F.D.R. Srour Partnership v. Montgomery County

HOLLANDER, Judge. This appeal involves a challenge to a decision of the Maryland Tax Court, which upheld an assessment of Montgomery ¹¹² County’s Development Impact Tax for Transportation Improvements (“Impact Tax”) in connection with two building permits obtained by F.D.R. Srour Partnership (“Srour”) and Robert Srour (“Mr. Srour”), appellants. The Tax Court agreed with Montgomery County (the “County”), appellee, in rejecting appellants’ claims that they were exempt from the Impact Tax because their project began before the effective date of the amended Impact Tax ordinance, and because they had a vested right in the law as it existed prior to the effective date of July 1, 2002. Unhappy with the Tax Court’s ruling, which required appellants to pay an Impact Tax of approximately $300,000, appellants sought judicial review in the Circuit Court for Montgomery County.

That court affirmed. This appeal followed. Appellants present two issues, which we have reworded slightly: I. Did the circuit court err in sustaining the Maryland Tax Court’s holding that the Development Impact Tax that the department of permitting services sought to collect, pursuant to County Council Bill No. 47-01, is applicable to the issuance of Permit No. 4 and Permit No. 5, when “A” building permit was issued for the subject development prior to the July 1, 2002 prospective effective date of the Development Impact Tax?

II

Did the circuit court err in sustaining the Maryland Tax Court’s holding that the commencement of construction pursuant to Permit No. 1, for which application was made prior to the July 1, 2002 prospective effective date of the Development Impact Tax, did not vest appellants’ right to complete the project without the imposition of the Development Impact Tax? For the reasons that follow, we shall affirm. I. FACTUAL AND PROCEDURAL SUMMARY Effective July 1, 2002, the County enacted Chapter 4 of the Montgomery County Laws of 2002, which amended the County’s “Development Impact Tax for Transportation Improve ¹¹³ ments,” codified at Montgomery County Code (“County Code”), § 52-47 et seq. (2004).

The Impact Tax is a tax on “development,” defined in County Code, § 52-47 as “the carrying out of any building activity or the making of any material change in the use of any structure or land which requires issuance of a building permit and: (1) Increases the number of dwelling units; or (2) Increases the gross floor area of nonresidential development.” The Impact Tax, which is assessed when a developer applies for a building permit, id., § 52-49(a) & (b), § 52-50(b) & (c), is “intended to defray a portion of the costs associated with ... transportation improvements that are necessary to accommodate the traffic generated by ... development.” County Code, § 52-47. 1 Until 2002, the Impact Tax only applied in designated geographical areas within the County. However, the 2002 amendment broadened the Impact Tax to apply County-wide. Moreover, the 2002 amendment stated that it “applies to any development for which an application for a building permit is filed on or after [July 1, 2002].” 2002 Laws of Montg. Co., ch. 4, § 2(a).

In 1988, Mr. Srour, a licensed Professional Engineer, and his company, F.D.R. Srour Partnership, acquired an undeveloped parcel of real property in the County that sits immediately outside the city limits of Rockville, in a subdivision called Burgundy Park (the “Property”). As a result of the 2002 amendment, the Property is now located within a geographical area that is subject to the Impact Tax. 2 Appellants planned to build two warehouses on the Property. However, the topography of the Property presented significant challenges for construction. The Property rose sharply from an elevation of 372 feet at its street-level access ¹¹⁴ to Southlawn Lane up to a height of 444 feet along its southern boundary, and dipped below 360 feet along its eastern edge.

The grade was 25% in places. Additionally, the Property is bounded by a forest conservation easement along the slope at its eastern side. As a result, appellants had difficulty designing a feasible warehouse plan. After finally obtaining a design that stabilized the steep topography of the Property, appellants proceeded with the permitting and construction process.

On June 6, 2002, less than a month before the July 1, 2002 effective date of the 2002 amendment to the Impact Tax, appellants filed a building permit application with the County Department of Permitting Services (“DPS”), Application No. 279528 (“Permit 1”), along with a plan view depicting the two proposed warehouses. Permit 1 pertained to the first structures to be constructed as part of the warehouse facilities— three retaining walls and two gabion walls. Then, in November of 2003, appellants filed for a sediment control permit application with DPS. Appellants subsequently revised their application for Permit 1; the permit was issued by DPS on December 23, 2003.

No demand was made for the payment of the Impact Tax upon the release of Permit 1. Two of the retaining walls that are covered by Permit 1 are located on the western side of the Property, along the sides of the driveway that provides the only access to the Property via Southlawn Lane (hereinafter “Wall 1 and Wall 2”). Wall 2 is attached to “Building A,” one of the warehouse buildings that was ultimately constructed on the Property. The third retaining wall (“Wall 3”) is located on the eastern side of the Property and is also attached to Building A. Construction commenced on Wall 3 in January 2004; it was the first wall constructed pursuant to the issuance of Permit l. 3 The two gabion walls are made of “basketball” size rocks.

One wall is situated at the western boundary of the Property along Southlawn Lane, and the other is situated on the ¹¹⁵ eastern side of a stormwater management pond that is also on the western side of the Property. According to appellants, the five walls, i.e. Walls No. 1-3 and the two gabion walls, are all essential and recognizable elements of the now-completed industrial buildings. In general, the various walls served two necessary purposes.

First, they were needed to adapt the severe terrain of the Property to create a flat surface on the Property large enough to build the warehouses. Second, they enabled access to the resulting surface from the Property’s entrance at Southlawn Lane, which was at a significantly lower elevation. Appellants submitted two more permit applications relating to construction of retaining walls on the Property. Appellants applied for Permit No. 326449 (“Permit 2”) on December 1, 2003; it was issued on January 2, 2004.

Permit No. 338122 (“Permit 3”), for which appellants applied on March 23, 2004, was issued on June 16, 2004. No Impact Tax was assessed for Permits 2 or 3, and construction was commenced and completed under both. On July 27, 2004, appellants applied for the building permits needed to construct the two warehouse buildings: Permit No. 352990 (“Permit 4”) pertained to Building A, and Permit No. 352996 (“Permit 5”) applied to the second building, “Building B.” The permit application for Building A listed its area as 38,374 square feet, while the application for Building B listed its area at 79,875 square feet. In June 2005, DPS notified appellants that Impact Tax payments were due for each building, prior to issuance of Permits 4 and 5.

The Impact Tax was assessed at the statutory rate of $2.50 per square foot, in the respective amounts of $95,935 for Building A and $199,687.50 for Building B, for a total Impact Tax of $295,622.50. By letter dated July 28, 2005, appellants contested the assessments and asked the Director of DPS to reconsider. Pending resolution of the issue, and in lieu of paying the assessed amounts, appellants submitted a letter of credit in the amount of the Impact Tax on July 27, 2005, pursuant to County Code, § 52-56. DPS issued permits for the two ¹¹⁶ warehouse buildings the same day, and appellants commenced construction of the warehouses; construction was completed during the pendency of this case.

In a letter dated August 18, 2005, the Director rejected appellants’ position. Referring to Permit 1, he wrote that “a permit for a retaining wall does not serve to exempt subsequent development from the tax. Accordingly, it is this Department’s determination that the impact tax is due and payable.” Pursuant to County Code, § 52-56, as well as Md.Code (2004 RephVol.), § 3-103 of the Tax-General Article (“T.G.”), appellants filed an appeal with the Maryland Tax Court on September 14, 2005, seeking review of the Director’s decision. Appellants and the County submitted stipulations to relevant facts, and the Tax Court heard the testimony of Robert Srour.

At the close of argument on February 22, 2006, the court ruled from the bench, in favor of the County. In part, the Tax Court said: We’ll start with the tax issue. It doesn’t appear to me that there is the same vested rights in tax cases as there might be in zoning. That clearly taxing jurisdictions have the right to change taxes on property....

One could say that’s exactly what occurred here____That being the case, the arguments for vesting, I don’t think really apply in this matter. Which brings us to an interpretation of what exactly does the [effective date provision] mean. [T]he building permits that were approved, or at least applied for prior to that date, had no square feet. They were all walls. And that the County didn’t try to collect the tax until there was a building permit that related to a structure that had some sort of square feet, and then they could calculate the tax____ So I think in every instance what they’re looking to are building permits that increase the number of square feet.

And any project where there is a permit applied after July 1, '02 that increases the square ¹¹⁷ feet that would then fall within the taxing jurisdiction of this statute. The facts of this matter, the first time a permit was applied for for a structure of any sort that included square feet was well after the effective date of July 1st, 2002____ The only question was whether or not this property was subject to this statute, and it’s my determination that, in fact, it was. An order denying appellants’ petition followed on April 4, 2006. Thereafter, on April 7, 2006, appellants filed a Petition for Judicial Review in the circuit court, pursuant to Md. Rule 7-201, T.G. § 13-532, and Md.Code (2004 Repl.Vol., 2007 Supp.), § 10-222 of the State Government Article.

The circuit court affirmed in an oral ruling from the bench on September 21, 2006, stating, in part: I guess, the bottom line is, [appellants] just haven’t convinced me____[Y]ou’re saying “building activity” meant the retaining walls, which went with the building, and therefore everyone slides in under the tag.... And you’re saying it vested at that point____And I just disagree with you. I agree with the Tax Court, is the bottom line. I think it’s a strange construction of ... the Act.

Because they’re talking about a broader meaning of “development” than simply filing a permit to get your footings in, or your retaining wall in, or anything else. And I think that’s where we disagree. Therefore, I will affirm the ruling of the Maryland Tax Court in connection with this case. The court issued an Order to that effect on October 18, 2006.

II

STATUTORY SCHEME Before we discuss the parties’ contentions, it is helpful to review the statutory scheme. ¹¹⁸ On March 21, 2002, the Montgomery County Executive signed into law Chapter 4 of the 2002 Montgomery County Laws, amending the County’s Development Impact Tax statute. 2001 Council Bill No. 47-01, enacted as 2002 Montg. Co. Laws, ch. 4. The Development Impact Tax ordinance (hereinafter, “the Act”) is codified at Chapter 52, Article VII of the County Code. 4 The Impact Tax was originally established in 1986, when the County Council enacted the predecessor “development impact fee” statute, then codified at County Code, §§ 49A-1 et seq. The development impact fee statute imposed “fees” on construction in two designated geographical areas within the County.

See Eastern Diversified Properties, Inc. v. Montgomery County, 319 Md. 45, 48-49 , 570 A.2d 850 (1990). The primary change implemented by the 2002 enactment was to extend the Impact Tax to all areas of the County. As noted, the amendment provided that the tax would apply “to any development for which an application for a building permit is filed on or after [July 1, 2002].” The County Council created the Impact Tax to permit growth in the County while also ensuring necessary improvements to support the increased demand on transportation facilities. County Code, § 52-48.

The funds generated by the Impact Tax may only be used for specified County transportation uses, such as construction or expansion of roads or acquisition of public transportation vehicles. See County Code, § 52-58. The tax is “a pro rata per unit or per square foot of gross floor area tax imposed before a building permit is issued for development .... ” County Code, § 52-47 (emphasis added). DPS determines the applicability of the Impact Tax when it reviews an application for a building permit and then, if the Act applies to the proposed construction, it collects the Impact Tax before issuing a permit.

County Code, §§ 52-50, § 50-51. ¹¹⁹ Under the Act, “Applicants for building permits for development ... must supply to the Department of Permitting Services for each requested building permit ... [t]he gross floor area and type of development for nonresidential development.” County Code, § 52-50(b). The Act also directs that DPS “must not issue a building permit for development ... unless” the Impact Tax obligation has been satisfied. County Code, § 52-50(c). The question, then, is what constitutes “development”?

County Code, § 52-47 defines “development” as follows: [T]he carrying out of any building activity or the making of any material change in the use of any structure or land which requires issuance of a building permit and: (1) Increases the number of dwelling units; or (2) Increases the gross floor area of nonresidential development. In turn, “gross floor area” is defined in County Code, § 52-47: Gross floor area means the sum of the gross horizontal area of the several floors of a building or structure measured from the exterior faces of the exterior walls.... In a covered but unenclosed area, such as a set of gasoline pumps or a drive-through area, gross floor area means the covered area. Gross floor area does not include: (1) basement or attic areas with a headroom of less than 7 feet 6 inches; (2) areas devoted to unenclosed mechanical, heating, air conditioning, or ventilating equipment; (3) parking structures; or (4) accessory structures to a residential building.

In addition, County Code, § 8-24 specifies when issuance of a building permit is required: It shall be unlawful to construct, enlarge, alter, remove or demolish a building ... without first filing an application with the department in writing and obtaining the required ¹²⁰ permit therefor; except that ordinary repairs ... shall be exempt from this provision. See also County Code, § 52-47 (“Building permit means a building permit issued by the Department of Permitting Services under Chapter 8.”). The Impact Tax obligation is calculated for nonresidential development on a per square foot basis. The rate varies in accordance with the type of building and the geographical area of the County within which the development is located.

See County Code, § 52-57. Office and retail buildings pay the highest rates. Id. At the low end of the range, hospitals and “bioscience facilities” are entirely exempt, and places of worship and private elementary and secondary schools pay fractions of a dollar per square foot.

Industrial buildings and “other nonresidential” buildings pay an intermediate rate. Id. In the 2002 enactment, the industrial rate for the “County Area,” in which appellants’ Property sits, was $1 per square foot. 2002 Montg. Co. Laws, ch. 4, § 1.

The 2002 legislation also contained a phase-in provision: for the first six months that the Impact Tax was in effect, taxpayers paid at 25% of the statutory rate. The percentage rose by 25% every six months, with the full rate phased in beginning January 1, 2004. Id. § 2(b). Since the passage of the 2002 bill, the rates have been raised by statutory amendment. 2003 Council Bill No. 31-03, enacted as 2003 Montg.

Co. Laws, ch. 27 (effective March 1, 2004). The current statutory rate for industrial and “other nonresidential” buildings, at which appellants’ assessments were calculated, is $2.50 per square foot. County Code, § 52-57. When the predecessor “development impact fee” ordinance was enacted in 1986, the County purported to draw its authority to impose the fees from its “police power.” However, in 1990, in Eastern Diversified Properties, Inc., supra, 319 Md. 45 , 570 A.2d 850 , the Court of Appeals struck down the development “fees.” Ruling on a challenge to the fees brought by a real estate developer, the Court held that the County’s police power authority did not support assessment of the fees.

Id. at 55 , 570 A.2d 850 . It reasoned that “the ¹²¹ development impact fee imposed on new development is exacted solely for revenue purposes, is an involuntary payment of money, and the funds raised by the fee are used to finance road construction which benefit[s] the general public.” Id. In the Court’s view, these features of the development impact “fee” distinguished it from a regulatory charge, which would be supported by the police power authority, and rendered it, in fact, a tax. Id. at 53-55 , 570 A.2d 850 .

The Eastern Diversified Court did not decide the nature of the tax however, id. at 55 n. 4, 570 A.2d 850 , and therefore did not reach the question of whether the County had authority to impose the fee under its taxing power. The County responded to the Eastern Diversified decision by enacting emergency legislation that replaced the word “fee” with “tax” throughout the statute; asserted its authority to impose the development impact “tax” under the County’s limited grant of tax power; and retroactively ratified as “taxes” the charges previously imposed under the rubric of development impact “fees.” See 1990 Council Bill Emergency Bill No. 33-90, enacted as 1990 Montg. Co. Laws, ch. 40. The Court of Appeals ruled on the validity of the amended statute in Waters Landing Ltd. Partnership v. Montgomery County, 337 Md. 15, 24-25 , 650 A.2d 712 (1994), upholding the development impact tax.

It determined that the tax was an excise tax and not an intangible personal property tax, and thus it was within the County’s taxing power. Id. at 25 , 650 A.2d 712 . The Court also upheld the County’s retroactive imposition of the tax. Id. at 33 , 650 A.2d 712 .

The development impact tax statute was amended a handful of times throughout the 1990s for various reasons. The 2002 amendments brought appellants’ building activity within the purview of the ordinance by adding a new “General” area to the various geographical “areas” previously covered by the tax. It consists of all parts of the County that are not contained within another specified area. County Code, § 52-49(c), as amended by 2002 Montg.

Co. Laws, ch. 4. ¹²² III. DISCUSSION A. Despite its name, the Maryland Tax Court is actually an administrative agency. See T.G. § 3-102. Therefore, principles of administrative law guide our review.

See, e.g., Montgomery County v. Wildwood Medical Center, LLC, 176 Md.App. 731 , 737 n. 1, 934 A.2d 484 (2007). Our role in reviewing the Tax Court’s decision is to determine “whether the administrative agency erred, not whether the Circuit Court erred.” Comptroller of Treas. v. Phillips, 384 Md. 583, 590 , 865 A.2d 590 (2005). We defer to the Tax Court’s findings of fact, Rouse-Fairwood Dev. Ltd. Partnership v. Supervisor of Assessments for Prince George’s County, 138 Md.App. 589, 617-618 , 773 A.2d 535 (2001) (citing CBS, Inc. v. Comptroller of the Treas., 319 Md. 687, 697-98 , 575 A.2d 324 (1990)), and will not “ ‘overturn the Tax Court’s decision unless it was based on an error of law.’ ” Comptroller of Treas. v. Colonial Farm Credit, 173 Md.App. 173, 177 , 918 A.2d 514 (2007) (quoting Dept. of Assessments and Taxation v. Consol.

Coal Sales Co., 382 Md. 439, 455 , 855 A.2d 1197 (2004)). See Comptroller of Treas. v. Citicorp Int'l Communications, Inc., 389 Md. 156, 163-64 , 884 A.2d 112 (2005) (discussing standard of review of Tax Court decisions); Md. Aviation Admin.; v. Noland, 386 Md. 556, 570-74 , 873 A.2d 1145 (2005) (discussing standard of review of agency decisions). In this case, appellants and the County agree that there are no disputed questions of fact. Therefore, this Court’s role, like that of the circuit court, is to determine whether the Tax Court’s decision was legally correct.

Because this case requires us to construe the Impact Tax ordinance, we pause to review the principles of statutory construction that guide our analysis. We review local laws and ordinances under the same principles that govern our construction of State statutes. O’Connor v. Baltimore County, 382 Md. 102, 113 , 854 A.2d 1191 (2004); Young v. Anne Arundel County, 146 Md.App. 526, 573 , 807 A.2d 651 , cert. ¹²³ denied, 372 Md. 432 , 813 A.2d 259 (2002). Our task is to determine legislative intent, and our primary tool in this task is the statutory text.

O’Connor, 382 Md. at 113, 854 A.2d 1191 ; Heartwood 88, Inc. v. Montgomery County, 156 Md. App. 333, 358-59 , 846 A.2d 1096 (2004) (citing cases). “If the statute is not ambiguous, we generally will not look beyond its language to determine legislative intent.” Heartwood 88, 156 Md.App. at 359 , 846 A.2d 1096 (citing Kaczorowski v. Mayor & City Council of Baltimore, 309 Md. 505, 515 , 525 A.2d 628 (1987)). In other words, “[wjhere ... the language of the statute is unambiguous, the search for legislative intent ordinarily begins and ends with the statutory language.” Harris v. State, 344 Md. 497, 510 , 687 A.2d 970 (1997) (emphasis in original). If a specific term is not defined in the statute, the Court “will give that term its ordinary and natural meaning and will not resort to subtle or forced interpretations for the purpose of extending or limiting the operation of the statute.” Maryland-National Capital Park and Planning Commission v. State Department of Assessments and Taxation, 110 Md.App. 677, 689 , 678 A.2d 602 (1996), aff'd, 348 Md. 2 , 702 A.2d 690 (1997). But, we may consider “the dictionary definition of [a] word,” although dictionary definitions are not dispositive of legislative intent.

Stachowski v. Sysco Food Servs. of Baltimore, Inc., 402 Md. 506, 525-26 , 937 A.2d 195 (2007). See also Benson v. State, 389 Md. 615, 634-35 , 887 A.2d 525 (2005); Board of License Commissioners for Prince George’s County v. Global Express Money Orders, Inc., 168 Md.App. 339, 348 , 896 A.2d 432 (2006). B. Appellants’ banner argument is that the effective date provision of the 2002 amendment should be interpreted such that, so long as one application for a building permit was filed before the effective date of July 1, 2002, all subsequent permit applications pertaining to the same project necessarily relate back to the date of the first permit application, thereby exempting all subsequent permits from the Impact Tax. Because appellants applied for their first building permit before ¹²⁴ July 1, 2002, when the current version of the ordinance went into effect, they contend that they are exempt from the Impact Tax with respect to the permits in issue.

Appellants posit: The “development” of the subject property began before there was a countywide Development Impact Tax and was completed after that tax was enacted and Appellants submit that [the] clearly articulated legislative intent of the County Council, stated in the Bill itself, was not to apply the new tax to developments that were underway when the new tax became effective. ❖ * * The Circuit Court erred as a matter of law when it upheld the Maryland Tax Court’s misinterpretation of Bill No. 47-01 as applying the Development Impact Tax to DPS’ issuance of Permit No. 4 and Permit No. 5 for the completion of a “development” for which the first of seven building permit applications was submitted prior to the prospective effective date of Bill No. 47-01. Under County Code, § 52-47, the Impact Tax is a “tax imposed before a building permit is issued for development ____” (emphasis added). As noted, the amendment that took effect on July 1, 2002, “applies to any development for which an application for a building permit is filed on or after that date.” 2002 Montg. Co. Laws, ch. 4, § 2(a).

Therefore, in order for appellants’ argument to succeed, the building permit for which they first applied in June 2002 to construct retaining walls on the Property must have been “for development” within the meaning of the Impact Tax. In this regard, appellants contend: The building activities that occurred pursuant to the application and issuance of Permit No. 1 are within the statutory definition of “development” for which “a” “building permit” was applied for prior to July 1, 2002. Therefore, the taxable event—the date of finality for imposing the Development Impact Tax occurred when the application of Permit No. 1 ¹²⁵ was submitted, prior to the prospective effective date of Bill No. 27-01. The applications for Permit Nos. 4 and 5 for the completion of building activities were not taxable events and are exempt from the Development Impact Tax, as intended by the County Council.

As we have seen, the term “development” is defined in County Code, § 52-47: Development means the carrying out of any building activity or the making of any material change in the use of any structure or land which requires issuance of a building permit and: (1) Increases the number of dwelling units; or (2) Increases the gross floor area of nonresidential development. Appellants do not contend that the provisions of the Act relating to residential development apply here. But, appellants and the County stipulated in the Tax Court that “[a] retaining wall is ... a structure for which a building permit is required.” Therefore, whether appellants’ June 2002 application for a permit to build retaining walls was a building permit “for development” hinges on whether the retaining walls “[i]nerease[d] ... gross floor area of nonresidential development,” within the meaning of the Act. In support of their position that Permit 1 pertained to “development,” appellants observe that “Maryland [c]ase law has previously recognized the essence and necessity of retaining walls, considering them to be integral parts of structures due to their support and stabilization.” Appellants add: “Retaining walls can be so ‘inextricably connected’ to and ‘the first step in building’ a structure that the retaining walls are development.” Insisting that “the application of Permit No. 1 and subsequent construction constituted ‘development,’ ” they argue: Permit No. 1 enabled Appellants to establish a building pad.

The building pad is large enough to construct the approved warehouse facilities, in other words, construct the contemplated gross floor area of the warehouse facilities. ¹²⁶ The retaining walls constructed pursuant to the issuance of Permit No. 1 all connect to and structurally support the warehouse structures and are necessary to stabilize the steep topography of the Subject Property. Without the retaining walls, no construction on the Subject Property could have occurred. * * * [T]he retaining walls are more than mere site preparation, but are “inextricably connected” to the construction of the warehouse facilities.... Wall Nos. 1-3 are indispensable parts of the warehouse facility that connect to and support the warehouse structures. Without Wall Nos. 1-3 the warehouse structures would not have been constructed—gross floor area would not have been increased on the Subject Property.

In this case, the retaining walls allowed for the gross floor area and are integral parts of the warehouse facilities, but the building activity was not actually completed until the construction of the warehouse structures was completed. The retaining walls are integral structural parts of the warehouse facilities and without the retaining walls the warehouse facilities cannot be constructed.... Construction of the retaining walls and warehouse facilities, because of their cohesiveness, constitute the same building activity contemplated under Permit No. 1 and depicted on the plans submitted in conjunction with the building permit application for Permit No. 1. The County responds, in part: Although construction of a retaining wall may facilitate development, and could even be a necessary part of an overall project, it does not ... increase the gross floor area of nonresidential development.

As a result, DPS did not impose or collect the tax for Permits 2 or 3 for retaining wall construction. Unlike the retaining walls, the final two ¹²⁷ permits ... (Permits 4 and 5), involved building activity that required a building permit and would increase the gross floor area of nonresidential development—the warehouses satisfied the