Comptroller v. FC-GEN Operations Inv.

Comptroller of Maryland v. FC-GEN Operations Investments LLC, No. 7, September Term, 2022, Opinion by Booth, J. ADMINISTRATIVE LAW & PROCEDURE — JUDICIAL REVIEW — AGENCY DEFERENCE ON MATTERS RELATED TO INTERPRETATION OF TAX LAWS. In connection with judicial review of a Tax Court decision in which a party alleges an error of law, where the reviewing court determines that it is appropriate to give a degree of deference to an agency’s interpretation of tax laws, the agency to whom deference is owed is the Comptroller, as the agency responsible for administering the tax laws and promulgating regulations for that purpose, not the Tax Court. To the extent that our prior cases have stated or suggested that the reviewing court owes deference to the Tax Court in the interpretation of tax laws that it “administers,” and regulations promulgated in connection with its administration of the tax laws, we overrule this language. TAX STATUTE — REFUND OF ESTIMATED INCOME TAX PAYMENTS WHERE PASS-THROUGH ENTITY HAS NO TAX LIABILITY.

Under the plain language of § 13-901(a)(1) of the Tax-General Article of the Maryland Code, where a pass- through entity made estimated tax payments on behalf of its members, and it was later determined that there was a taxable loss for the year and, therefore, no tax liability, the pass-through entity was entitled to a refund of the estimated tax payments. Circuit Court for Anne Arundel County Case No.: C-02-CV-20-001089 Argued: September 9, 2022 IN THE SUPREME COURT OF MARYLAND* No. 7 September Term, 2022 COMPTROLLER OF MARYLAND v. FC-GEN OPERATIONS INVESTMENTS LLC Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves, JJ. Opinion by Booth, J. Filed: December 19, 2022 * At the November 8, 2022 general election, the voters of Maryland ratified a constitutional Pursuant to the Maryland Uniform Electronic Legal Materials amendment changing the name of the Court of Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Appeals of Maryland to the Supreme Court of 2022-12-19 Maryland.

The name change took effect on 15:42-05:00 December 14, 2022. Gregory Hilton, Clerk In this case, we are asked to determine whether the Tax Court erred in reversing the Comptroller’s denial of a pass-through entity’s claim for a refund of estimated tax payments that it made during the 2012 tax year after the pass-through entity determined that it had no tax liability. We are also asked to determine whether, when undertaking judicial review of errors of law associated with a Tax Court’s decision, our modern cases correctly state that agency deference principles apply to the Tax Court’s interpretation of tax laws instead of the Comptroller’s interpretation. We consider these questions within the context of the factual background and procedural history discussed below.

I. Factual Background and Procedural History FC-GEN Operations Investments, LLC (“FC-GEN”), is a limited liability company organized and existing under the laws of the State of Delaware. Through its subsidiaries, FC-GEN operates skilled and long-term care medical facilities and provides ancillary healthcare services throughout Maryland. Under Maryland tax laws, FC-GEN falls within the definition of a “pass-through entity.”1 A pass-through entity is any business entity that is not itself a taxable entity, so the income, loss, deductions, and credits of the entity pass through to its stockholders, partners or members who are then 1 Md. Code Ann., Tax-Gen. (“TG”) § 10-102.1(a)(7) (1988, 2010 Repl.

Vol.) defines “Pass-through entity” as: (i) An S corporation; (ii) A partnership; (iii) A limited liability company that is not taxed as a corporation under this title; or (iv) A business trust or statutory trust that is not taxed as a corporation under this title. taxed on that income in the same manner as other income.2 It is treated as a partnership for federal and Maryland income tax purposes with a tax year that is on a calendar year basis. In the 2012 tax year, FC-GEN had 28 members, consisting of four individuals who were not residents of Maryland, 20 nonresident pass-through entities, two resident pass- through entities, one trust, and one not-for-profit foundation. Under Maryland law, a pass-through entity with a Maryland nexus is responsible for the payment of Maryland income tax if it has any nonresident individual or entity members that have any taxable income attributable to the entity’s Maryland operations that passes through to the nonresident members for the taxable year. See Md. Code Ann., Tax- Gen.

(“TG”) § 10-102.1(b) (1988, 2010 Repl. Vol.).3 The tax imposed on the pass-through entity is treated as a tax imposed on the nonresident individuals or entities, which the pass- through entity pays on their behalf.4 In connection with the administration and collection of the taxes paid by the pass-through entity, the General Assembly has delegated authority to the Comptroller to “provide by regulation for the treatment of the tax imposed[.]” TG § 10-102.1(c)(2). 2 See State Ctr., LLC v. Lexington Charles Ltd. P’ship, 438 Md. 451 , 550 n.58 (2014). 3 The issue in this case is whether FC-GEN was entitled to a refund of its estimated tax payments that were paid during the 2012 calendar year. For this reason, we shall refer to the provisions of the Tax-General Article that were in effect in 2012, as well as the regulations in effect for that time-period. The Code and regulations have been revised since that time. 4 TG § 10-102.1(c)(1). 2 A pass-through entity is also subject to the provisions of Maryland tax law that require a corporation or partnership to file a declaration of estimated income tax if the entity reasonably expects estimated income tax for a taxable year to exceed $1,0005 and to make quarterly estimated income tax payments in an amount of at least 25% of the estimated income tax shown on the declaration or amended declaration for the taxable year.6 In this case, FC-GEN complied with these requirements.

Based upon projected 2012 income, FC-GEN made quarterly estimated tax payments that totaled $601,467. However, when FC-GEN prepared its 2012 federal income tax return, it determined that it had a taxable loss in the amount of $729,863 attributable to Maryland for the 2012 tax year. As a result of this loss, FC-GEN sought a refund of its estimated payments in the amount of $598,131.7 After obtaining an extension to file its tax return for the 2012 tax year, FC- GEN timely filed a Maryland Pass-Through Entity Income Tax Return Form (Form 510) (“Income Tax Return”), associated Schedules K-1, and a Maryland Composite Pass- Through Entity Income Tax Return (Form 510C) (“Composite Return”). In completing these tax forms and associated schedules, FC-GEN’s tax department reviewed the Comptroller’s applicable Maryland rules, instructions, and regulations to determine how 5 See TG § 10-816. 6 See TG § 10-902(a)(1). 7 The amount sought by FC-GEN represented the total estimated tax payment of $601,467, less a guaranteed payment of $3,336 that was made on behalf of one of its nonresident members.

It is undisputed that no refund was due for the income tax associated with that payment, and it is, therefore, not part of our analysis. 3 to properly request a refund of its estimated tax payments. FC-GEN ultimately claimed its refund in the amount of $598,131 on the Composite Return.8 A pass-through entity may file a composite return on behalf of all or some of its nonresident members who are qualified to be included on the return. COMAR 03.04.02.04A(1). To qualify, the member must be a nonresident individual whose only Maryland income derives from the pass-through entity filing the composite return.

COMAR 03.04.02.04B. The requirements for filing a composite return include a statement of verification that the nonresident individuals included in the composite return are qualified to be included. COMAR 03.04.02.04C(1). To determine who was eligible to participate in the Composite Return, FC-GEN sent its individual nonresident members a 2012 Composite Election Form (“Election Form”).

Among other things, the Election Form listed eligibility criteria for inclusion in the Composite Return and advised its members to consult with their tax advisors in completing the Election Form.9 Only two nonresident individuals, Christopher Sertich 8 FC-GEN did not seek a return of the $598,131 on its Income Tax Return because line 20—the line where a pass-through entity must enter the “Amount TO BE REFUNDED”—has a qualifier stating that line 20 is to be completed “only if there are no nonresident members.” Because it had nonresident members, FC-GEN sought a refund on its Composite Return on line 17 entitled “Overpayment TO BE REFUNDED.” 9 The Election Form contained the following instructions: For your convenience, we describe below general information regarding the criteria for eligibility to be included in a composite return for a specific partner entity type. The specific criteria vary from state to state. Please 4 and Michael Jones, indicated that they were eligible to be included in the Composite Return. Based upon the completed Election Forms, FC-GEN included Mr. Sertich and Mr. Jones on the Composite Return.

In connection with the preparation of its income tax filings, FC-GEN also issued Schedules K-1 to its members. None of the members’ Schedules K-1—except for one nonresident individual who had received a guaranteed payment—showed a value for the member’s distributive pro rata share of the estimated nonresident tax paid by FC-GEN. Additionally, Section D on each member’s Schedules K-1 entitled “Nonresident Tax” was left blank, except for the individual who received the guaranteed payment. FC-GEN timely submitted its Income Tax Return, Schedules K-1, and Composite Return for the 2012 tax year to the Comptroller.

In 2015, FC-GEN began contacting the Comptroller to request information regarding the status of its refund request. During one telephone inquiry in November 2016, FC-GEN was told that a refund in the amount of $598,131 had been scheduled, but that additional time was needed to process it. During another inquiry in December 2016, FC-GEN was told by a representative in the Comptroller’s office that the refund was scheduled to be made. After years of email, telephone, and fax communications between FC-GEN and the Comptroller regarding consult with your tax advisor to determine for each state whether you are eligible to be included in the composite return. * * * B) You (and/or your spouse) did not have any income that was sourced to the state which the partnership’s income was sourced, other than the income from the partnership. . . . 5 the status of FC-GEN’s refund request, the Comptroller ultimately denied FC-GEN’s refund request on March 17, 2017, on the ground that the statute of limitations had expired.

FC-GEN timely appealed to the Comptroller’s Office of Hearings and Appeals. During the hearing before the Comptroller’s Office of Hearings and Appeals, the Comptroller’s representative acknowledged that the refund request was indeed timely. However, the Comptroller’s representative asserted that the refund should still be denied on the ground that the two nonresident members identified on the Composite Return, Mr. Sertich and Mr. Jones, were ineligible to be included in the Composite Return. Later, on July 26, 2018, the Comptroller issued a Notice of Final Determination denying FC-GEN’s refund on the basis argued by the Comptroller’s representative.

A. Tax Court Proceedings On August 23, 2018, FC-GEN appealed to the Tax Court to request an order that the Comptroller issue its requested refund and order interest to be paid. The Tax Court ordered the Comptroller to issue a refund to FC-GEN in the amount of $598,131, finding that FC-GEN “properly followed the Maryland Tax Form instructions” and “complied with the applicable tax laws” in requesting its refund. The Tax Court denied the request for interest, and FC-GEN did not file a petition for judicial review of the denial. The Comptroller filed a petition for judicial review to the circuit court, which affirmed the Tax 6 Court’s order.

The Comptroller then appealed to the Appellate Court of Maryland (at the time named the Court of Special Appeals of Maryland).10 B. The Appellate Court of Maryland In an unreported opinion, the Appellate Court of Maryland affirmed the judgment of the Tax Court. Comptroller of Maryland v. FC-GEN Operations Investments, LLC, 2022 WL 325940 . In upholding the decision of the Tax Court, the intermediate appellate court pointed out that judicial review of the Tax Court’s factual findings, inferences therefrom, and findings of mixed fact and law is pursuant to a substantial evidence standard. Id. at ³ (quoting Frey v. Comptroller, 422 Md. 111, 136 (2011) (additional citations omitted)).

The court noted that in Frey, this Court elaborated on how courts should review an agency’s legal conclusions when interpreting statutes or regulations, stating that a reviewing court “afford[s] great weight to the agency’s legal conclusions when they are premised upon an interpretation of the statutes that the agency administers and the regulations promulgated for that purpose.” Id. at ⁵ (quoting Frey, 422 Md. at 138 ). Applying the deferential standard as articulated in Frey, the intermediate appellate court determined that it must “defer to the Tax Court’s interpretation of the legal regulations as well as its factual findings.” Id. Based upon its review of the record, the Appellate Court of Maryland determined that there was substantial evidence in the record to support the Tax Court’s determination that FC-GEN 10 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. 7 met the filing requirements for the Composite Return under the applicable regulations under the Tax Court’s interpretation of the same.

Id. The Appellate Court of Maryland also rejected the Comptroller’s argument that FC- GEN was not the proper claimant of the tax refund under the circumstances. Id. at ⁷. The intermediate appellate court characterized the statutorily required estimated tax remittances as “deposits” instead of “payments.” Id.

Based upon this characterization, the intermediate appellate court determined that the statutory and regulatory requirements pertaining to claims for refunds did not apply. Id. The court also determined that the voluntary payment rule, which prohibits recovery of a payment made to the State unless a common law exception or statutory provision applies allowing for a refund, was inapplicable. Id.

In his concurring opinion, Judge Friedman pointed out that courts generally defer to an agency’s interpretation of statutes it administers, regulations it has promulgated, and other legal interpretations within the agency’s subject matter expertise. Id. at ⁷ (Friedman, J., concurring). He observed that, in the context of tax laws, the General Assembly has delegated tax authority to the Comptroller, who promulgates the tax regulations, designs the tax forms, and employs the State’s tax experts. Id. at ⁸ (Friedman, J., concurring).

Judge Friedman noted that, historically, Maryland courts gave deference to the Comptroller on such matters, but that, at some point, courts “stopped deferring to the Comptroller and began deferring, instead, to the legal determinations of the Maryland Tax Court.” Id. (Friedman, J., concurring) (citing Frey, 422 Md. at 138 ; Comptroller v. Blanton, 390 Md. 528 , 533–35 (2006); Comptroller v. Johns Hopkins Univ., 186 Md. App. 169 , 188–89 (2009)). In his view, Maryland courts should be giving deference to the Comptroller, not the Maryland Tax 8 Court. That said, Judge Friedman concurred with the majority’s opinion because it applied the deferential standard required by precedent.

Id. at ⁹ (Friedman, J. concurring). The Comptroller filed a petition for writ of certiorari to this Court, which we granted to consider the following questions, which we have reordered and rephrased as follows:11 1. In connection with judicial review of a Tax Court’s decision asserting an error of law, where the reviewing court determines that it is appropriate to give a degree of deference to the agency’s interpretation of the law, does the reviewing court defer to the Comptroller’s interpretation or the Tax Court’s interpretation? 2. Is FC-GEN a “claimant who erroneously pa[id]” a tax and is therefore entitled to a refund under the plain language of TG § 13-901(a)(1)? 3.

Did the Tax Court and intermediate appellate court err in finding that estimated tax remittances are “deposits,” and not statutorily required “payments,” when Maryland’s doctrine of conformity requires the 11 In the petition for writ of certiorari, the Comptroller phrased question 1 as follows: Should this Court overrule recent decisions and hold that on judicial review of a decision in a tax case, the agency owed deference in the interpretation and application of tax law is the Comptroller, which has the subject matter expertise and to which the General Assembly has delegated authority to adopt legislative regulations, and not the Tax Court, the members of which are not required to have such expertise? Following oral argument, we entered an order inviting the parties to submit supplemental briefing on the following question, which we have rephrased and reordered as question 2: Whether a pass-through entity such as FC-GEN is a “claimant who erroneously pa[id]” a tax and so is entitled to file a refund claim under the plain language of TG § 13-901(a)(1); and if so, whether COMAR 03.04.07.03.D(4)(a), which prohibits the payment of a refund to a pass- through entity, is inconsistent with TG § 13-901(a)(1). In response to our invitation, FC-GEN and the Comptroller each submitted supplemental briefing on this issue. 9 application of federal law to TG § 13-1104(c), and federal law considers them payments? 4. When properly applied, do Maryland’s voluntary payment rule and the statutory framework for refunds of estimated taxes found in Title 13 of the Tax-General Article require denying FC-GEN’s claim, which it improperly submitted for itself, under the law?

For the reasons set forth below, in response to question 1, we hold that, in connection with judicial review of a Tax Court decision in which a party alleges an error of law, where the reviewing court determines that it is appropriate to give a degree of deference to an agency’s interpretation of tax laws, the agency to whom deference is owed is the Comptroller, as the agency responsible for administering the tax laws and promulgating regulations for that purpose, not the Tax Court. To the extent that our prior cases have stated or suggested that we owe deference to the Tax Court in the interpretation of tax laws that it “administers,” and regulations promulgated in connection with its administration of the tax laws, we overrule this language. With respect to question 2, we hold that, under the plain language of TG § 13- 901(a)(1), FC-GEN is a claimant that is entitled to a refund. We affirm the judgment of the Tax Court on that basis.

In light of our holding that FC-GEN was entitled to a refund of the estimated tax payments under the plain language of TG § 13-901(a)(1) because it had no tax liability for the 2012 tax year, we determine that there is no reason to answer questions 3 and 4. 10 II. Discussion A. Standard of Review “The Tax Court is an adjudicatory administrative agency in the executive branch of state government.” Comptroller v. Wynne, 431 Md. 147, 160 (2013), aff’d, 575 U.S. 542 (2015) (internal quotations omitted); see also TG § 3-102. A decision of the Tax Court is subject to the same standards of judicial review as contested cases of other administrative agencies under the State Administrative Procedures Act (“APA”). TG § 13-532(a)(1) (“A final order of the Tax Court is subject to judicial review as provided for contested cases in §§ 10-222 and 10-223 of the State Government Article.”).12 When reviewing a decision of an 12 Section 10-222(h) of the State Government Article provides as follows: (h) In a proceeding under this section, the court may: (1) remand the case for further proceedings; (2) affirm the final decision; or (3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because of a finding, conclusion, or decision: (i) is unconstitutional; (ii) exceeds the statutory authority or jurisdiction of the final decision maker; (iii) results from an unlawful procedure; (iv) is affected by any other error of law; 11 administrative agency, this Court looks through the decisions of the circuit court and intermediate appellate court and evaluates the decision of the agency.

Gore Enter. Holdings, Inc. v. Comptroller, 437 Md. 492, 503 (2014) (quoting Frey, 422 Md. at 136–37) (cleaned up). 1. Review of Factual Findings We review the Tax Court’s factual findings and the inferences drawn therefrom under the substantial evidence standard, by which the court defers to the facts found and the inferences drawn by the agency when the record supports those findings and inferences. Frey, 422 Md. at 137 .

Under this standard, reviewing courts “consider whether a reasoning mind reasonably could have reached the factual conclusion” reached by the agency. Id. (internal quotations omitted). We view “the agency’s decision in the light most favorable to the agency and trust[] the agency’s resolution of ‘conflicting evidence’ and inferences drawn therefrom.” Broadway Servs., Inc. v. Comptroller, 478 Md. 200 , 214–15 (2022) (citing Ramsay, Scarlett & Co., Inc. v. Comptroller, 302 Md. 825, 835 (1985)). 2.

Review of Legal Conclusions We also review the agency’s decision for errors of law. In contrast to the administrative agency’s findings of fact, “[w]ith respect to an agency’s conclusions of law, we have often stated that a court reviews de novo for correctness.” Schwartz v. Md. Dep’t of Natural Res., 385 Md. 534, 554 (2005) (citing Spencer v. State Bd. of Pharmacy, 380 Md. (v) is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or * * * (vii) is arbitrary and capricious. 12 515, 528 (2004)); see also Maryland Dep’t of the Env’t v. County Comm’rs of Carroll County, 465 Md. 169, 203 (2019) (noting that “a court will not uphold an agency action that is based on an erroneous legal conclusion”). The phrase “errors of law” encompasses a variety of legal challenges, including: (1) the constitutionality of an agency’s decision; (2) whether the agency had jurisdiction to consider the matter; (3) whether the agency correctly interpreted and applied applicable case law; (4) and whether the agency correctly interpreted an applicable statute or regulation. Although we do not apply any agency deference when undertaking a review of the first three types of legal challenges, we occasionally apply agency deference when reviewing errors of law related to the fourth category.

With respect to deference given to a state agency’s interpretation of a statute that it administers, we have applied either a “no deference” approach, or “some deference.” See Arnold Rochvarg, Principles and Practice of Maryland Administrative Law, §§ 19.1–19.3, 243–49 (2011). When discussing Maryland agency deference, treatises and law review articles frequently compare our application of agency deference principles to three federal deference doctrines: Chevron deference; Skidmore deference and Auer deference. See Chevron, U.S.A., Inc. v. Nat. Res.

Def. Council, Inc., 467 US. 837, 842–43 (1984); Auer v. Robbins, 519 U.S. 452, 461 (1997); Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). We need not discuss in detail here the contours of these federal deference standards.13 For our purposes, it is sufficient to simply note that Chevron deference is a highly deferential standard that applies when an 13 For a more thorough discussion of the contours of these federal deference standards, see Carly L. Hviding, Note, What Deference Does It Make? Reviewing Agency Statutory Interpretation in Maryland, 81 Md. L. Rev. Online 12 (2021). 13 agency is charged with interpreting a statute the agency is administering.

Carly L. Hviding, Note, What Deference Does It Make? Reviewing Agency Statutory Interpretation in Maryland, 81 Md. L. Rev. Online 12, 15 (2021). This Court has never applied Chevron deference to state agency decisions. See Rochvarg, Maryland Administrative Law, supra, §19.4 at 249 (observing that “Chevron deference goes well beyond the deference Maryland courts have given to agency interpretations of law[]”).

Auer deference applies when an administrative agency interprets its own regulations. Hviding, What Deference Does It Make?, supra, at 17. “Under Auer deference, a federal court must defer to an agency’s interpretation of an ambiguous regulation that the agency has promulgated unless the court finds that the interpretation is ‘plainly erroneous or inconsistent with the regulation.’” Id. (quoting Auer, 519 U.S. at 461 ). No Maryland court has explicitly adopted the Auer doctrine to its review of a state agency’s interpretation of its own regulations, but Maryland courts do give weight to agency interpretations of their own regulations unless the interpretation is plainly erroneous.

See Board of Liquor License Comm’rs v. Kougl, 451 Md. 507, 514 (2017). Skidmore deference was the primary deference doctrine used by the federal courts from 1944 until it was displaced by Chevron deference in 1984. Hviding, What Deference Does It Make?, supra, at 15. In Skidmore, Justice Jackson, writing for the Supreme Court, stated that the weight a court will give an agency interpretation “will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it the power to persuade, if lacking power to control.” Skidmore., 323 U.S. at 140 . 14 Turning to our agency deference jurisprudence, as we have repeatedly stated, we may apply a degree of deference to an administrative agency’s legal conclusion to the extent it is “premised upon an interpretation of the statutes that the agency administers and the regulations promulgated for that purpose.” Broadway, 478 Md. at 214–15 (citing Frey, 422 Md. at 138 ); see also Maryland Dep’t of the Env’t, 465 Md. at 203 (noting that, “in construing a law that the agency has been charged to administer, the reviewing court is to give careful consideration to the agency’s interpretation[]”). “When a party challenges the agency’s interpretation of the statute the agency administers, the court must assess how much weight to accord that interpretation, keeping in mind that it is ‘always within [the court’s] prerogative to determine whether an agency’s conclusions of law are correct.’” Maryland Dep’t of the Env’t, 465 Md. at 203 (quoting Schwartz, 385 Md. at 554 ) (brackets in original).

In Baltimore Gas & Electric Co., we considered the meaning of a statutory term and the degree of deference that we would give the Public Service Commission’s interpretation of the statute. 305 Md. at 161. We stated: The weight to be accorded an agency’s interpretation of a statute depends on a number of considerations. Although never binding upon the courts, the contemporaneous interpretation of a statute by the agency charged with its administration is entitled to great deference, especially when the interpretation has been applied consistently and for a long period of time . . . . Another important consideration is the extent to which the agency engaged in a process of reasoned elaboration in formulating its interpretation of the statute.

When an agency clearly demonstrates that it has focused its attention on the statutory provisions in question, thoroughly addressed the relevant issues, and reached its interpretation through a sound reasoning process, the agency’s interpretation will be accorded the persuasiveness due a well-considered opinion of an expert body . . . . In addition, the nature of the process through which the agency arrived at its interpretation is a relevant consideration in assessing the weight to be accorded the agency’s interpretation. If the 15 interpretation is the product of neither contested adversarial proceedings nor formal rule promulgation, it is entitled to little weight. Id. at 161–62 (internal citations omitted).

In other words, the deference owed to an agency’s interpretation of the law will vary depending on a number of factors. In this regard, our sliding-scale approach to state agency deference is similar to federal Skidmore deference. Rochvarg, Maryland Administrative Law, supra, § 19.1 at 245. We give more weight “when the interpretation resulted from a process of ‘reasoned elaboration’ by the agency, when the agency has applied that interpretation consistently over time, or when the interpretation is the product of contested adversarial proceedings or formal rule making.” Maryland Dep’t of the Env’t, 465 Md. at 203–04 (citing Baltimore Gas & Electric Co., 305 Md. at 161–62). 3.

Review of Mixed Questions of Law and Fact Finally, in considering this Court’s role in reviewing a decision of the Tax Court involving mixed questions of law and fact, we have stated that “the resolution of [such questions] requires agency expertise.” Comptroller v. Science Applications Int’l Corp., 405 Md. 185, 204 (2008). In such cases, “we apply the deferential standard of review not only to [the agency’s] fact-finding and its drawing of inferences, but also to its application of the law to the facts.” CBS v. Comptroller, 319 Md. 687, 698 (1990) (quotations omitted); see also Ramsey, Scarlett & Co., 302 Md. at 838 (holding that “whether a business is unitary or separate for tax purposes . . . is not solely a question of law” and, therefore, the Tax Court’s decision on the question deserves deference. Thus, we must ask “whether, in light of the substantial evidence appearing in the record, a reasoning mind could reasonably have reached the conclusion reached by the Tax Court, consistent with a proper application [of 16 the tax statute in question]”). That said, “if the Tax Court’s legal conclusions are wrong, a reviewing court may substitute the correct legal principles.” NCR Corp. v, Comptroller, 313 Md. 118, 134 (1988) (citations and internal quotation marks omitted).

B. Agency Deference on Questions of Law Related to the Interpretation of Tax Statutes Before we reach the substantive issue in this case—whether FC-GEN was entitled to a refund for estimated tax payments paid throughout the 2012 tax year where it later determined that it had no tax liability—we first address the procedural issue arising from Judge Friedman’s concurrence in FC-GEN. That is, to the extent that a reviewing court applies agency deference to an interpretation of a tax statute that the agency administers or regulations promulgated by the agency for that purpose, to whom is agency deference owed—the Tax Court or the Comptroller? As we discuss in more detail below, our modern case law describes these deference principles in the context of the Tax Court’s interpretation as opposed to the Comptroller’s interpretation. That said, historically, in circumstances where agency deference was warranted, we deferred to the Comptroller’s interpretation.

Moreover, a survey of our cases reflects that, even in instances where we reference agency deference to the Tax Court’s legal interpretation, we have rarely, if ever, applied such deference. For the reasons more fully explained herein, we hold that, where deference is owed to an agency in the context of the interpretation and application of tax laws, the governmental agency to which deference is owed is the Comptroller, not the Tax Court. To explain our holding, it is instructive to summarize the authority granted by the Legislature to 17 the Comptroller and the Tax Court, the nature of the functions performed by each separate and distinct entity, and our case law discussing agency deference in the context of tax laws. 1. Comptroller’s Authority Under Article VI, § 2 of the Maryland Constitution, the Comptroller is charged with the duty to “superintend and enforce the prompt collection of all taxes and revenue; adjust and settle, on terms prescribed by law, with delinquent collectors and receivers of taxes and State revenue . . . .” The Comptroller is responsible for administering the laws that relate to income tax.

See TG § 2-102 (“[T]he Comptroller shall administer the laws that relate to: . . . (4) the income tax[.]”). The General Assembly has also given the Comptroller the authority to adopt reasonable regulations to administer the provisions of the tax laws, see TG § 2-103, and to “design the returns and other forms that, on completion, provide the information required for the administration of tax laws[,]” see TG § 2-104. 2. The Tax Court “Despite its name, the Tax Court is not a court; instead, it is an adjudicatory administrative agency in the executive branch of state government.” Furnitureland S., Inc. v. Comptroller, 364 Md. 126 , 137 n.8 (2001); see also TG § 3-102.

The Tax Court is created by statute. It consists of five judges who have jurisdiction to hear appeals of the final decisions relating to tax issues. TG § 3-103(a).14 Matters within the Tax Court’s 14 The Tax Court consists of five judges appointed by the Governor, from which “the Chief Judge and at least 1 other judge shall be members of the Bar of the State.” TG § 3-106(a). The Legislature requires geographic and political party diversity, requiring that: at least one judge shall be a resident of Baltimore City, 1 resident shall be a resident of the Eastern Shore, and 1 resident shall be from the Western Shore, TG § 3-106(a)(3), and no more than 3 judges may be from the same political party.

TG § 3-106(b). 18 jurisdiction include: “(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.” TG § 3-103. The Maryland Tax Court hears appeals from the final decisions of the State or local taxing authorities, including decisions of the Comptroller, property-tax assessment appeals boards, and local tax collectors. TG §§ 3-103, 13-510, Md. Code Ann., Tax Prop. § 14-512 (2019 Repl. Vol., 2022 Supp.).

Although a decision of the Tax Court is subject to the same standards of judicial review as contested cases of other administrative agencies under the APA, that has not always been the case. a. Early History The origins of the Maryland Tax Court can be traced to the Legislature’s establishment of a State Tax Commission in 1914. 1914 Md. Laws ch. 841. The powers and duties of the Tax Commission included both administrative and quasi-judicial functions. With respect to its administrative duties, the Tax Commission was given “general supervision over the administration of the assessment and tax laws of the State.” Id. at § 234.

The Tax Commission had supervisory authority over all local property assessors and collectors, including the right to provide for a uniform system of accounts to be used by the tax collectors in the local jurisdictions across the State. Id. at § 234 (2)–(4). In connection with its administrative authority, the Tax Commission was required “[t]o confer with the Governor, Comptroller and Treasurer of the State as to the administration 19 of the tax laws, and to report biennially to the General Assembly its proceedings and recommendations.” Id. at § 234(11). The Tax Commission was also given quasi-judicial functions in connection with property tax assessments appeals.

Any taxpayer who was aggrieved by an assessment order issued by the County Commissioners of any county or the Appeal Tax Court of Baltimore City (or the assessment supervisor of the local body in the event of an adverse determination) had a right to appeal to the State Tax Commission. Id. at § 238. A person aggrieved by the final decision of the Tax Commission had a right to appeal the decision to the circuit court of the jurisdiction in which the property to be assessed was located, with a further right to appeal to this Court. Id. at § 244. b.

Establishment of Tax Court by Legislature In 1959, the Maryland General Assembly enacted legislation to separate the quasi- judicial functions of the Tax Commission from its administrative functions. 1959 Md. Laws ch. 757. We discussed this legislation, which is the genesis of the Maryland Tax Court, in Shell Oil Co. v. Supervisor of Assessments of Prince George’s County, 276 Md. 36, 39 (1975), and Montgomery County Council v. Supervisor of Assessments of Montgomery County, 275 Md. 339, 347 (1975). With the enactment of Chapter 757 of the Laws of 1959, the Legislature abolished the Tax Commission and created two separate agencies in its place: the Tax Court and the Department of Assessments and Taxation. Montgomery County Council, 275 Md. at 347 .

The “Tax Commission’s ‘quasi-judicial’ functions were vested in the new Tax Court; and the Commission’s ‘administrative’ 20 functions were vested in the Department of Assessments and Taxation.” Id. The Tax Court’s jurisdictional authority was established as follows: On and after July 1, 1959, the Maryland Tax Court shall have jurisdiction to hear appeals from the decision, determination, or order of any final assessing or taxing authority of the State, or of any agency, department, or political sub-division thereof, with respect to the valuation, assessment, or classification of property, or the levy of a tax, or with respect to the application for an abatement or reduction of any assessment, or tax, or exemption therefrom. 1959 Md. Laws ch. 757. The provisions pertaining to the newly established Tax Court were set forth in amendments to Article 81 of the Maryland Code (1957). The Tax Court had the authority to adopt rules and regulations concerning its proceedings, and was empowered to “assess anew, classify anew, abate, modify, change or alter any valuation, assessment, classification, tax or final order appealed from, provided that in the absence of any affirmative evidence to the contrary or of any error apparent in the face of the proceedings, the assessment, classification, or order appealed from shall be affirmed.” Article 81, § 229(h).

Any party to the proceedings had a right to appeal a final order of the Tax Court to the circuit court “wherein the property or any part of the property” that was the subject of the assessment was located. Article 81, § 229(l). The circuit court appeal was “de novo without a jury.” Article 81, § 229(l). The legislation provided for a right of appeal to this Court.

Article 81, § 229(m). In 1966, the Legislature amended Article 81, § 229(l) by deleting the provision that provided for de novo review of the Tax Court’s decision by the circuit court, and instead “requiring that the case be determined on the record of the Maryland Tax Court and 21 requiring that the Tax Court determination be affirmed unless erroneous as a matter of law or unsupported by substantial evidence appearing in the record.” Shell Oil, 276 Md. at 39 (cleaned up). In 1971, the Legislature once again amended the appeal provisions pertaining to judicial review of final orders of the Tax Court. Specifically, Article 81 was amended to provide a direct right of appeal to this Court instead of the circuit courts.

Id. Although the amendments provided a direct right of appeal to this Court, the Legislature left intact the provisions providing for judicial review of the Tax Court’s decision under the substantial evidence test. Id. In 1975, during the pendency of the Shell Oil case, the Legislature further amended the appeal provisions set forth in Article 81 to provide a right of appeal from the Tax Court to the Appellate Court of Maryland rather than this Court.

Id. (citing 1975 Md. Laws ch. 448). c. The Shell Oil Case Holding that the Tax Court is a Quasi-Judicial Agency In Shell Oil, this Court held that the statutory amendments providing for a direct right of appeal to either this Court or the Appellate Court of Maryland were unconstitutional. Id. at 40 .

This Court explained that, under Article IV, § 14 of the Maryland Constitution, the Supreme Court of Maryland may only exercise appellate jurisdiction, and the Legislature did not have the authority to confer original jurisdiction on the Court by statute. Id. We also held that the Maryland Constitution similarly limits the Appellate Court of Maryland’s jurisdiction to appellate jurisdiction. Id. at 40–41.

We pointed out that appellate jurisdiction does not arise until there is an initial exercise of judicial power or authority by a court. Id. at 42. We also noted that “review of the decision 22 of an administrative agency is an exercise of original jurisdiction and not of appellate jurisdiction.” Id. at 43. We rejected the notion that the Tax Court, although not a court, was performing judicial functions and, therefore, review in an appellate court was appropriate.

Id. We explained that under the Maryland Constitution—unlike the Federal Constitution—the judicial function may be exercised only by those courts enumerated in the Constitution. Id. at 44. We noted that, “[w]ith the exception of the express authorization to create intermediate appellate courts of appeal, the General Assembly of Maryland, unlike Congress, is not empowered to create additional ‘courts’ to exercise judicial power.” Id.

We determined that any attempt by an agency to perform judicial functions would be a violation of separation of powers under Article 8 of the Maryland Declaration of Rights. Id. at 47 (citations omitted). That said, we observed that “[w]e have upheld the delegation to administrative agencies of some types of adjudications historically performed by courts, the delegation of so-called ‘quasi[-]judicial’ functions.” Id. at 46. We determined that “[t]he Legislature has delegated certain duties to the Tax Court, the performance of which required it to make factual determinations and adjudicate disputes.

The Tax Court, therefore, can be said to act in a quasi-judicial capacity.” Id. at 47. We concluded that, since the Maryland Tax Court does not exercise a judicial function, review of a Tax Court decision is an exercise of original (as opposed to appellate) jurisdiction. Id. Consequently, we held that the provisions of Article 81 that provided for a direct right of appeal from the Tax Court to this Court or the Appellate Court of Maryland were unconstitutional.

Id. at 47–48. 23 As a result of our decision in Shell Oil, the Legislature amended the statute to provide a right of appeal of a final decision of the Tax Court to the circuit court and that the review is to be undertaken within the judicial review provisions of the APA.15 3. Early Case Law Establishing a Degree of Deference to the Comptroller’s Legal Interpretation of Tax Statutes it Administers In the area of tax law, our jurisprudence dating back to the early 20th century applied the principle of agency deference to the agency administering the applicable statute. In Baltimore v. Machen, 132 Md. 618 , 624 (1918), this Court affirmed the action of the State Tax Commission with respect to its interpretation of a statute imposing a tax upon a bank deposit, stating that “we do not feel warranted or justified in placing upon the statute a construction differing from that placed thereon by the taxing authorities of the [S]tate.” In connection with judicial review of the Comptroller’s decisions, we have given deference to the Comptroller’s interpretation of Maryland tax laws where the taxpayer’s competing interpretation was at odds with the Comptroller’s interpretative regulations promulgated contemporaneously with the tax statute in question. See Palm Oil Recovery, Inc. v. Comptroller, 266 Md. 148, 159 (1972) (affirming the decision of the Tax Court upholding the Comptroller’s determination of a taxpayer’s tax liability under the Maryland Sales Tax Act based, in part, on the Comptroller’s regulations observing that, “[w]e have held on numerous occasions that the interpretation placed by the State Comptroller upon a taxing statute is entitled to great weight as an administrative interpretation acquiesced in 15 See 1976 Md. Laws ch. 388; 1988 Md. Laws ch. 2. 24 by the Legislature”); Frank J. Klein & Sons, Inc. v. Comptroller, 233 Md. 490, 493 (1964) (affirming the Comptroller’s order adverse to the taxpayer where the Comptroller’s interpretation was based upon a rule promulgated when the law was enacted, stating that “we are not prepared to hold that the Comptroller exceeded his interpretive authority[]”).

In other cases, we have declined to defer to the Comptroller’s interpretation of applicable tax statutes and engaged in our own statutory analysis utilizing traditional canons of statutory interpretation. In John McShain v. Comptroller, 202 Md. 68, 73 (1953), we rejected the Comptroller’s statutory interpretation that denied a taxpayer’s tax exemption where the Comptroller’s interpretation was a “strained or unreasonable construction that would defeat the purpose of the legislature.” Similarly, in Comptroller v. M.E. Rockhill, Inc., 205 Md. 226, 236 (1954), we held that the Comptroller’s denial of a taxpayer’s application for an abatement of a Retail Sales Tax Act assessment based upon the Comptroller’s interpretive rules was inconsistent with the Retail Sales Tax Act. Although we recognized the Comptroller’s rulemaking authority under the Act, id. at 232 , we stated that the “rules and regulations adopted by an administrative agency, to be valid, must be reasonable and consistent with the letter and policy under which the agency acts.” Id. at 233 (citations omitted). We summarized the pertinent agency deference principles in the context of the Comptroller’s interpretation of the Retail Sales Tax Act as follows: We have adopted the rule that the construction placed upon a statute by administrative officials soon after its enactment should not be disregarded except for the strongest and most cogent reasons.

We have recognized that the interpretation placed by the State Comptroller on the Retail Sales Tax Act is entitled to great weight as an administrative interpretation acquiesced in 25 by the Legislature. We must emphasize, however, that such an interpretation is not binding upon the courts. . . . . There can be no question that an administrative official charged with the enforcement of a sales tax statute has no authority to promulgate a rule for the computation of a tax so as to impose the tax upon a transaction which is not taxable under the provisions of the statute. No tax can be lawfully imposed except upon express authority vested in the official who seeks to impose it.

In interpreting a tax statute, the court must not extend its provisions by implication beyond the clear import of the language employed. Such a statute, in the case of doubt as to its scope, should be construed most strongly in favor of the citizen and against the State. Id. at 233–34. (Citations omitted).

In Scoville Service, Inc. v. Comptroller, 269 Md. 390 (1973), this Court once again rejected the Comptroller’s interpretation of a tax statute in connection with the denial of a refund. In reaching a contrary interpretation, we rejected the Comptroller’s argument that we should follow the “long uninterrupted and continuous construction of the statute by the Comptroller.” Id. at 396 . We stated that, “[w]hile the