Montgomery County Board of Realtors, Inc. v. Montgomery County

Smith, J., delivered the opinion of the Court. Apparently piqued at what it regarded as inadequate real property assessments, Montgomery County enacted a tax statute intended, as put in its brief, to be applicable to a seller who “is revealed to have derived real income from his property in that he enjoyed the use of the property at a lesser tax burden than the sale reveals he should have borne” and to thus impose “an excise on that income, taken, not retroactively, but at the time he is both revealed to have enjoyed the income and at the time he realizes it.” It was characterized by the trial judge as “an excise ... on ‘windfall’ profits.” We shall hold that the County exceeded its authority. ¹⁰³ In 1977 the Montgomery County Council enacted a statute it titled “Real Property Tax Recapture.” It imposes “upon the occasion of the transfer of real property located in Montgomery County a tax on the amount by which the taxable value of such property on the date of recognition exceeds the assessed valuation of that property.” The tax is calculated “by multiplying the amount so determined by .037 ($3.70 per hundred dollars).” Subject to the provisions of a succeeding paragraph relative to situations where boundary lines may have changed, the term “assessed valuation” is defined as “the actual assessed valuation of such property on which annual property taxes are payable as determined on the date of finality immediately preceding the date of recognition.” The act provides, “Taxable value of real property on the date of recognition shall be determined by multiplying by 0.45 the consideration received for the transfer of such property and subtracting eight thousand dollars ($8,000) from the resulting product.” Provision is then made that if subsequent to the date of finality “immediately preceding the date of recognition, betterments have been made to real property subject to the tax ..., the cost of such betterments incurred by the person transferring the property may be deducted from the consideration received for the transfer of that property prior to calculating the taxable value of such real property on the date of recognition.” The term “betterments” is said to “mean all physical changes to the property which tend to increase the value thereof.” The date of finality is defined as “January 1, the date as of which assessments of real property become final for the taxable year next following,” while “date of recognition” is said to “mean the date on which the transfer of real property takes place.” The term “transfer” includes a conveyance in fee simple or the transfer of a partial interest in real property. A number of exemptions are provided in the tax statute. These include that there shall be no tax applicable “to the initial transfer of property on which there is new construction or on which major betterments have been constructed subsequent to the date of finality immediately preceding the date of recognition,” transfers by certain nonprofit ¹⁰⁴ organizations, and other exemptions not relevant to our discussion here. 1 The act further provided that the transferor of property subject to the tax was “solely liable for the payment of the tax”; that it should “be paid at the time of or prior to the presentation of any instrument to the County Supervisor of Assessments for transfer ... on the assessment records of the County”; and that in the case of a transfer of an interest in real property “which is not required by law or ordinance to be transferred on the assessment records of the County, the tax shall be paid before any instrument conveying such interest shall be presented to the Clerk of the Circuit Court for recordation.” 2 Further provision was made for appraisal by the Director of Finance if he had reason to believe that the consideration had been incorrectly stated.

Appellants John C. Walker Realty Corp. and Edward W. Schultz had sold property said to be subject to the tax. Montgomery County Board of Realtors, Inc., owns real property in Montgomery County. Also, in the bill of complaint brought by it, Walker and Schultz, it is said that it “represents over 8,500 real estate brokers and sales persons in Montgomery County ....” The three filed a suit praying that the statute in question might “be declared illegal, unconstitutional and void” and that the County might be directed to refund the monies previously paid by the plaintiffs. ¹⁰⁵ The contentions of the parties were summed up by the chancellor: Plaintiffs in asking the Court to declare Section 52-16C unconstitutional claim: 1. That the law imposes an additional property tax at the time of transfer of certain properties and that it is therefore a property tax and as such violates the uniformity provision of Article 15 of the Maryland Declaration of Rights. 2.

That the Act is in violation of State law regulating real property assessments. 8. That alternatively, if the Act is deemed to impose a transfer tax it is invalid because there are specific provisions elsewhere in the Montgomery County Code governing imposition of transfer taxes, which provisions were not here complied with. 4. That alternatively, if the Act is held to impose neither a property tax nor a transfer tax, the tax imposed would amount to an illegal and arbitrary excise tax. The defendant, Montgomery County, contends that the Act imposes an excise tax (other than a transfer tax) and that said tax is not arbitrary under constitutional standards.

He concluded: In brief, we find the tax imposed is an excise. We agree with defendant that it imposes a tax on "windfall” profits. As such, we think it meets the expanded definition of an excise as discussed in Weaver v. Prince George’s County, 281 Md. 349 , where the Court at page 357 said: “More recently, courts have employed a more expanded definition. In Continental Motors Corp. v. Township of Muskegon, 376 Mich. 170 , 135 N.W.2d 908, 911 (1965), an excise was defined as ‘a tax imposed upon the performance ¹⁰⁶ of an act, the engaging in an occupation, or the enjoyment of a privilege.’ Accord, Village of Lombard v. Illinois Bell Telephone Co., 405 Ill. 209 , 90 N.E.2d 105, 108 (1950); Callaway v. City of Overland Park, 211 Kan. 646 , 508 P.2d 902, 907 (1973).

Indeed, an excise is said to embrace every form of taxation that is not a burden directly imposed on persons or property. Gila Meat Co. v. State, 35 Ariz. 194 , 276 P. 1, 2 (1929); City of Glendale v. Trondsen, 48 Cal. 2d 93 , 308 P.2d 1, 7 (1957).” Thus, he declared the tax in question “to be a constitutionally valid and enforcible Act of the County Council for Montgomery County..., enacted pursuant to its legislative powers.” The appellants entered an appeal to the Court of Special Appeals. We granted a writ of certiorari prior to hearing in that court. Montgomery County is a “charter” county, the first county in the State (as distinguished from Baltimore City) to invoke the provisions of Maryland Constitution Art. XI-A relative to home rule.

Art. XI-A, § 2 provides that the General Assembly “shall by public general law provide a grant of express powers for such County or Counties as may thereafter form a charter” and that such powers “shall not be enlarged or extended by any charter formed under the provisions of th[at] Article, but such powers may be extended, modified, amended or repealed by the General Assembly.” By Art. XI-A, § 3 the County Council of Montgomery County has “full power to enact local laws of said ... County including the power to repeal or amend local laws of said ... County enacted by the General Assembly, upon all matters covered by the express powers granted,” with certain limitations not here applicable, except for the provision “that in case of any conflict between said local law and any Public General Law ... the Public General Law shall control.” Maryland Code (1957, 1973 Repl. Vol., 1979 Cum.

Supp.) Art. 25A, § 5 (O), a part of the Express Powers Act, grants all home rule counties the power to levy a property tax. It ¹⁰⁷ appears to grant no general taxing power. See Mont. Co. v. Md Soft Drink Ass’n, 281 Md. 116, 129-30 , 377 A.2d 486 (1977).

The County claims its power to enact this taxing statute is derived from Chapter 808 of the Acts of 1963 which authorizes the County Council for Montgomery County “to have and exercise, within the limits of the county, in addition to any and all taxing powers [t]heretofore granted by the General Assembly, the power to tax to the same extent as the state has or could exercise said power within the limits of the county as a part of its general taxing power,” with certain limitations, one of which we shall hereafter mention relative to income taxes. The tax with which we are here involved has earmarks of a property tax but does not completely coincide with the definitions of a property tax set forth by Judge Levine for the Court in Weaver v. Prince George’s County, 281 Md. 349, 357 , 379 A.2d 399 (1977). Admittedly