Comptroller of Treasury v. Johns Hopkins University

DEBORAH S. EYLER, Judge. Johns Hopkins University (“Hopkins” or “the University”), the appellee, applied for a refund of admissions and amusement taxes it paid to Baltimore City, as collected by the Comptroller of the Treasury (“the Comptroller”), the appellant, on gross receipts from ticket sales to intercollegiate men’s lacrosse games in 2002, 2003, and 2004. When the Comptroller denied the refund request, Hopkins filed a challenge in the Maryland Tax Court. Ultimately, the Tax Court granted the refund.

After that decision was affirmed on judicial review by the Circuit Court for Baltimore City, the Comptroller noted this appeal, posing one question for review: Did the Maryland Tax Court commit legal error when it decided that the gross receipts from intercollegiate athletic events were used exclusively for an educational purpose? ¹⁷⁴ For the reasons that follow, we uphold the decision of the Tax Court and therefore shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS In an evidentiary hearing before the Tax Court, on September 13, 2006, Hopkins called witnesses Debra Sorandes, Senior Tax Accountant for the University, and Tom Calder, Director of Athletics and Recreation for Hopkins, and the Comptroller called witness Theresa Trentler, Refund Supervisor. The basic first-level facts were not in dispute. On March 7, 2005, Hopkins filed a written refund application with the Comptroller, seeking to recover $40,672.40 in admissions and amusement taxes it had paid on ticket sales receipts from intercollegiate men’s lacrosse games between February 2002 and June 2004.

The authority to impose an admissions and amusement tax is granted by the State to counties and municipal corporations by Title 4 of the Tax-General Article (“T-G”) (1988, 2004 Repl.Vol.), specifically, TG sections 4-101(b)(1) and 4-102. 1 Any admissions and amusement tax imposed by a county or municipal corporation must be paid to the Comptroller, and filed with an admissions and amusement tax return. Id. §§ 4-201, 4-301. ¹⁷⁵ Hopkins sought its refund on the ground that Baltimore City’s authority to impose the admissions and amusement tax in question was limited by T-G section 4—103(b)(4)(i): (b) Counties and municipal corporations.—The admissions and amusement tax may not be imposed by a county or municipal corporation on gross receipts: ... (4) derived from any charge for admission or for merchandise, refreshments, or a service, if the gross receipts are used exclusively for: (i) a charitable, educational, or religious purpose ... (Emphasis added.) Hopkins has a National College Athletic Association (“NCAA”) Division I lacrosse program.

Men’s and women’s home lacrosse games are played at Homewood Field, which is located on Hopkins’s campus, in Baltimore City. The field is surrounded by a rubberized jogging track. Seating is by bleachers. Like crab cakes, the Orioles, Old Bay seasoning, and Berger Cookies, men’s lacrosse is quintessential to Baltimore City’s culture. 2 On average, about 1,000 students attend each home men’s lacrosse game.

NCAA rules allow Hopkins to charge non-students a price of admission to its Division I lacrosse games, and the Baltimore men’s lacrosse fan base generates a market. 3 Every year, the gross receipts from Hopkins’s men’s lacrosse games total about $140,000. Of that sum, ¹⁷⁶ around $100,000 is spent to cover the costs of the games (such as security, public address announcers, ticket takers, stadium cleaning, and field lining and preparation), and the remaining approximately $40,000 is deposited with the Hopkins Athletic Department. At the end of a given year, that money is transferred to the account of “Homewood Student Affairs.” It is spent to make repairs to Homewood Field, repair and replace the jogging-track, and, every 8 to 10 years, replace the artificial turf. That turf was installed originally because it is a safer surface for the athletes than grass (or lesser grades of artificial turf).

Turf replacement costs about $1.2 million dollars. Because the receipts in question only cover about 30% of that amount, the remainder is paid by the University. The rubberized jogging track also was installed for safety purposes, not only because it is easier on runners’ legs but also because the University discourages its students from jogging in surrounding neighborhoods, where traffic and security are problems. Homewood Field is Hopkins’s primary athletic venue.

In addition to lacrosse, it is used for intercollegiate football, field hockey, and soccer. It also is used for intramural athletics, club athletics, fraternity games, graduation and other recognition ceremonies, ROTC training, and homecoming activities. The field is lighted, and the jogging track is used by faculty and students about 20 hours a day. (The track can be used when the field is in use, although the track is not available during intercollegiate sporting events.) According to Mr. Calder, athletics of all sorts, including intercollegiate sports, are an important part of the educational function of the University.

The mission statement of the Department of Athletics and Recreation states: The Department of Athletics and Recreation provides a broad program of sports and fitness activities for both men and women of all ability levels in order to enhance the quality of life of the Johns Hopkins community. Our programs develop the physical, social, educational, and emotional skills of the Johns Hopkins community at a level of ¹⁷⁷ excellence which compliments the high academic standard of the University. Mr. Calder explained that, although Hopkins students are not required to participate in athletics, sports is used at the University as a vehicle for teaching leadership, good citizenship, discipline, action under pressure, teamwork, and perseverance, all important aspects of education. There also was evidence that the Comptroller had deemed Hopkins excluded from paying real property taxes on Home-wood Field, and from paying sales tax; that under 26 U.S.C. section 501 (c)(3), Hopkins is classified as a non-profit educational organization exempt from federal taxes, id. § 501(a); and that Hopkins’s athletic program is subject to the prohibitions against gender discrimination set forth in Title IX of the Educational Amendments of 1972, 86 Stat. 373 , 20 U.S.C. §§ 1681-1688 .

In response to the University’s refund request, field auditors employed by the Comptroller investigated and prepared a Field Audit Report. The auditors recommended granting the refund. Thereafter, by letter of April 23, 2005, Theresa Trentler denied the refund request. She did so, in her words, “because the gross receipts taken in from intercollegiate athletic activities were not exclusively for educational purposes.” Hopkins petitioned the Comptroller to reverse that decision.

On January 9, 2006, a hearing on the matter was held before a hearing officer for the Comptroller. A month later, the hearing officer issued a written decision finding Hopkins’s “gross receipts from admissions to intercollegiate athletic events subject to the admissions and amusement tax ... in that the gross receipts are not used exclusively lor an educational purpose!,]” and upholding the denial of the refund claim. Before the Tax Court, Ms. Trentler testified that, in her 18 years as Refund Supervisor for the Comptroller, it had been the Comptroller’s policy that “intercollegiate athletics are not considered educational!,]” regardless of what the receipts are spent on. Later she clarified that testimony somewhat, saying ¹⁷⁸ that it is the longstanding policy of the Comptroller that as long as the gross receipts from intercollegiate sporting events go to a college or university’s athletic department, they are non-educational in purpose, no matter what they are spent on.

She assumed, in so explaining, that the gross receipts from Hopkins’s intercollegiate contests would be used to pay for the University’s intercollegiate programs. She acknowledged that, under the Comptroller’s longstanding policy, intramural college sports activities do serve an educational purpose. Thus, if the gross receipts in question had been paid for admissions to a Hopkins intramural lacrosse game, they would not have been taxable. The Tax Court judge ruled from the bench that Hopkins was entitled to the admissions and amusement tax refund.

He explained that it was not necessary to decide whether the gross receipts from the men’s intercollegiate lacrosse games were used exclusively for educational purposes, because Homewood Field is used not only for intercollegiate but also for intramural games and for other educational purposes, such as ROTC exercises and graduation ceremonies. Relying upon interpretations of the word “exclusively” in other Maryland taxing statutes as meaning “primarily,” the Tax Court ruled that it was sufficient that the gross receipts at issue were used primarily for educational purposes, and granted the refund on that basis. See, e.g., Friends School v. Supervisor of Assessments of Baltimore City, 314 Md. 194 , 201 n. 3, 550 A.2d 657 (1988) (“The requirement of exclusive use may genei'ally be satisfied by a showing that the property is used ‘primarily’ for exemption purposes, with only incidental or occasional use for other purposes.”). A written order was filed on October 30, 2006.

The Comptroller filed an action for judicial review in the Circuit Court for Baltimore City. On May 23, 2007, the court entered an order reversing and remanding the case to the Tax Court with instructions to decide whether the “expenditures on intercollegiate athletics amount to an educational purpose.” On remand, on July 25, 2007, the Tax Court judge issued a written order stating that “the gross receipts in question, ¹⁷⁹ which were used in part for intercollegiate athletics at the school, were used exclusively in furtherance of the education of the students.” On March 28, 2008, in a second action for judicial review brought by the Comptroller, the circuit court affirmed the Tax Court’s decision. This appeal followed. We shall include additional facts as necessary to our discussion.

DISCUSSION (A) The Comptroller of the Treasury is a “tax collector” responsible for collecting most Maryland taxes, including the admissions and amusement tax. T-G § 13—10.1(c)(2)(f) (defining “tax collector” to include the Comptroller). The Comptroller also is a “tax determining agency,” that is, “a governmental unit of the State that is authorized to make the final decision or issue the final order about a tax issue within the jurisdiction of the Tax Court, before the decision may be appealed to the Tax Court.” T-G § 13—501(c)(1). If an application for a refund of admissions and amusement taxes paid is timely filed with the Comptroller, the Comptroller or a designated employee promptly must hold an informal hearing, act on the application (which may include assessing additional tax, penalty, and interest), and mail notice of the final determination to the applicant.

T-G § 13-508(c). An assessment of a tax under the Tax-General Article “is prima facie correct.” T-G § 13-411. The final decision of the Comptroller on, among other things, an application for refund of admissions and amusement taxes paid, may be appealed by an aggrieved party to the Tax Court. T-G § 13-510(a).

The Tax Court is an independent statewide administrative agency, established by T-G section 3-102. Pursuant to T-G section 3-103(a), [t]he 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 ¹⁸⁰ 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. Appeals to the Tax Court proceed de novo. T-G § 13-523.

Although the Tax Court is not actually a court, as it is an agency within the Executive Branch of State government, it acts in a quasi-judicial capacity, making factual findings and adjudicating disputes. Foss NIRSystems, Inc. v. Comptroller of the Treasury, 151 Md.App. 44, 51-53 , 822 A.2d 1297 (2003). “Proceedings in the Tax Court are governed by [T-G sections] 13-514 to 13-529, which provide a party with the procedural rights to a prompt hearing, to appear before the Tax Court pro se or represented by counsel, to introduce evidence, subpoena witnesses, and conduct depositions, and to submit certain fact issues for resolution by a jury.” Knoche v. State, 171 Md.App. 209, 218 , 908 A.2d 1247 (2006). The Tax Court’s functions thus resemble court proceedings, even though they are not. White v. Prince George’s County, 282 Md. 641, 658 , 387 A.2d 260 (1978); Shell Oil Co. v. Supervisor of Assessments of Prince George’s County, 276 Md. 36, 47 , 343 A.2d 521 (1975).

The Tax Court “may reassess or reclassify, abate, modify, change or alter any valuation, assessment, classification, tax or final order” appealed to it. T-G § 13-528(a)(2). However, “[a]bsent affirmative evidence in support of the relief being sought or an error apparent on the face of the proceeding from which the appeal is taken, the decision, determination, or order from which the appeal [to the Tax Court] is taken shall be affirmed.” T-G § 13-528(b). The Tax Court must issue a “written order that sets forth its decision.” T-G § 13-529(a).

T-G section 13-532(a) makes a final decision of the Tax Court subject to judicial review in the circuit court pursuant to sections 10-222 and 10-223 of the State Government Article ¹⁸¹ (“SG”); and that court’s judgment is subject to appellate review in this Court. SG § 10~223(b). Because the Tax Court is an administrative agency, its decisions are reviewed under the same appellate standards generally applied to agency decisions. SDAT v. Consolidation Coal Sales Co., 382 Md. 439, 453 , 855 A.2d 1197 (2004).

We review the decision of the Tax Court, not the ruling of the circuit court on judicial review. Comptroller v. Clise Coal, Inc., 173 Md.App. 689, 696-97 , 920 A.2d 561 (2007). The Tax Court’s factual findings are reviewed for substantial evidence in the record. Id. at 697 , 920 A.2d 561 ; SG § 10-222(h)(3)(v).

Under the substantial evidence test, a factual finding must be upheld if it is such that a reasoning mind reasonably could have found it from the agency record (here, the evidence before the Tax Court). Dep’t of Natural Res. v. Heller, 391 Md. 148, 166 , 892 A.2d 497 (2006); Md. Aviation Admin. v. Noland, 386 Md. 556, 571 , 873 A.2d 1145 (2005). Even if the Tax Court does not state the reasons for its decision, reversal is not required “if the record discloses substantial evidence supporting the decision.” Bethlehem Steel Corp. v. Supervisor of Assessments of Baltimore County, 38 Md.App. 543, 546 , 381 A.2d 1185 (1978) (Wilner, J.). Likewise, we review the Tax Court’s mixed findings of fact and law for substantial evidence in the agency record. “[D]eterminations involving mixed questions of fact and law must be affirmed if, after deferring to the Tax Court’s expertise and to the presumption that the decision is correct, ‘a reasoning mind could have reached the Tax Court’s conclusion.’ ” NCR Corp. v. Comptroller, 313 Md. 118, 133-34 , 544 A.2d 764 (1988) (in turn quoting Comptroller v. NCR, 71 Md.App. 116, 133 , 524 A.2d 93 (1987)).

We are not so constrained in our review of the Tax Court’s decisions of law. Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834 , 490 A.2d 1296 (1985). Ordinarily, that review is de novo. SDAT v. Consumer Programs, Inc., 331 Md. 68, 72 , 626 A.2d 360 (1993).

Yet, “ ‘[e]ven with regard to some legal issues, a degree of deference should often be accorded the position of ¹⁸² the administrative agency. Thus, an administrative agency’s interpretation and application of the statute which the agency administers should ordinarily be given considerable weight by reviewing courts.’ ” Noland, supra, 386 Md. at 572 , 873 A.2d 1145 (quoting Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 69 , 729 A.2d 376 (1999)). (B) In their arguments before the Tax Court, the parties both referred to two decades-old Maryland Executive Branch decisions about admissions and amusement taxes on gross receipts collected from intercollegiate sporting events. The parties devote much of their argument in this Court to those deci- ' sions, as well.

In 1950, Attorney General Hall Hammond (later Associate Judge and then Chief Judge of the Court of Appeals) responded to a question posed by the Comptroller as to whether Western Maryland College (now McDaniel College) should be “exempted” “from the necessity of collecting an admissions tax on the sale of tickets to College football games on the ground that the proceeds derived thereby are used exclusively for educational purposes,” within the meaning of a predecessor statute to T-G section 4-103(b)(4)(i). 4 The Attorney General answered that the College was not “exempted” from paying the admissions and amusement tax for gross receipts from intercollegiate football games: When the word “education,” as used in [the statute] is considered with due regard to the canon of construction that tax exemptions are to be construed strictly against the taxpayer, we do not think that it can be said that the Legislature intended to exempt gross receipts derived from ¹⁸³ the sale of tickets to intercollegiate athletic contests from the admissions tax. While a program of physical education in modern educational thinking is as essential as training in purely academic and technical subjects, it seems to us that it would unduly strain the ordinary and usual meaning of the word “educational” to include intercollegiate athletic contests. Our opinion might be otherwise were the proceeds derived from the sale of tickets to athletic contests used by Western Maryland to purchase equipment and to defray the other necessary expenses of a program of intermural [sic] athletic contests or physical education to individual students. We do not believe, however, that when these gross receipts are used to defray expenses of intercollegiate athletic contests that they may be properly said to be tax exempt. 35 Op.

Md. Atty. Gen. 304, 308 (1950). In so concluding, the Attorney General relied upon the dissenting opinion in Page v. Regents, 93 F.2d 887 (5th Cir. 1937), rev’d on other grounds, sub. nom. Allen v. Regents, 304 U.S. 439 , 58 S.Ct. 980 , 82 L.Ed. 1448 (1938).

The Fifth Circuit majority in Page held that receipts from intercollegiate football games were not subject to the federal admissions tax because the games were educational activities: Great judgment is necessary to prevent the stimulus of publicity from becoming too great, lest the athletic tail be found wagging the dog of mental culture in the schools, but in principal the public exhibition of the best in athletics is not different from the school exhibitions of our boyhood or from the honors and speakerships at commencements of most colleges. 93 F.2d at 892 . The dissenter in Page , apparently a firm believer in the “ivory tower” model of higher education, complained: My associates, apparently to their own satisfaction, have rationalized themselves into the frame of mind to believe and to say that these modern gladiatorial spectacles, conducted in vast and costly amphitheatres, for the excitement and amusement of the American public, all present being ¹⁸⁴ keyed to a pitch and under a tension wholly foreign to that ordinarily associated with academic and educational pursuits, are an essential part of higher education in Georgia, and, as such, a governmental function of that State. They have not rationalized me into that frame of mind; I cannot rationalize myself into it. It seems to me that the mental processes by which the din and delight, the struggle and stress, the flying arms and legs, the alternate tangles and extrications, and all the heady actions of an intercollegiate football game, are envisioned as higher education, are a “reductio ad absurdum” of even modern higher educational theory.

They seem to me in the slangy but expressive vernacular common in the stadiums, to “take higher education for a ride.” Id. at 895 . The Attorney General opined that his office “subscribe[d] to the views of [the dissenting judge in Page ] without, however, indicating that we believe that his colorful language describes the part which intercollegiate athletic contests play in the program of education of Western Maryland College.” 35 Op. Md. Atty. Gen. at 308.

Twenty-five years after the 1950 Attorney General opinion, and 40 years after the precedents upon which it relied, the • Maryland Tax Court ruled, in Naval Academy Athletic Association v. Comptroller of the Treasury, 1977 WL 1568 (Md.Tax 1977), that gross receipts derived from admissions to Navy men’s intercollegiate football and lacrosse games are devoted exclusively to educational purposes, and therefore are