Maizel v. Comptroller

Jonathan A. Maizel & Beatriz E. Maizel v. Comptroller of the Treasury Case No. 508, September Term, 2018 MARYLAND INCOME TAX – CLAIM FOR REFUND OF OVERPAYMENT – STATUTE OF LIMITATION. A person who seeks to pursue a claim for a refund of overpayment of Maryland income taxes is generally subject to the time limit imposed by Maryland Code (1988, 2016 Repl. Vol.), Tax – General Article (“TG”), § 13-1104(c)(1), which requires that the claim be filed no later than three years from the time the pertinent tax return was filed or two years after the date the overpayment of tax was paid, whichever of such periods expires the later. The possible extension provided by TG § 13- 1104(j) is an exception that is applicable only to a taxpayer who was a party to an administrative proceeding as described in that subsection.

Circuit Court for Montgomery County Case No. 0438961-V REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 508 September Term, 2018 JONATHAN A. MAIZEL, ET UX. v. COMPTROLLER OF THE TREASURY Meredith,* Graeff, Reed, JJ. Opinion by Meredith, J. Filed: April 29, 2021 *Meredith, Timothy E., J., now retired, participated in the hearing of this case while an active member of this Court, and after being recalled pursuant to the Constitution, Article IV, Section 3A, he also participated in the decision and the preparation of this opinion. Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2021-04-29 10:40-04:00 Suzanne C. Johnson, Clerk Jonathan Maizel and Beatrize Maizel, appellants, have appealed from a judgment of the Circuit Court for Montgomery County which, upon judicial review of a ruling of the Maryland administrative agency known as the Maryland Tax Court, affirmed the denial of the Maizels’ application for income tax refunds, which was the position urged by the Maryland Comptroller of the Treasury, appellee. The Maizels had filed amended income tax returns seeking refunds because, they asserted, they had overpaid Maryland income taxes for the calendar years 2006 through 2011.

At the time the Maizels filed their original returns for those years, the deduction that Maryland allowed for income taxes they had paid in other states where they owed income tax was structured in a manner that was later recognized as being in violation of the dormant Commerce Clause of the United States Constitution. After the Maizels filed their original returns for 2006 through 2011, a challenge to the Maryland tax provision was successfully raised by taxpayers named Brian and Karen Wynne. See Maryland State Comptroller of Treasury v. Wynne, 431 Md. 147 (2013), aff’d, 575 U.S. 542 (2015) (hereinafter “Wynne I”), and Wynne v. Comptroller of Maryland, 469 Md. 62 (2020) (hereinafter “Wynne II”). In Wynne II, 469 Md. at 67 , the Court of Appeals summarized the Wynne I litigation very briefly as follows: The litigation began when the Wynnes challenged an aspect of the Maryland income tax law – in particular, the credit allowed by State law against a Maryland resident’s income tax liability based on taxes the resident paid to other states on income derived from those states.

The Wynnes argued that the Maryland tax scheme discriminated against interstate commerce and thus violated what is known as the dormant Commerce Clause of the federal Constitution. Both this Court and the Supreme Court, in closely divided decisions, agreed with that argument. Beginning in October 2013, the Maizels attempted to take advantage of the Wynnes’ success by seeking refunds for the portion of the taxes that the Maryland Court of Appeals had declared unconstitutional in Wynne I. But, because more than three years had elapsed between the time the Maizels paid their taxes (without receiving full credit for taxes paid to other states) and the date the Maizels filed amended returns seeking to take advantage of the Wynne I ruling, the Comptroller denied the refunds because the Maizels’ claims were filed after the three-year statute of limitations prescribed by Maryland Code (1988, 2016 Repl. Vol.), Tax – General Article (“TG”), § 13-1104(c)(1).

That statute provides that, subject to exceptions that are not pertinent here, “a claim for refund or credit of overpayment of . . . income tax may not be filed after the periods of limitations for filing claims for refund or credit of overpayment set forth in [26 U.S.C.] § 6511 of the Internal Revenue Code,” which requires such claims to be filed “within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.” Although all of the Maizels’ amended returns seeking refunds were filed beyond the time limit prescribed by TG § 13-1104(c)(1), the Maizels argued that their refund claims should nevertheless be considered timely pursuant to the exception provided in TG § 13-1104(j), which states: Notwithstanding subsection (c) of this section, a claim for refund or credit for overpayment of income tax attributable to a right to a reduction in a person’s Maryland income tax that is established by a decision of an administrative board or by an appeal of a decision of an administrative board may be filed within 1 year after the date of a final decision of the administrative board or a final decision of the highest court to which an appeal of a final decision of the administrative board is taken. 2 The Maizels took the position that they were entitled to file claims for refunds of all taxes they had overpaid (because of not receiving full credit for the taxes they had paid to other states) at any point in the past so long as they filed those claims for refunds within one year after the date the Supreme Court issued its decision in Wynne I on May 18, 2015. After the Comptroller rejected the Maizels’ argument that, without regard to the normal statute of limitations, they were entitled to file their refund claims within one year after the Supreme Court’s decision in Wynne I, the Maizels appealed to the Maryland Tax Court, which heard the matter de novo and concluded that, because the Maizels were not parties in Wynne I, they were not entitled to the extra one-year provided by TG § 13- 1104(j). The Maizels filed a petition for judicial review in the Circuit Court for Montgomery County. After that court affirmed the ruling of the Tax Court, the Maizels filed this appeal, in which they have raised the following questions for our review: 1.

Did the Tax Court err in concluding that § 13-1104(j) does not apply to appellants’ amended Maryland income tax returns seeking Wynne refunds for the relevant years? 2. Does denial of appellants’ Wynne refunds for the relevant years violate appellants’ rights to due process under the 14th Amendment and/or the Maryland Constitution? 3. Did the Tax Court abuse its discretion or otherwise commit reversible error in allowing appellee’s assertion of privilege in respect of certain documents sought by appellants in discovery? Because we conclude that the Tax Court correctly ruled that the extra time for filing a refund claim pursuant to TG § 13-1104(j) is available only to the parties to the 3 administrative proceeding described in that section, we shall affirm the Tax Court’s ruling denying the Maizels’ claims for refunds.

FACTS AND PROCEDURAL HISTORY During the relevant period of 2006 through 2011, the Maizels resided in Montgomery County, Maryland. Mr. Maizel was a partner in a law firm that had offices in New York and California, and he paid income taxes in those states as well as in Maryland. The Court of Appeals explained in Wynne I, 431 Md. at 154 , that a 1975 amendment to Maryland tax law limited the credit against income tax liability that could be claimed by Maryland residents who earned taxable income that was also subject to taxation in other states, noting: “The Maryland income tax law reaches all of the income of a Maryland resident. The State income tax law allows a credit against an individual’s State tax liability for income taxes paid to other states based on the income earned in those states.” But, the Court explained in Wynne I, after the General Assembly amended Maryland’s tax law in 1975, the credit was no longer allowed to be claimed against Maryland’s “county” income tax for income taxes Maryland residents had paid to other states.

Id. at 157 (citing TG § 10-703(a); Comptroller v. Blanton, 390 Md. 528 (2006)). When the Wynnes claimed the full credit on their 2006 tax return against all Maryland income tax, including the county portion, the Comptroller assessed them for a deficiency in the amount of Maryland taxes paid. Id. at 159. The Wynnes appealed to the Maryland Tax Court and argued “that the limitation of the credit to the State tax for tax payments made to other states discriminated against interstate commerce in violation 4 of the Commerce Clause of the United States Constitution.” Id at 160.

The Tax Court rejected the Wynnes’ argument, but, upon judicial review, the Circuit Court for Howard County reversed the Tax Court and ruled that the tax scheme was in violation of the dormant Commerce Clause. Id. The Court of Appeals granted the Comptroller’s petition for certiorari and affirmed the circuit court’s ruling, holding in Wynne I that “the failure of the Maryland income tax law to allow a credit against the county tax for a Maryland resident taxpayer with respect to pass-through income of an S corporation that arises from activities in another state and that is taxed in that state violates the dormant Commerce Clause of the federal Constitution.” Wynne I, 431 Md. at 176-77 (footnote omitted). The Court emphasized: [T]he county income tax itself is not unconstitutional.

Nor is the credit, which serves to ensure that the Maryland income tax scheme operates within constitutional constraints. Nor is the Maryland income tax law generally. What is unconstitutional is the application—or lack thereof—of the credit to the county income tax [for residents who paid income taxes to other states]. Id. at 177-78 .

The case was remanded to the Tax Court for recalculation of the Wynnes’ tax liability. The opinion of the Court of Appeals in Wynne I was filed on January 28, 2013, and refiled May 17, 2013, with minor revisions made in response to a motion for reconsideration. The United States Supreme Court granted certiorari on May 27, 2014, 572 U.S. 1134 (2014), and affirmed the ruling of the Maryland Court of Appeals on May 18, 2015, 575 U.S. 542 (2015). The majority opinion of the Supreme Court observed: 5 This case involves the constitutionality of an unusual feature of Maryland’s personal income tax scheme.

Like many other States, Maryland taxes the income its residents earn both within and outside the State, as well as the income that nonresidents earn from sources within Maryland. But unlike most other States, Maryland does not offer its residents a full credit against the income taxes that they pay to other States. The effect of this scheme is that some of the income earned by Maryland residents outside the State is taxed twice. Maryland’s scheme creates an incentive for taxpayers to opt for intrastate rather than interstate economic activity. 575 U.S. at 545 .

The Supreme Court held that this discriminatory treatment (i.e., the less favorable tax treatment) of income earned by residents as a consequence of interstate commerce was a violation of the dormant Commerce Clause. Id. The Court of Appeals observed in Wynne II, 469 Md. at 75 : Both this Court and the Supreme Court held [in Wynne I] that extension of the tax credit to the county portion of the income tax would cure the constitutional defect, but both decisions also acknowledged that there might be other ways of adjusting the State income tax law that would avoid the sort of discrimination against interstate commerce forbidden by the dormant Commerce Clause. 431 Md. at 189 , 64 A.3d 453 ; [ 575 U.S. at 568 ,] 135 S. Ct. at 1806 . The General Assembly opted to amend the Maryland tax law “to allow a tax credit against the county portion, as well as the state portion, of the Maryland income tax for income taxes paid in other states.” Wynne II, 469 Md. at 75 and 78.

Sometime in 2013, after the Court of Appeals decided Wynne I, 431 Md. 147 , the Maizels’ accountant advised them that they should file amended returns to seek refunds for the taxes they had paid to cover the county portion of Maryland income taxes as to which they did not claim or receive credit for income taxes paid to New York and 6 California. The timeliness of the amended returns the Maizels filed in an effort to obtain such refunds is at issue in this appeal. For the years that are the subject of this appeal, the Maizels filed their original tax returns and amended returns on the following dates: TAX DATE SIGNATURE DATE AMENDED YEAR ORIGINAL DATE ON THE RETURN RETURN FILED AMENDED RECEIVED BY RETURN COMPTROLLER 2006 June 11, 2007 February 26, 2016 March 1, 2016 2007 April 14, 2008 February 26, 2016 March 1, 2016 2008 July 15, 2009 February 26, 2016 March 1, 2016 2009 June 16, 2010 October 10, 2013 October 28, 2013 2010 August 11, 2011 October 15, 2014 November 5, 2014 2011 October 5, 2012 October 14, 2015 October 20, 2015 The Comptroller denied the Maizels’ claims for these refunds as untimely pursuant to TG § 13-1104(c)(1), which, as noted above, requires that “a claim for refund or credit of overpayment of . . . income tax may not be filed after” the period of limitation in § 6511 of the Internal Revenue Code, which, in turn, requires federal claims to be filed within “3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later . . . .” 26 U.S.C. § 6511 . It is not disputed that each of the six amended returns filed by the Maizels (for the tax years 2006 through 2011) was filed after the period of limitations for claims of overpayment set forth in § 6511 of the Internal Revenue Code.

The Maizels appealed the Comptroller’s decision to the Tax Court. They asserted that the Supreme Court’s decision in Wynne I was the “final decision of the highest court to which an appeal . . . [wa]s taken” relative to the administrative ruling that 7 “established” their right to a refund, and their deadline for filing for a refund therefore qualified for the TG § 13-1104(j) exception to the normal period of limitations regardless of whether they were parties in the Wynne I litigation. But the Comptroller maintained that the normal period of limitations applied, and that the possible extension pursuant to TG § 13-1104(j) applied only to the parties who were the litigants in the administrative proceeding referred to in that subsection. The Tax Court agreed with the Comptroller’s position.

In its oral ruling, the Tax Court stated: [W]hen [TG § 13-1104(j)] says “a person’s Maryland income tax,” they’re talking about the individual taxpayer and that taxpayer’s process to get an administrative review of some fact of the taxpayer’s taxes or goes to court over some part of some fact or something that affects their taxes. It’s not intended for you to piggyback on someone else’s appeal process. . . . [T]his case applies to the Wynnes individually, all the way through the Supreme Court, because they were the persons that were doing the appealing. For the Supreme Court to say that the statute is unconstitutional, that did not change your individual situation with respect to your refund or not. It made the statute unconstitutional.

But whether or not you get a refund, you need to go look at the rest of the statutes of the state of Maryland to see how to apply for a refund and whether or not you are entitled to a refund. “J” doesn’t affect you. [Section] 13-1104(j) didn’t extend the time to you to file for a refund for you. It only did it for the people who did that appeal. By order dated October 11, 2017, the Tax Court affirmed the Comptroller’s denial of the Maizels’ claims for tax refunds. The Maizels sought judicial review in the Circuit Court for Montgomery County, which affirmed the decision of the Tax Court.

In a written opinion, Judge Ronald B. Rubin explained: At common law, a taxpayer had no right to a refund of taxes erroneously collected by or paid to the State. Absent a statute authorizing a 8 refund, a taxpayer who “voluntarily” albeit erroneously or incorrectly paid a tax could not sue the collector to recover. Apostol v. Anne Arundel County, 288 Md. 667, 672-73 (1980). If enacted, a statutory remedy is exclusive, and the statute serves both as the remedy and a limitation on the government’s liability to refund any “erroneously collected” tax.

See State v. Sharafeldin, 382 Md. 129, 147-50 (2004); Halle Dev., Inc. v. Anne Arundel County, 371 Md. 312, 324-30 (2002). Tax statutes of limitation cannot be ignored or modified by the Comptroller, see United States v. Garbutt Oil Co., 302 U.S. 528, 533-35 (1938), and are not subject to any “judge-made” equitable exceptions. See United States v. Brockamp, 519 U.S. 347, 352-54 (1997). The [Maizels’] claims for refund are barred because each claim was filed more than three years after the original return was filed.

The [Maizels] contend nonetheless that their refund claims did not ripen until the Supreme Court issued its decision in Wynne on May 18, 2015. They assert, therefore, that their claims fall within the exception described in § 13-1104(j). The court disagrees. *** The Supreme Court’s decision in Wynne did not make what Maryland did unconstitutional. The discriminatory tax was unconstitutional when it was enacted [in 1975].

The Supreme Court simply explained the Commerce Clause effect of Maryland’s system of taxation. Nothing in the Supreme Court’s decision (or, for that matter the earlier decision of the Court of Appeals) altered or created the [Maizels’] right to a refund. That right was established when they paid the unconstitutional tax. They simply waited too long to assert their claim. “A constitutional claim can become time-barred just as any other claim can.” Block v. North Dakota ex rel.

Board of Univ. and School Lands, 461 U.S. 273, 292 (1983). The exception created by § 13-1104(j) does not aid the [Maizels] because they did not receive a final decision from an administrative board or tribunal. In other words, § 13-1104(j) applies only to the specific taxpayer who received the final adjustment report from the Comptroller, or were parties to the appellate decision reviewing that adjustment. This reading of § 13-1104(j) is confirmed by a review of its legislative history and the facts of the case that spurred its enactment.

Suffice it to say that § 13-1104(j) was not enacted to aid taxpayers who do not file refund claims within the time required by § 13-1104(c), [and] do not themselves litigate the issues pertinent to their tax obligation but later simply come across a favorable appellate decision in a case prosecuted by some other taxpayer. The carefully crafted refund scheme established by § 13-1104(c) would 9 have no meaning if taxpayers, who failed to comply with it, were nonetheless allowed to bring refund claims simply because of action taken by some other taxpayer. See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 8-9 (2008). Contrary to their contentions, the [Maizels] were not denied due process.

The General Assembly has established a detailed refund scheme “that subjects complaining taxpayers to various requirements before they can bring suit.” United States v. Clintwood Elkhorn Mining Co., 553 U.S. at 11 . Nothing stopped the [Maizels] from complying with § 13-1104(c). They knew all of the facts necessary to prosecute their refund claims well before the Supreme Court decided Wynne. No action by the State government prevented the timely filing of their refund claims.

Like the taxpayers in Wynne, the [Maizels] could have challenged the validity of Maryland’s refusal to allow a credit for the “county” portion of the state income tax when they filed their returns or paid their taxes. The[y] did not do so, and cannot now be heard to complain that some inaction by the Comptroller interfered with their rights. . . . Similarly unavailing is the [Maizels’] contention that language in the 2015 Budget Reconciliation and Financing Act authorized refund claims independent of the pertinent provisions of the Tax General Article. The direction in Section 27 of the Act [calling] for the Attorney General to review the effect of Wynne simply did not dispense with otherwise applicable refund claim requirements.

Finally, the Maryland Tax Court did not plainly abuse its discretion when it denied the [Maizels’] motions to compel. See Brown v. Daniel Realty Co., 409 Md. 565, 583-84 (2009). That tribunal correctly balanced the [Maizels’] asserted need for the documents against the Comptroller’s privilege assertions. Hamilton v. Verdow, 287 Md. 544, 563-64 (1980).

This court cannot say that the Maryland Tax Court got it wrong, much less that its decision was so wide of the mark that it was not a reasonable exercise of discretion. In any event, the contested rulings, even if erroneous, have no effect on the outcome in this case. Any asserted evidentiary error, therefore, is harmless. The Maizels filed this timely appeal. 10 STANDARD OF REVIEW In Frey v. Comptroller of Treasury, 422 Md. 111, 136-38 (2011), cert. denied, 566 U.S. 905 (2012), the Court of Appeals described the standard of review of decisions of the Tax Court as follows: The Tax Court is “an adjudicatory administrative agency in the executive branch of state government.” Furnitureland S., Inc. v. Comptroller, 364 Md. 126 , 137 n.8, 771 A.2d 1061 , 1068 n.8 (2001).

As such, the Tax Court is subject to the same standards of judicial review as other administrative agencies. T.G. § 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.”); Supervisor of Assessments v. Hartge Yacht Yard, Inc., 379 Md. 452, 461 , 842 A.2d 732, 737 (2004). Moreover, because we are reviewing the decision of an administrative agency, our review looks “through the circuit court’s and intermediate appellate court’s decisions . . . and evaluates the decision of the agency.” People’s Counsel for Baltimore County v. Surina, 400 Md. 662, 681 , 929 A.2d 899, 910 (2007). . . . [W]e may not uphold the final decision of an administrative agency on grounds other than the findings and reasons set forth by the agency. Evans v. Burruss, 401 Md. 586, 593 , 933 A.2d 872, 876 (2007); Dep’t of Health & Mental Hygiene v. Campbell, 364 Md. 108, 123 , 771 A.2d 1051, 1060 (2001) (“[A]n appellate court will review an adjudicatory agency decision solely on the grounds relied upon by the agency.”).

Although we retain the power to review administrative decisions, judicial review of these decisions is narrow. We shall not “substitute [our] judgment for the expertise of those persons who constitute the administrative agency.” People’s Counsel for Baltimore County v. Loyola College in Md., 406 Md. 54, 66 , 956 A.2d 166, 173 (2008) (internal quotation marks omitted) (quoting United Parcel Serv., Inc. v. People’s Counsel for Baltimore County, 336 Md. 569, 576-77 , 650 A.2d 226, 230 (1994)). Accordingly, we review the Tax Court’s factual findings and the inferences drawn therefrom under a substantial evidence standard. Surina, 400 Md. at 681 , 929 A.2d at 910 ; Md. Aviation Admin. v. Noland, 386 Md. 556, 571 , 873 A.2d 1145, 1154 (2005) (“A reviewing court should defer to the agency’s fact-finding and drawing of inferences if they are supported by the record.” (quoting Bd. of Physician Quality Assurance v. Banks, 354 Md. 59, 67-69 , 729 A.2d 376, 380-81 (1999))).

Under this standard, we consider “whether a reasoning mind reasonably could have reached the 11 factual conclusion the agency reached.” State Ins. Comm’r v. Nat’l Bureau of Cas. Underwriters, 248 Md. 292, 309 , 236 A.2d 282, 292 (1967); see also Surina, 400 Md. at 681 , 929 A.2d at 910 (explaining that under the substantial evidence standard courts examine whether the administrative record contains “such evidence as a reasonable mind might accept as adequate to support a conclusion”) (internal quotation marks omitted) (quoting Mayor and Aldermen of Annapolis v. Annapolis Waterfront Co., 284 Md. 383, 398 , 396 A.2d 1080, 1089 (1979)). Just as we defer to an agency’s factual findings, we afford 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.

Surina, 400 Md. at 682 , 929 A.2d at 911 ; Noland, 386 Md. at 572 , 873 A.2d at 1154 . This deference, however, “extends only to the application of the statutes or regulations that the agency administers.” Loyola College, 406 Md. at 67 , 956 A.2d at 174 . When an agency’s decision is necessarily premised upon the “application and analysis of caselaw,” that decision rests upon “a purely legal issue uniquely within the ken of a reviewing court.” Id. at 67-68 , 956 A.2d at 174 . In this case [i.e., in Frey], the Tax Court’s decision required the application and analysis of cases interpreting the United States Constitution as well as the Maryland Constitution and Declaration of Rights.

Under these circumstances, we evaluate an agency’s legal conclusions to determine whether they are based upon an error of law, without deference to the agency’s determination. Id. at 68 , 956 A.2d at 174 ; Surina, 400 Md. at 683 , 929 A.2d at 911 ; Adventist Health Care, Inc. v. Md. Health Care Comm’n, 392 Md. 103, 120 , 896 A.2d 320, 331 (2006). DISCUSSION I. Statute of Limitations The Maizels do not contend that they filed any of the six amended tax returns that are the subject of this appeal within the time limit imposed by TG § 13-1104(c)(1). But they argue strenuously that TG § 13-1104(j) expressly provides an exception to the generally applicable time limit, and, they contend, its plain language permitted them to 12 file their claims for refunds within one year after the United States Supreme Court issued its opinion in Wynne I on May 18, 2015.

All of their amended returns were filed before May of 2016, and therefore, although all of the Maizels’ amended returns (for which refunds were denied) were filed beyond the time limit prescribed by TG § 13-1104(c)(1), the Maizels assert that their refund claims should nevertheless be considered timely pursuant to the exception provided in TG § 13-1104(j). As noted above, that subsection states: Notwithstanding subsection (c) of this section, a claim for refund or credit for overpayment of income tax attributable to a right to a reduction in a person’s Maryland income tax that is established by a decision of an administrative board or by an appeal of a decision of an administrative board may be filed within 1 year after the date of a final decision of the administrative board or a final decision of the highest court to which an appeal of a final decision of the administrative board is taken. The Maizels contend that the plain language of this statutory provision clearly and unambiguously applies to their situation. They claim that they meet the definition of “a