Comptroller v. Comcast

Comptroller v. Comcast of California, Maryland, Pennsylvania, Virginia, West Virginia, LLC, et al., No. 32, September Term, 2022. EXHAUSTION OF ADMINISTRATIVE REMEDIES – TAX-GENERAL ARTICLE §§ 13-501–13-532 – DECLARATORY JUDGMENTS – COURTS & JUDICIAL PROCEEDINGS ARTICLE § 3-409 Companies sought a declaratory judgment in the Circuit Court for Anne Arundel County to challenge the constitutionality of a new tax on digital advertising gross revenues. The circuit court awarded summary judgment in favor of the companies and declared the tax unconstitutional and illegal. The Supreme Court of Maryland held that the special statutory administrative remedies provided in the Tax-General Article are exclusive with respect to the companies’ challenge and, therefore, that the circuit court lacked jurisdiction over the declaratory judgment action and was required to dismiss it.

Circuit Court for Anne Arundel County Case No. C-02-CV-21-000509 Argued: May 5, 2023 IN THE SUPREME COURT OF MARYLAND* No. 32 September Term, 2022 ______________________________________ COMPTROLLER OF MARYLAND v. COMCAST OF CALIFORNIA, MARYLAND, PENNSYLVANIA, VIRGINIA, WEST VIRGINIA, LLC, et al. ______________________________________ Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves, JJ. ______________________________________ Pursuant to the Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Opinion by Fader, C.J. ______________________________________ Filed: July 12, 2023 Gregory Hilton, Clerk * At the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Appeals of Maryland to the Supreme Court of Maryland. The name change took effect on December 14, 2022. This appeal arises from a challenge to Maryland’s Digital Advertising Gross Revenues Tax Act, codified at Title 7.5 of the Tax-General Article.

The Act, which was enacted in 2021 and became effective on January 1, 2022, imposes a tax on annual gross revenues of certain high revenue businesses derived from digital advertising services in the State. In the Circuit Court for Anne Arundel County, the challengers, various subsidiaries of Comcast Corporation and Verizon Communications Inc. (collectively, the “Companies”),1 obtained a declaratory judgment that the digital advertising tax was unconstitutional and illegal under federal law. The Comptroller timely appealed, arguing, among other things, that the Companies did not exhaust the comprehensive administrative remedies provided in the Tax-General Article for resolution of tax disputes. We granted certiorari before decision in the Appellate Court of Maryland.2 In a per curiam order issued after oral argument, we vacated the orders of the circuit court, held that the circuit court lacked jurisdiction over the action because the Companies failed to exhaust the mandatory administrative and judicial review remedies provided in the Tax-General Article for the resolution of tax disputes, and remanded to the circuit court with directions to dismiss the action.

Comptroller v. Comcast of California, Maryland, 1 The challengers, the plaintiffs below and appellees here, are Comcast Cable Communications Management, LLC, Comcast of Maryland Limited Partnership, Comcast of Baltimore City, LLC, Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, Comcast of Delmarva, LLC, Comcast of Maryland, LLC, Comcast of Potomac, LLC, and Verizon Maryland LLC. 2 At the November 8, 2022 general election, the voters of Maryland ratified a constitutional amendment changing the name of the Court of Special Appeals of Maryland to the Appellate Court of Maryland. The name change took effect on December 14, 2022. Pennsylvania, Virginia, West Virginia, LLC, ___ Md. ___, 2023 WL 3313208 (May 9, 2023) (per curiam). In this opinion, we explain the basis for our order.

As will be apparent from our discussion, our resolution is not premised on any view of the merits of the challenges raised by the Companies. BACKGROUND A. The Digital Advertising Gross Revenues Tax Act Title 7.5 of the Tax-General Article imposes a tax on annual gross revenues of more than $1 million derived from digital advertising services in the State by certain businesses3 with at least $100 million in global annual gross revenues. Md. Code Ann., Tax-Gen. §§ 7.5-103 ; 7.5-201(a) (2022 Repl.). “Digital advertising services” generally include “advertisement services on a digital interface, including . . . banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.” Id. § 7.5-101(e)(1). The tax rate is progressive, beginning at 2.5% for entities with global annual revenues between $100 million and $1 billion, and topping out at 10% for businesses with global annual revenues exceeding $15 billion.

Id. § 7.5-103. The tax rate is calculated based on an entity’s global annual revenues but is then applied only to the entity’s annual gross revenues derived from digital advertising services in Maryland. Id. §§ 7.5-102; 7.5-101(c). The digital advertising tax applies to taxable years beginning after December 31, 2021. 2021 Md. Laws ch. 669, § 6.

Thus, the first year in which digital advertising services 3 The tax does not apply to advertising services on digital interfaces owned or operated by a broadcast or news media entity. Id. § 7.5-101(d), (e)(2), (g). 2 were taxed was 2022, and the first tax returns on which the digital advertising tax had to be reported were due in April 2023. B. Factual Background The Companies provide digital advertising services in Maryland. Because their global revenues are over the statutory threshold, they are subject to the digital advertising tax.

The Companies have neither paid the tax nor explicitly declined to pay the tax. C. Procedural Background Without first pursuing any administrative remedies, the Companies filed a complaint for declaratory judgment in the Circuit Court for Anne Arundel County in which they sought a declaration that the digital advertising tax is unconstitutional and illegal under federal law. Specifically, as stated in their amended complaint, the Companies contend that the digital advertising tax violates the United States Constitution’s Commerce Clause and First Amendment, as well as the Internet Tax Freedom Act, 47 U.S.C. § 151 note, a federal statute that bans states from imposing discriminatory taxes on electronic commerce. The Comptroller moved to dismiss the Companies’ complaint, arguing, among other things, that the circuit court lacked jurisdiction over the action because the Companies had failed to exhaust their administrative remedies.

The Companies responded that their declaratory judgment action was permitted by a constitutional exception to the exhaustion requirement. Following a hearing, the court agreed with the Companies and denied the Comptroller’s motion to dismiss. 3 The Comptroller and the Companies each thereafter filed motions for summary judgment. The Comptroller again argued that the circuit court lacked jurisdiction over the action because the Companies had failed to exhaust administrative remedies. The Companies restated their argument that the digital advertising tax violates the Constitution and the Internet Tax Freedom Act, and sought a declaration to that effect.

The court again agreed with the Companies, granted their motion for summary judgment, and denied the Comptroller’s motion. In a final declaratory judgment order, the circuit court declared that the “Maryland Digital Advertising Gross Revenues Tax violates the Supremacy Clause of the United States Constitution and the Internet Tax Freedom Act . . . , the dormant Commerce Clause of the United States Constitution . . . , and the First Amendment to the United States Constitution[.]” The Comptroller timely appealed to the Appellate Court of Maryland and, before decision by that court, sought certiorari from this Court, which we granted. Comptroller v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, 482 Md. 535 (2023).4 DISCUSSION “Whether a plaintiff must exhaust administrative remedies prior to bringing suit is a legal issue which [this Court] reviews” without deference. United Ins.

Co. of Am. v. Md. Ins. Admin., 450 Md. 1, 14 (2016). 4 The Comptroller also filed a Motion to Stay Enforcement Pending Appeal, which we denied. 4 THE ADMINISTRATIVE REMEDIES IN THE TAX-GENERAL ARTICLE ARE EXCLUSIVE. A. Exhaustion of Administrative Remedies Generally When the General Assembly enacts legislation giving rise to statutory claims, it frequently also provides for special statutory administrative remedies to be pursued under an administrative scheme, subject to judicial review. See, e.g., Md. Code Ann., State Gov’t §§ 20-1001–20-1017 (2021 Repl.; 2022 Supp.) (establishing an administrative scheme applicable to employment discrimination claims); Id. §§ 20-1020–20-1037 (same for housing discrimination claims); Md. Code Ann., Lab. & Empl. §§ 9 -701–9-750 (2016 Repl.; 2022 Supp.) (same for workers’ compensation claims); Id. §§ 8-501–8-508, 8-5A-01–8-5A-12 (same for unemployment insurance claims); Md. Code Ann., Tax-Prop. §§ 14 -501–14-516 (2019 Repl.; 2022 Supp.) (same for property tax claims); see also, e.g., Md. Code Ann., Local Gov’t § 10-305 (2013 Repl.; 2022 Supp.) (authorizing counties to enact local laws to establish county boards of appeals with jurisdiction over, among other things, zoning, licensing, and permitting).

When the General Assembly has provided such “an administrative and judicial review remedy,” “the relationship between that administrative remedy and a possible alternative judicial remedy will ordinarily fall into one of three categories.” Zappone v. Liberty Life Ins. Co., 349 Md. 45, 60 (1998). “First, the administrative remedy may be exclusive, thus precluding any resort to an alternative remedy.” Id. Where an administrative remedy is exclusive, the only manner of obtaining judicial involvement is by pursuing judicial review of the final administrative decision. 5 “Second, the administrative remedy may be primary but not exclusive.” Id. at 60 . In that circumstance, a claimant may file an action to pursue an alternative judicial remedy, but the “claimant must invoke and exhaust the administrative remedy, and seek judicial review of an adverse administrative decision, before a court can properly adjudicate the merits of the alternative judicial remedy.” Id.; see also Monarch Acad.

Balt. Campus, Inc. v. Balt. City Bd. of Sch. Comm’rs, 457 Md. 1, 13 (2017) (stating that just because a claim is properly within the primary jurisdiction of an administrative agency “does not mean that the circuit court is divested of jurisdiction over the claim[], or necessitate[] the dismissal of the action before the court”; instead, the appropriate course of action is to stay proceedings pending ‘“a final administrative determination’” (quoting Arroyo v. Bd. of Educ. of Howard County, 381 Md. 646, 660 (2004))); State Ret. & Pension Sys. v. Thompson, 368 Md. 53, 66 (2002) (“[A]lthough the court may well have subject matter jurisdiction over the action before it, the exhaustion doctrine bars the court from exercising that jurisdiction, thereby gratifying the paramount legislative intent that the matter be dealt with first by the Executive Branch agency.”).

In other words, the claimant maintains the right to pursue an alternative judicial remedy, but generally not until first exhausting the administrative remedy. “Third, the administrative remedy and the alternative judicial remedy may be fully concurrent, with neither remedy being primary[.]” Zappone, 349 Md. at 61 . In that 6 circumstance, a claimant need not exhaust available administrative remedies before pursuing an available judicial remedy.5 Id. Determining whether an available administrative remedy is exclusive, primary to an alternative judicial remedy, or concurrent with an alternative judicial remedy, “is ordinarily a question of legislative intent.” Id. Although the General Assembly will occasionally “expressly set forth its intent in this regard,” “most often statutes fail to specify the category in which an administrative remedy falls,” leaving the matter to be resolved through statutory interpretation by the courts.

Id. at 61-62 . The rationale behind the exhaustion requirement is well-established. An administrative agency has the “expertise which [it] can bring to bear in sifting the information presented to it,” and thus “should be afforded the initial opportunity . . . to apply that expertise.” Soley v. Md. Comm’n on Hum. Rels., 277 Md. 521, 526 (1976). “[T]o permit interruption for purposes of judicial intervention at various stages of the administrative process might well undermine the very efficiency which the Legislature intended to achieve in the first instance.” Id.

Thus, “where there exists a special statutory remedy for a specific type of case, and the Legislature intends that remedy to be exclusive 5 Whether an administrative remedy is exclusive, primary, or concurrent has nothing to do with the availability of judicial review of the final decision of the administrative agency. The availability of judicial review is governed by statute, local law, or ordinance or, where not provided by one of those sources, through administrative mandamus. See Mayor & City Council of Balt. v. ProVen Mgmt., Inc., 472 Md. 642, 666, 669-70 , 669 n.9 (2021). Instead, whether an administrative remedy is exclusive, primary, or concurrent affects (1) whether a judicial remedy that is independent of and alternate to the administrative remedy may be pursued, and (2) if so, when it may be pursued. 7 or primary, a party may not bypass the special statutory remedy by bringing an action for a declaratory judgment or for equitable relief.” Furnitureland S., Inc. v. Comptroller, 364 Md. 126, 133 (2001).

One limited exception to the requirement of exhaustion of administrative remedies is the so-called constitutional exception, which we discuss below in more detail. In essence, the constitutional exception “permits a judicial determination without administrative exhaustion when there is a direct attack upon the power or authority . . . of the legislative body to adopt the legislation from which relief is sought.” County Council of Prince George’s County v. Chaney Enters. Ltd. P’ship, 454 Md. 514, 538 (2017) (quoting Harbor Island Marina, Inc. v. Bd. of County Comm’rs of Calvert County, 286 Md. 303, 308 (1979)). However, the constitutional exception is “extremely narrow,” and is subject to several specific limitations.

See Prince George’s County v. Ray’s Used Cars, 398 Md. 632, 650-54 (2007). One such limitation, which is dispositive here, is that it does not apply when an administrative remedy is exclusive, as opposed to primary. Id. at 650 . Notably, this Court has long held that many administrative agencies in Maryland, including the Tax Court, are “fully competent to resolve issues of constitutionality and the validity of statutes,” Furnitureland S., Inc., 364 Md. at 137 -38 (quoting Montgomery County v. Broad.

Equities, Inc., 360 Md. 438 , 451 n.8 (2000)), and, therefore, that “[t]he presence of constitutional issues does not authorize a party to circumvent the statutorily prescribed administrative remedies.” Furnitureland S., Inc., 364 Md. at 138 . 8 B. Administrative Exhaustion of Tax Claims Our prior opinions have “consistently treated the special statutory administrative remedies for the determination of tax questions to be exclusive or primary.” Id. at 134 . In examining whether the General Assembly intended those remedies to be exclusive or primary here, we begin with the comprehensive nature of the remedies. The Comptroller is charged with administering certain enumerated taxes, including the digital advertising tax. Tax-Gen. § 2-102(a)(3).

An aggrieved taxpayer has two available administrative paths to challenge a tax administered by the Comptroller: (1) a post-deprivation remedy path, in which the taxpayer pays the tax and then seeks a refund, see id. §§ 13-901, 13-902, 13-904, 13-508, 13-510; or (2) a pre-deprivation remedy path, in which the taxpayer declines to pay the tax, awaits an assessment, and then appeals the assessment, see id. §§ 13-401, 13-402, 13-508, 13-510. The post-deprivation remedy path permits a taxpayer to pay a disputed tax and then seek a refund. See id. § 13-901(a). As applicable here, a refund claim may be filed with the Comptroller in two scenarios: (1) where the taxpayer erroneously pays “a greater amount of tax . . . than is properly and legally payable;” or (2) where the taxpayer “pays to the State a tax . . . that is erroneously, illegally, or wrongfully assessed or collected in any manner[.]” Id.

A claim for a refund must be made under oath in the form provided by the Comptroller, supported with proper documentation, id. § 13-902, and filed within the time required by statute (three years from the date of payment in most scenarios, including for refunds under the digital advertising tax), id. §§ 13-903; 13-1104. If a taxpayer pursues a 9 post-deprivation remedy, the Comptroller will “(1) investigate each claim for refund; and (2) conduct a hearing at the request of the claimant prior to a final determination on the claim.” Id. § 13-904(a). The Comptroller will then issue a notice of “the determination of the claim for refund.” Id. § 13-904(b). If the taxpayer disagrees with the Comptroller’s determination, the taxpayer can appeal to the Tax Court within 30 days after the notice of the determination is mailed.

Id. § 13-510(a)(6). If the Comptroller does not issue a determination within six months after the taxpayer filed the claim, the taxpayer may consider the claim disallowed and appeal to the Tax Court. Id. §13-510(b). The pre-deprivation remedy path permits a taxpayer to challenge a tax that has been assessed against it without first paying the tax.

Id. § 13-401. If the Comptroller, upon examining or auditing a tax return, determines that a taxpayer’s “tax due exceeds the amount shown on the return, the tax collector shall assess the deficiency.” Id. § 13-401(a). A taxpayer may contest such a final assessment by filing an appeal with the Tax Court within 30 days after the notice of assessment is mailed. Id. § 13-510(a)(1).

As noted, whether following the post-deprivation remedy path or the pre- deprivation remedy path, a taxpayer’s right of appeal from a final determination or a final assessment of the Comptroller is to the Maryland Tax Court. The Tax Court is not part of the judicial branch but “is an adjudicatory administrative agency in the executive branch of state government.” Comptroller v. FC-GEN Operations Invs. LLC, 482 Md. 343, 358 (2022) (quoting Comptroller v. Wynne, 431 Md. 147, 160 (2013), aff’d, 575 U.S. 542 (2015)). Proceedings on appeal to the Tax Court are thus a continuation of a taxpayer’s 10 administrative remedies, not judicial review, and are governed by Part IV of Subtitle 5 of Title 13 of the Tax-General Article.

Sections 13-514 through 13-527 provide rules governing proceedings in the Tax Court, including: (1) prohibiting taking an appeal to the Tax Court “[u]nless a person has exhausted all available administrative remedies before the appropriate tax determining agency,” Tax-Gen. § 13-514; (2) requiring the appealing party to file a petition with certain elements and the opposing party to file a response, Id. § 13-516; (3) permitting the Tax Court to allow or require the filing of briefs, memoranda, and amendments to pleadings, id. §§ 13-517, 13-518; (4) requiring the Tax Court to “hear and determine appeals promptly,” id. § 13-519; (5) authorizing the Tax Court to issue subpoenas for witnesses and documents and providing a mechanism for enforcement through a circuit court, id. §§ 13-520, 13-522; (6) authorizing depositions, id. § 13-521; (7) providing that appeals are to be considered without deference and in the manner of a bench trial, although not bound by “the technical rules of evidence,” id. §§ 13-523, 13-524; (8) permitting the Tax Court to address questions of law submitted to it and to submit “an issue of fact to a circuit court for a jury trial,” id. §§ 13-525, 13-526; and (9) providing for the recording of proceedings, id. § 13-527. The Tax Court has “full power to hear, try, determine, or remand any matter before it,” including the ability to “reassess or reclassify, abate, modify, change or alter any valuation, assessment, classification, tax or final order appealed to” it. Id. § 13-528(a). In every case it hears, the Tax Court is required to “issue a written order that sets forth its decision.” Id. § 13-529(a).

A final order of the Tax Court, which constitutes the final 11 administrative decision in a case, is then “subject to judicial review as provided for contested cases in” the State Administrative Procedure Act. Id. § 13-532(a). We and the Appellate Court of Maryland have both described the special statutory administrative remedies for resolving tax disputes as “comprehensive.” See Furnitureland S., Inc., 364 Md. at 135 ; Holzheid v. Comptroller, 240 Md. App. 371, 391 (2019) (“The Tax-General Article is . . . comprehensive in nature in that it details specific procedures an aggrieved party must take when seeking relief from an adverse decision of a tax collector[.]”). We agree with the Appellate Court that “the extensive and comprehensive administrative remedies available to taxpayers under the Tax-General Article” constitute persuasive evidence of “the necessity of exhausting those remedies before seeking relief in the circuit court[.]” Comptroller v. Zorzit, 221 Md. App. 274, 293-94 (2015); see also United Ins.

Co., 450 Md. at 17 (in the context of determining whether the special statutory administrative remedy at issue was primary or concurrent, identifying “the comprehensiveness of the administrative remedy in addressing an aggrieved party’s claim” as a relevant factor). C. Other Manifestations of Legislative Intent The comprehensive nature of the special statutory administrative remedies available for resolving tax disputes suggests that the General Assembly intended them to be either exclusive or primary rather than concurrent, as we have consistently held. See Furnitureland S., Inc., 364 Md. at 134 . As the Companies point out, however, the statutory scheme does not expressly state that the remedies provided are either exclusive or primary. 12 Nonetheless, two statutory provisions leave us with no doubt as to the legislative intent.

See Monarch Acad., 457 Md. at 60 (“Unless the legislature expressly states that the remedy before the agency is exclusive, courts must make this determination.”). The first, § 13-505 of the Tax-General Article, broadly prohibits judicial action that would interfere with the assessment or collection of taxes. The second, § 3-409 of the Courts and Judicial Proceedings Article (2020 Repl.), prohibits the use of declaratory judgment actions as an end-run around special statutory administrative remedies. Together, they establish a legislative intent that the special statutory administrative remedies provided for the resolution of tax disputes are exclusive.

Section 13-505 of the Tax-General Article provides: “A court may not issue an injunction, writ of mandamus, or other process against the State or any officer or employee of the State to enjoin or prevent the assessment or collection of a tax under this article.” The Comptroller interprets the language of § 13-505 broadly, as an unambiguous expression of legislative intent to preclude judicial intervention in tax cases until a final administrative determination is issued. The Companies interpret that provision more narrowly, precluding only the use of certain remedies, specifically coercive ones, in tax matters. Because a declaratory judgment is not referenced in § 13-505 and is not coercive, the Companies contend that the circuit court had jurisdiction over their complaint seeking a declaratory judgment. In determining whose interpretation of § 13-505 is correct, we resort to our familiar canons of statutory interpretation.

As we set forth earlier this term: 13 “Our goal is to ascertain and effectuate the intention of the legislature and we begin that exercise by reviewing the statutory language itself.” [Comptroller v.] Citicorp[ Int’l Commc’ns, Inc.], 389 Md. 156, 165 [2005] (quotations omitted). We read the plain meaning of the language of the statute “as a whole, so that no word, clause, sentence or phrase is rendered surplusage, superfluous, meaningless or nugatory.” Wheeling v. Selene Fin. LP, 473 Md. 356, 376 (2021) (quoting Koste v. Town of Oxford, 431 Md. 14, 25-26 (2013) (internal quotations omitted)). “Additionally, we neither add nor delete language so as to reflect an intent not evidenced in the plain and unambiguous language of the statute, and we do not construe a statute with forced or subtle interpretations that limit or extend its application.” Wheeling, 473 Md. at 376 -77 (quoting Lockshin v. Semsker, 412 Md. 257, 274 (2010)) (cleaned up). “If the language of the statute is unambiguous and clearly consistent with the statute’s apparent purpose, our inquiry as to legislative intent ends ordinarily and we apply the statute as written, without resorting to other rules of construction.” Id. at 377 (quoting Lockshin, 412 Md. at 275 ). That said, as the Court recently reiterated in Wheeling, [w]e, however, do not read statutory language in a vacuum, nor do we confine strictly our interpretation of a statute’s plain language to the isolated section alone.

Rather, the plain language must be viewed within the context of the statutory scheme to which it belongs, considering the purpose, aim, or policy of the Legislature in enacting the statute. We presume that the Legislature intends its enactments to operate together as a consistent and harmonious