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

²³⁶ HARRELL, Judge. This case challenges a final decision of the Maryland Tax Court upholding an assessment of Montgomery County’s Development Impact Tax (“Impact Tax”) in the approximate amount of $300,000 for transportation improvements in connection with two warehouse building permits applied for by and issued to F.D.R. Srour Partnership and Robert Srour (“Petitioners”). The Tax Court rejected Petitioners’ contention that the building permits are exempt from the Impact Tax because the development project, viewed as a whole, was initiated before the effective date of the amended Impact Tax ordinance applied in this instance. Petitioners sought judicial review in the Circuit Court for Montgomery County of the Tax Court’s ruling.

The Circuit Court affirmed. The Court of Special Appeals, on direct appeal, affirmed in a reported opinion. F.D.R. Srour P’ship v. Montgomery County, 179 Md.App. 109 , 944 A.2d 1149 (2008). We granted a writ of certiorari upon Petitioners’ petition.

Srour v. Montgomery County, 405 Md. 290 , 950 A.2d 828 (Table) (2008). For the reasons that follow, we shall make it unanimous. I. In 2002, Montgomery County decided to amend its preexisting, but geographically limited, development impact tax structure by enacting Chapter 4 of the Montgomery County Laws of 2002, the County’s “Development Impact Tax for Transportation Improvements,” codified at Montgomery County Code (“County Code”), § 52-47 et seq. (2004).

The Impact Tax is a tax on “development,” which is defined specifically 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. ²³⁷ The purpose of the Impact Tax, which is calculated and assessed when a developer submits a building permit application, County Code, § 52-51, and then collected before the issuance of the permit, County Code § 52-50(c), is to help “fund a program of transportation improvements through development impact taxes to allow new growth in the County” and “[to] require[ ] new development to pay its pro rata share of the costs of impact transportation improvements necessitated by that development.” County Code, §§ 52-48(c), (d). Before the County enacted the 2002 amendment with which we primarily are concerned in the present case, the Impact Tax applied only within select geographical areas within the County, which did not include where Petitioners’ property is situated. The 2002 amendment was intended to apply the Impact Tax structure throughout the County, i.e., “[the Tax] applies to any development for which an application for a building permit is filed on or after [1 July 2002].” 2002 Laws of Montgomery County, Ch. 4, sec. 2(a). Turning back the clock to 1988, Petitioners acquired an undeveloped parcel of industrially-zoned real property located just outside the city limits of Rockville, in a subdivision known as Burgundy Park (the “Property”). 1 They ultimately planned to build two warehouses on the Property (“Building A” and “Building B”).

Mr. Srour, a licensed Professional Engineer, was the “chief designer” of the improvements proposed to be constructed on the Property. Petitioners struggled to design a warehouse development that would accommodate the somewhat disparate split-zoning (1-2 and 1-4) standards applicable to the Property and that could overcome the Property’s unique physical characteristics. In particular, steep topogra ²³⁸ phy, as well as a forest conservation easement established on the eastern side, presented considerable obstacles. The street-level access of the Property at Southlawn Lane was at an elevation of 372 feet, the southern boundary of the Property at an elevation of 444 feet, and along its eastern edge the elevation fell below 360 feet.

At certain places, the grade on the Property was as steep as 25%. A grading and development design was settled on finally, upon which Petitioners were prepared to move forward with their plans for the construction of the warehouses. On 6 June 2002, some twenty-five days before the 1 July 2002 effective date of the amended Impact Tax, Petitioners filed with the County Department of Permitting Services (“Department”) a building permit application, No. 279528 (“Permit 1”), accompanied by a plan view indicating conceptually the two warehouse buildings to be constructed, but not seeking permission to construct them at the time. 2 Permit No. 1 was issued by the Department on 1 December 2003. Subsequently, Permit No. 1 was revised and another application, No. 326449, submitted on 1 December 2003 (“Permit 2”).

Permit 2 was issued on 23 January 2004. Permits 1 and 2 together sought authorization to construct three reinforced concrete retaining walls and two Gabion Walls on the Property. No assessment or demand for payment of the amended Impact Tax was made by the Department upon the issuance of either Permit 1 or 2. Two of the retaining walls covered by Permit 1 (‘Wall 1” and “Wall 2”) were to be located on the western side of the Property, adjacent to the ultimate driveway that would provide the only access to the Property from Southlawn Lane.

Wall 2, 32 feet in height and 350 feet in length, was to be incorporated in the structural base of the future warehouse Building A. That wall stabilized the building pad enabling Petitioners ultimately to “get a [building] pad large enough to build these buildings and the entrance to it.” The third ²³⁹ retaining wall (“Wall 3”), located on the eastern side of the Property, was the first wall constructed pursuant to Permits 1 and 2 and also was to be attached to Building A. Construction on Wall 3 commenced in January 2004. Walls 2 and 3 are essential to support structurally the proposed gross floor area of proposed Building A. The two Gabion Walls, comprised of “basketball” size rocks inserted in a metal cage or frame, also were to be located on the western side of the Property. One of these walls is situated along the western boundary of the Property, adjacent to Southlawn Lane, and the other is sited along a stormwater management pond. According to Petitioners, the five walls (Walls 1-3 and the two Gabion Walls) were all essential elements of the ultimately-completed industrial buildings because they were needed to stabilize the soil on the site after the grading of the steep topography to accommodate the building pads, the vehicular access to Southlawn Lane, and the stormwater pond.

Petitioners urge that, without these improvements, the Property would remain generally “undevelopable.” Subsequent to the construction of the walls, Petitioners submitted another building permit application, No. 338122, on 23 March 2004 for the final retaining wall structure needed to enable construction of the warehouse buildings (“Permit 3”). That retaining wall, according to Petitioners, also was a required structural element of the warehouse structures. The permit was issued on 16 June 2004, and the construction was completed. No development Impact Tax was assessed by the Department for the improvements covered by Permit 3.

On 27 July 2004, Petitioners’ architect, Steven’s Architects, filed applications for the last two permits needed to construct the warehouses on the Property, No. 352990 (“Permit 4”) and No. 352996 (“Permit 5”). Permit 4 was for construction of Building A, an enclosed building of 38,374 square feet, and Permit 5 for Building B, with a building area of 79,875 square feet. ²⁴⁰ In June 2005, prior to the issuance of Permits 4 and 5, the Department informed Petitioners that an Impact Tax payment would be required before the issuance of the permits. The Department calculated, under the formula in the County Code, that Permit 4 required an Impact Tax payment of $95,935 and Permit 5 required a payment of $199,687.50, for a total of $295,622.50. Petitioners contested the Department’s determination and assessment of the Impact Tax, and asked its Director to reconsider.

In lieu of paying the assessed amounts, and pending the Director’s review, Petitioners posted a letter of credit pursuant to County Code § 52-56. The Department issued Permits 4 and 5. Petitioners commenced construction of the warehouses, pursuant to the permits, and the development since has been completed while this case winded its way through the administrative and judicial review processes. The Director found against Petitioners.

His written determination stated that “a permit for a retaining wall [Permits 1, 2, and 3] does not serve to exempt subsequent development [Permits 4 and 5] from the tax,” and that, therefore, “it is this Department’s determination that the impact tax is due and payable.” Pursuant to County Code § 52-56 and Md.Code, Tax-General Article § 3-103 (2004 Repl.Vol. & Supp.2008), Petitioners, on 14 September 2005, filed an appeal with the Maryland Tax Court challenging the Director’s determination. Petitioners and the County stipulated as to most of the relevant facts, and the Tax Court heard the testimony of Mr. Srour. At the close of the administrative hearing, on 22 February 2006, the Tax Court orally ruled in favor of the County. In pertinent part, the Tax Court found: 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. Property tax rates on peoples’ property in the County get changed every year, or potentially can be whenever they change the tax rate and ²⁴¹ that affects the rights of the property owner after the property is in existence. 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 [the transition provision providing the effective date of the amendment]. This Act takes effect on July 1 st, 2002, and applies to any development for which an application for a building permit is filed on or after that date.... [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 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 1 st, 2002. And it was agreed that the amount of tax that was charged wasn’t an issue. The only question was whether or not this property was subject to this statute, and it’s my determination that, in fact, it was.

A written Order memorializing the County’s victory was entered by the Tax Court on 4 April 2006. Thereafter, pursuant to Md.Code, Tax-General § 13-532 and State Government Article § 10-222 (2004 Repl.Vol. & Supp.2008), Petitioners, on 7 April 2006, filed in the Circuit Court a Petition for Judicial Review. The Circuit Court, on 21 September 2006, ruling from the bench, stated, in part: I guess, the bottom line is, [Petitioners] just haven’t convinced me.... [Y]ou’re saying “building activity” meant the retaining walls, which went with the building, and ²⁴² therefore everyone slides in under the tag.... And you’re saying it vested at that point---- And I just disagree with you [and agree with the Tax Court’s determination].

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. On 18 October 2006, the Circuit Court issued a written Order affirming the judgment of the Tax Court.

Petitioners pursued an appeal in the Court of Special Appeals, pressing two main arguments. First, they posited that Permit 1, filed before the effective date of the amended Impact Tax, enabled them to establish a “building pad” large enough to construct the contemplated warehouse facilities. The “building pad,” commenced pursuant to Permit 1, made it feasible for the eventual construction of the warehouses, given the Property’s challenging topographical characteristics. Therefore, Petitioners urged, Permit 1 fit the County Code’s definition of “development” because Permit 1 “permitted [Petitioners] to construct the gross floor area of the warehouse facilities” (citing Pemberton v. Montgomery County, 275 Md. 363 , 340 A.2d 240 (1975)).

Having filed for Permit 1 before the effective date of the territorily-broadened Impact Tax, and given the “clearly articulated legislative intent of the County Council, stated in' the Bill itself, ... not to apply the new tax to developments that were underway when the new tax became effective,” Petitioners argued that, therefore, all of the subsequent Permits were exempt from the tax. Second, they argued that, by establishing 1 July 2002 as the effective date of the amendment, the County Council intended for those who had filed before then applications for “a building permit for development” to “have a vested right to obtain any further building permits required after July 1, 2002 to complete their projects without being subject to the Development Impact Tax.” ²⁴³ The intermediate appellate court, in F.D.R. Srour P’ship v. Montgomery County, 179 Md.App. 109 , 944 A.2d 1149 (2008), concluded that Petitioners’ Permits 4 and 5 were not exempt under the transitional effective date provision of the 2002 amendment to the Impact Tax ordinance because those permits were filed after the effective date, and because the object of the earlier permits, Permits 1 through 3, did not satisfy the local legislative definition of “development.” The court rejected Petitioners’ argument under Pemberton v. Montgomery County, 275 Md. 363 , 340 A.2d 240 (1975), finding that Permits 1 through 3 did not satisfy the statutory definition of “development” because, although the structures proposed to be constructed thereunder stabilized sufficiently the problematic topography of the Property, it was not until Permits 4 and 5 were filed that the gross floor area of the warehouses was fixed with certainty, such that, therefore, the respective Impact Taxes could be calculated and assessed. The intermediate appellate court also rejected Petitioners’ contention that the imposition of the Impact Tax in connection with the warehouses constructed pursuant to Permits 4 and 5 interfered with vested rights. The court deemed the vested rights doctrine inapplicable in the context of revenue-raising legislation, as opposed to more regulatory-oriented legislation such as a zoning regulation.

II

A. Despite its name, the Maryland Tax Court actually is an administrative agency of the State. See Md.Code, Tax-General § 3-102. When reviewing its decisions, we review the decision directly, the reviews by any intervening courts notwithstanding. Comptroller of Treasury v. Sci.

Applications Int’l Corp., 405 Md. 185, 192 , 950 A.2d 766, 770 (2008); Comptroller of Treasury v. Phillips, 384 Md. 583, 590 , 865 A.2d 590, 594 (2005). A decision of the Tax Court will be affirmed unless that decision is not supported by substantial evidence appearing in the record or is erroneous as a matter ²⁴⁴ of law. Comptroller of Treasury v. Blanton, 390 Md. 528, 535 , 890 A.2d 279, 283 (2006). We further have noted that “[e]ven with regard to some legal issues, a degree of deference should often be accorded the position of the administrative agency.

Thus, an administrative agency’s interpretation and application of the statute which the agency administers should ordinarily be given considerable weight by reviewing courts.” Blanton, 390 Md. at 534 , 890 A.2d at 283 (citing Lussier v. Md. Racing Comm’n, 343 Md. 681, 696-97 , 684 A.2d 804, 811-12 (1996); McCullough v. Wittner, 314 Md. 602, 612 , 552 A.2d 881, 886 (1989)). The Tax Court’s decision, however, will be overturned if it was based on a material error of law. State Dep’t of Assessments & Taxation v. Consolidation Coal Sales Co., 382 Md. 439, 455 , 855 A.2d 1197, 1207 (2004). B. As noted previously, in 2002 the County Council for Montgomery County broadened the County’s pre-existing Impact Tax provisions to phase-in its application to certain construction and development county-wide. 2002 Laws of Montgomery County, Ch. 4, sec. 2(a) provides that “[t]his Act takes effect on July 1, 2002, and applies to any development for which an application for a building permit is filed on or after that date.” “Development” is defined in § 52-47 of the County Code, in both grammar and sentence structure, as follows: 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 the issuance of a building permit and: (1) Increases the number of dwelling units; or (2) Increases the gross floor area of nonresidential development.

The principal dispute between the parties in the present case is over the interpretation of the definition of “development,” and how that interpretation applies under the statutory transitional phase-in provision. ²⁴⁵ Before launching into our analysis of the amended Impact Tax ordinance, we rightfully pause to reflect on the principles of statutory construction that both guide and constrain our analysis. Our review of local laws and ordinances is governed by the same principles as our review of State statutes. O’Connor v. Balt County, 382 Md. 102, 113 , 854 A.2d 1191, 1198 (2004) (citing Howard Research & Dev. Carp. v. Concerned Citizens for Columbia Concept, 297 Md. 357, 364 , 466 A.2d 31, 34 (1983)).

The cardinal rule of construction is to ascertain and effectuate the actual intent of those who enacted or adopted the law or ordinance. Bd. of Supervisors of Elections v. Goodsell, 284 Md. 279, 284 , 396 A.2d 1033, 1035-36 (1979) . In divining this