decide SAIC’s motion. We turn to the Comptroller’s argument that SAIC is barred by the doctrine of res judicata from raising its claim for interest on the refund. The doctrine of res judicata has been described as follows: “The doctrine of claim preclusion, or res judicata, ‘bars the relitigation of a claim if there is a final judgment in a previous litigation where the parties, the subject matter and causes of action are identical or substantially identical as to issues actually litigated and as to those which could have or should have been raised in the previous litigation.’ The doctrine embodies three elements: (1) the parties in the present litigation are the same or in privity with the parties to the earlier litigation; (2) the claim presented in the ¹⁹⁶ current action is identical to that determined or that which could have been raised and determined in the prior litigation; and (3) there was a final judgment on the merits in the prior litigation.” R&D 2001 v. Rice, 402 Md. 648, 663 , 938 A.2d 839, 848 (2008) (citations omitted). The Comptroller’s argument that res judicata bars SAIC’s claim is based upon his view that SAIC’s motion to compel payment of interest is an impermissible second action because SAIC did not seek interest explicitly in its initial petition to the Tax Court when it first sought the refund, and, therefore, it is barred from seeking the interest.

Both the Tax Court and the Circuit Court rejected the Comptroller’s argument, as does this Court. Res judicata “bars the relitigation of a claim if there is a final judgment in a previous litigation where the parties, the subject matter and causes of action are identical or substantially identical as to issues actually litigated and as to those which could have or should have been raised in the previous litigation.” Board of Ed. v. Norville, 390 Md. 93, 106-107 , 887 A.2d 1029, 1037 (2005). The Tax Court ruled on this issue as follows: “It is true that the case at bar has been litigated to its conclusion. The motion by Petitioner, however, to compel interest on a refund ... arises from and is directly related to the enforcement of the May 11, 2006 Order whereby this Court reversed the Comptroller’s denial of the corporation’s claim for refund of corporate income taxes.” The Circuit Court ruled also that SAIC’s claim was not barred by res judicata.

The Circuit Court reasoned that the claim for interest could not have been litigated with the original claim for refund because it grew out of an attempt to enforce the May 11, 2006 order, the order requiring the refund, and that the interest claim is directly related to the claim for the refund and not a separate claim. We hold that SAIC’s Motion to Compel Payment of Interest on the refund was not barred by the principle of res ¹⁹⁷ judicata. The claim was not a second claim or a second proceeding as contemplated by res judicata principles. Interest, under § 13-603, must be paid, as a matter of law, on the refund, unless a statutory exception applies.

Therefore, if a refund is granted, interest “shall” be paid to the successful claimant when the claim does not fall within an exception, even if that claimant did not request the interest in the original claim for a refund. SAIC could not have known that it needed to litigate the possibility of denial of interest on the refund when it believed it was entitled to that interest, and, thus, believed it would receive the interest along with the refund in accordance with the statute. SAIC’s Motion to Compel Payment of Interest on the refund is not barred by res judicata. V. We turn to the merits of this appeal and consider whether the Tax Court erred in ordering the Comptroller to pay interest on the refund under the provisions of § 13-603(b).

If the claim for a refund is based on “an error or mistake of the claimant not attributable to the State or a unit of the State government,” the Comptroller is prohibited by statute from paying interest on the refund. § 13—603(b). The Tax Court ruled that interest was due on the refund, stating as follows: “[SAIC] used reasonable judgment under the circumstances, was led by the laws, regulations, or policies expressed by the State to the mistaken conclusion that tax was owed. Thus, [SAIC’s] mistake was attributable to the State, and Section 13-603(a) mandates that interest be paid on the refund.” The Comptroller contends that the Tax Court erred in its interpretation of § 13-603 because the phrase “attributable to the State” only encompasses “an assessment of tax or other affirmative action.” The Comptroller argues also that the Tax Court’s conclusion that SAIC’s mistake was attributable to the State was not supported by the evidence. Section 13-603 controls interest on tax refunds in Maryland.

Tax refunds in Maryland are “matters of grace ¹⁹⁸ with the Legislature.” MPTH Associates v. Dep’t of Finance, 308 Md. 674, 679 , 521 A.2d 757, 759 (1987). A taxpayer’s entitlement to interest on a refund can be authorized only by legislative enactment. Comptroller v. Fairchild Industries, 303 Md. 280, 284 , 493 A.2d 341, 342-43 (1985); Comptroller v. Campanella, 265 Md. 478, 487 , 290 A.2d 475, 479 (1972). When this Court interprets a statute, our purpose is to effectuate the intent of the Legislature, and, in order to discern that intent, we look first to the plain meaning of the statute’s language.

Ishola v. State, 404 Md. 155, 160 , 945 A.2d 1273, 1276 (2008). “The cardinal rule of statutory interpretation is to ascertain and effectuate the intent of the Legislature. Statutory construction begins with the plain language of the statute, and ordinary, popular understanding of the English language dictates interpretation of its terminology.” Bowen v. City of Annapolis, 402 Md. 587, 613 , 937 A.2d 242, 257 (2007) (quoting Kushell v. Dep’t of Natural Res., 385 Md. 563, 576-78 , 870 A.2d 186, 193-94 (2005)). The statute must be read so that no word, clause, sentence, or phrase is rendered superfluous or nugatory. Tribbitt v. State, 403 Md. 638, 646 , 943 A.2d 1260, 1264 (2008).

If the plain language of a statute is clear and unambiguous, we look no further because there is no “need to resort to the various, and sometimes inconsistent, external rules of construction, for the Legislature is presumed to have meant what it said and said what it meant.” Id. (internal quotation omitted); Arundel Corp. v. Marie, 383 Md. 489, 502 , 860 A.2d 886, 894 (2004). If, however, the statutory language is “subject to more than one interpretation, it is ambiguous, and we resolve that ambiguity by looking to the statute’s legislative history, case law, and statutory purpose.” Opert v. Criminal Injuries Board, 403 Md. 587, 593 , 943 A.2d 1229, 1233 (2008). With these principles in mind, we turn to an examination of § 13-603’s plain language.

Section 13-603 provides that “the tax collector shall pay interest on the refund from the 45th day after the claim is filed ... to the date on which