Friendship Heights Village Council v. Director of Finance

BLOOM, Judge. This tax case reaches us in a somewhat unusual posture. The judgment appealed from is a decision of the Circuit Court for Montgomery County, which affirmed in part and reversed in part an order of the Maryland Tax Court. Friendship Heights Village Council and the villages of Friendship Heights and The Hills, which did not pay, levy or collect any taxes and therefore, according to the Tax Court, were not even parties to the proceeding before it, appeal because the circuit court ordered them to refund taxes levied and collected by Montgomery County.

The Edwards Family Limited Partnership and numerous other taxpayers, who initiated these proceedings with demands for refunds of taxes levied and collected by the county, are also appealing from the same judgment even though it affirmed the Tax Court ruling that they are entitled to the refunds they seek. ²⁶⁴ We shall affirm the circuit court’s affirmance of the Tax Court’s ruling that the taxpayer-appellants are entitled to refunds, but we shall reverse the judgment insofar as it imposed the duty to repay the money on the Village Council and the villages instead of the county. Background The villages of Friendship Heights and The Hills comprise one of the special taxing districts created by the General Assembly in 1914 by a public local law that now appears as §§ 66-1 through 66-12 of the Montgomery County Code. An elected body, appellant Friendship Heights Village Council, governs the taxing district and has the responsibility for providing, within the district, certain services normally provided directly by the county, such as road maintenance, police and fire protection, and trash removal. Montgomery County, Md. Code §§ 66-7, 66-9.

The money needed to meet those obligations is derived largely from special taxing district property taxes levied and collected by the Montgomery County Council and remitted to the Treasurer of the Village Council along with a share of the county’s road taxes, pursuant to § 66-2 of the county code. Under § 66-2, the county council was directed to levy and collect annually a tax on all real and personal property located within Friendship Heights and The Hills at the rate of 10 cents per $100 of assessed value. That basic taxing authority was supplemented by § 66-3, which empowered the county council to make an additional levy not to exceed 30 cents per $100 assessed value on property situated within the villages. 1 The exercise of that additional authority was conditioned by § 66-3, however, on three events: ²⁶⁵ 1. The county council had to receive by April 15 a petition requesting the additional levy, signed by either a majority of the Friendship Heights Village Council or a significant number of resident taxpayers of the villages; 2.

The county council then had to publish in one or more newspapers within the county for two consecutive weeks a notice that indicated the council’s intention to assess the levy, the purpose and amount thereof, the effect that the levy would have on tax rates within the villages and the date that the county council would meet to hear objections to the levy; and 3. On the date designated in the notice, the county council had to meet and hear the advocates and opponents of the proposed additional levy. During the tax years 1974-75, 1975-76 and 1976-77, the county levied additional tax on property in this special taxing district, in the amounts of 30 cents for 1974-75, 30 cents for 1975-76, and 29 cents for 1976-77. Beginning in 1977, appellees Edwards Family Limited Partnership, et al, filed claims for refund of those taxes with the Director of Finance for Montgomery County in accordance with article 81, § 214(a) of the Maryland Annotated Code. 2 Those ²⁶⁶ claims were denied by the Director on the basis that the tax receipts had been paid over to the Friendship Heights Village Council.

In the Director’s opinion, the taxpayers’ claims should have been submitted to the Village Council, not the county. The taxpayers thereafter filed their individual appeals of the Director’s decision to the Maryland Tax Court, which consolidated the several appeals into a single action. While the matter was pending, the Director of Finance filed a petition to require that Friendship Heights Village Council and the villages of Friendship Heights and The Hills (hereinafter collectively called “Friendship Heights”) be made parties respondent to the appeal. When the Tax Court rejected that request, the Director of Finance filed a third party claim against Friendship Heights.

The Tax Court initially accepted the third-party claim, over the vigorous objections of Friendship Heights to being made a party. Nevertheless, by its order and memorandum dated 3 July 1985, the Tax Court ultimately dismissed the third-party petition for lack of authority to entertain it and directed the county to issue refunds to Edwards Family Limited Partnership and the other taxpayers. The Tax Court found that none of the prerequisites to the imposition of a special levy under § 66-3 had been met. Consequently, it decided that the tax had been collected illegally by the county.

The Director of Finance appealed the order of the Tax Court to the Circuit Court for Montgomery County, and Friendship Heights Village Council and the special taxing district filed a “precautionary” cross-appeal, to preserve, if necessary, the positions they had taken before the Tax Court prior to being dismissed as parties: (1) no refunds ²⁶⁷ were due the taxpayers and (2) no relief could be granted against the cross-appellants. During the proceedings in the circuit court, Montgomery County (in the person of its Director of Finance, the nominal appellee in the Tax Court and appellant in the circuit court) virtually conceded that the additional tax levies had been imposed illegally. Friendship Heights, however, argued vociferously that the language of § 66-3 was directory and, therefore, that substantial compliance with the section would suffice to make the tax assessments legal. The circuit court affirmed the Tax Court’s determination that the tax levies were improper, but held that the Tax Court had misconstrued the limits of its own jurisdiction.

In the view of the circuit court, the Tax Court was embued by article 81, § 229 of the Maryland Code (1980 Repl. Vol. & Supp.1986) with sufficient equitable jurisdiction to afford complete relief to the parties before it, and that it should have permitted the Director’s third-party action. That purported error was “corrected” by the circuit court; it modified the Tax Court’s order and directed Friendship Heights, instead of Montgomery County, to refund the illegally collected special levies. It is from that judgment dated 20 May 1986 that these appeals were taken.

Appellant Friendship Heights submits a myriad of issues. They can be summarized in two questions: 1. Whether the Maryland Tax Court has jurisdiction to resolve a third-party claim lodged against entities not otherwise properly before the court; and 2. Did the Maryland Tax Court err in its finding that the additional special property tax levies for tax years 1974-75, 1975-76 and 1976-77 were collected illegally?

The Director of Finance for Montgomery County, appellee, takes no position with respect to the right of the taxpayers to receive the refunds; he is content to defend the court’s decision that those refunds must be collected ²⁶⁸ from the special taxing district that actually received the money. The taxpayers, in their capacity as appellees, defend the court’s determination that they are entitled to refunds; as appellants, they challenge the court’s decision that they must look to the special taxing district for their money. Because of the positions taken by the parties to this appeal, we need answer only the questions propounded by Friendship Heights, and our answers to both of those questions are in the negative. I It was the determination of the circuit court that under article 81, § 229, the Maryland Tax Court has the authority to render complete relief to the parties before it, and that the Tax Court had the “jurisdiction” to entertain the third-party action against Friendship Heights.

Section 229 reads, in pertinent parts: § 229. Procedure on appeals to and from Court. (b) Rules of procedure.—The Court may, subject to the provisions of this article, adopt reasonable rules of procedure relating to pleadings, notices, hearings and arguments. After June 30,1980, the Court may not adopt any new rules of procedure, except in compliance with the requirements of the Administrative Procedure Act.

(c) Conduct of proceedings.—Proceedings before the Court shall be de novo and shall be conducted in a manner similar to proceedings in courts of equity in this State. (f) Power to hear, try and determine, or remand cause; amendment of pleadings; rules of evidence. —The Court shall have full power to hear, try and determine or remand any matter before it and may permit or require all explanations, amendments and additions to be made to any of the proceedings or pleadings, including the petition of appeal, as in its discretion shall be necessary or desirable so that the case may be properly heard ²⁶⁹ and determined. The Court shall not be bound by the technical rules of evidence. We believe that the lower court misconstrued the scope of § 229 in concluding that it conferred jurisdiction over Friendship Heights as third parties.

It is apparent from the text of § 229 that that section does not purport to confer general equitable jurisdiction on the court. It is concerned with the procedures to be followed on appeals to and from the Tax Court. The limited scope of § 229 was recognized by the Court of Appeals in County Executive of Montgomery County v. Supervisor of Assessments, 275 Md. 392 , 340 A.2d 246 (1975), where it was held that the Tax Court could not enact a rule under § 229(b) that would impair its own jurisdiction. The case of Montgomery County, Md. v. Supervisor of Assessments, 275 Md. 58 , 337 A.2d 679 (1975), is not to the contrary.

In that case, the Tax Court permitted the county to intervene in a pending action involving the valuation of certain property located within its borders. The Court of Appeals approved the practice, holding that under § 229 the Tax Court plainly possesses the authority to permit intervention when the requisite interest is established. Obviously, in an appeal involving an assessment, the real parties in interest are the taxpayer and the taxing authority, not the assessor. Although Montgomery County, the proper, interested party