Montgomery County v. Waters Landing Ltd. Partnership

CATHELL, Judge. Montgomery County, appellant, appeals the decision of the Circuit Court for Montgomery County holding that a development impact tax was invalid. Appellees, the Milton Company and Milton Knightsbridge Limited Partnership (Milton), Waters Landing Limited Partnership (Waters Landing), Belle-mead Development Corporation (Bellemead), and Morton S. Gottlieb (Gottlieb), are the taxpayers. Appellant raises the following issues on appeal: I. Whether the Court of Appeals in Eastern Diversified [v. Montgomery County, 319 Md. 45 , 570 A.2d 850 (1990) ] decided whether Montgomery County had the authority to enact a development impact tax under Chapter 808, Laws of Maryland 1963. 2.

Whether Montgomery County had the authority to enact a development impact tax under Chapter 808 and this authority was confirmed and clarified by Chapter 707, Laws of Maryland 1990. 3. Whether the development impact tax enacted in 1990 violates the Equal Protection Clause of the United States Constitution. ⁵ 4. Whether Montgomery County had the authority under Chapter 808 to enact a development impact tax and therefore, the County could correct retroactively any errors or defects in the original enactment of the tax. 5. Whether the original enactment of the development impact tax in 1986 substantially complied with the notice provisions of Chapter 808. 6.

Whether a County or Municipality may enact a law to take effect contingent upon the subsequent enactment by the General Assembly of enabling legislation. 7. Whether the development impact tax is an excise tax and not a tax on intangible personal property. 8. Whether the Maryland Tax Court’s [j jurisdiction is established by statute and can not be expanded by County law, consent of the parties, or estoppel. 9. Whether a premature appeal to the Maryland Tax Court must be dismissed for want of jurisdiction.

FACTS/PROCEDURAL HISTORY In 1986, Montgomery County enacted a development impact fee that was codified as Sections 49A-1 through 49A-14 of the Montgomery County Code. The development impact fee was a “fee” assessed on new construction within designated areas in Montgomery County, namely Germantown and Eastern Montgomery County, and had to be paid before a building permit would be issued for the new construction. The fee was assessed on a pro rata basis to fund a portion of the unprogrammed highway improvements needed to accommodate the traffic generated by new development. A developer challenged the County’s authority to enact the fee.

Montgomery County claimed it had authority under the County’s home rule powers granted in the Express Powers Act, Md.Code (1957, 1987 Repl.Vol.), Art. 25A § 5. The issues were taken to the Court of Appeals, which held that: In this case, the development impact fee imposed on new development is exacted solely for revenue purposes, is an involuntary paymerit of money, and the funds raised by the ⁶ fee are used to finance road construction which benefit the general public. Chapter 49A thus imposes a tax which Montgomery County is without authority to enact, and the development impact fee is therefore invalid. Eastern Diversified v. Montgomery County, 319 Md. 45, 55 , 570 A.2d 850 (1990).

In a footnote, the Court stated that “We do not decide whether the tax in this case is an excise, a property, or another type of tax.” Id. Chapter 808, Laws of Maryland 1963 was on the books at that time. Montgomery County, in its brief before the Court of Appeals, argued that if the Court held the fee invalid under Article 25A, the Court should hold that it is a valid tax under Chapter 808. Eastern Diversified argued that the Court should not address whether the fee would be valid as a tax under Chapter 808 because this issue was not raised below.

The Court of Appeals declined to address Chapter 808, apparently because it had not been addressed at the trial court. Thereafter, in response to Eastern Diversified , Montgomery County reimposed the impact fee as a tax in Emergency Bill 33-90 adopted April 27, 1990, which was codified in Sections 52-47 through 52-59 of the County Code under the authority of Chapter 808. Section 3 of Emergency Bill 33-90 provided that the act legalized and ratified the collection of all impact fees and taxes since July 29, 1986. The General Assembly then enacted Chapter 707, Laws of Maryland 1990, effective June 1, 1990 with the “purpose of clarifying and confirming the authority of Montgomery County to impose ... development impact taxes.... ” The development impact tax was then challenged by appellees in the case sub judice.

Gottlieb, Milton, and Bellemead paid impact taxes, were issued building permits, filed claims for refunds which were denied, and appealed to the Tax Court. The County is contending that Gottlieb filed his appeal to the Tax Court before the County acted on his request for a refund. Waters Landing submitted a letter of credit in lieu of payment of ⁷ impact taxes and was issued building permits. It did not file a claim for refund but nevertheless appealed to the Tax Court.

The Maryland Tax Court made the following findings: [The Court of Appeals in Eastern Diversified did not hold that] the County is without authority to impose an impact tax[, but rather it held] ... that the County cannot [sic] impose a tax and call it a fee---- [T]he grant of taxing authority by the Legislature to Montgomery County was not considered by the Court to be a relevant concern. The impact tax is an excise tax which Montgomery County may enact through the authority vested by Chapter 808 of the Laws of Maryland, 1963. However, it did not do so until the effective date of Emergency Bill 33-90, April 27, 1990. ... [T]here is nothing for the County to adopt and validate because the impact fee was a nullity. [The impact tax may not be retroactively applied because the bill reimposing the fee as a tax] ... does not rectify a technical defect. There is a substantial change from the unauthorized fee to the authorization of a tax.

The power of imposition, standing alone, cannot create retroactively, a tax the County now says it intended to levy. ... [T]o the extent Bill 33-90 is retroactive, it is invalid.... ... [T]he impact tax applied to the assigned impact tax districts ... [is] rationally and reasonably based. [There is no] ... violation of [the] [E]qual [Protection [Clause in the 14th Amendment to the United States Constitution.] ... [Gottlieb] appealed to ... [the Tax] Court pursuant to the direction of the County. [There is] ... appropriate jurisdiction and no basis for dismissal. ⁸ The County appealed the Tax Court’s decision to the Circuit Court for Montgomery County. The circuit court’s findings, which we rephrase as follows, include: The Court of Appeals in Eastern Diversified held that Montgomery County did not have authority under Chapter 808, Laws of Maryland 1963 to enact a development impact tax. Since the County did not have authority under Chapter 808, the County did not have authority to enact such a tax until Chapter 707 became effective and therefore, the tax could not be retroactively applied. Waters Landing had standing to appeal to the Tax Court because the posting of the bond is tantamount to payment.

Gottlieb had standing because the October 4th letter notifying him of the validity of the tax was tantamount to a denial of a request for a refund. The development impact tax, in its current form, violates Article 15 of the Maryland Declaration of Rights in the Maryland Constitution which requires uniform treatment as to the assessment of property taxes. The notification requirements of Chapter 808 were not met. The development impact tax was not an excise tax but a tax on an intangible.

This appeal followed. 1. THE EASTERN DIVERSIFIED CASE Montgomery County contends that the Court of Appeals, in Eastern Diversified , did not decide whether it had authority to enact an impact tax under Chapter 808, Laws of Maryland 1963. The Tax Court found that the Court of Appeals did not consider the authority to enact a development impact tax in general under Chapter 808, but instead, considered the authority of the County to enact a tax which it called a fee. The Tax Court held that the County was without authority to enact a tax in that manner under Chapter 808.

The circuit court interpreted Eastern Diversified as holding that the county did ⁹ not have authority under Chapter 808 to enact a development impact tax. The Tax Court and the circuit court were incorrect. The Court of Appeals stated in Eastern Diversified : In this case, the 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 the general public. Chapter 49A thus imposes a tax which Montgomery County is without authority to enact, and the development impact fee is therefore invalid.

Eastern Diversified, 319 Md. at 55 , 570 A.2d 850 . In footnote 4, the Court of Appeals stated “We do not decide whether the tax in this case is an excise, a property, or another type of tax.” Id. The holding of the Court of Appeals in Eastern Diversified is that the county did not have authority under its home rule powers in Article 25A of the Annotated Code to enact a development impact tax. The Court, however, did not address whether the tax could be validly enacted under Chapter 808.

The Court made no mention of Chapter 808 in its decision. Chapter 808, § 1, paragraph (a) provides: The County Council for Montgomery County is hereby empowered and authorized to have and exercise, within the limits of the county ... 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.... Chapter 808, § 1, paragraph (b) limits Montgomery County’s authority to tax by listing several exceptions to the County’s general taxing power including “that the Council shall not have the power to impose any tax upon any ... intangible personal property.... ” The Court of Appeals, in Montgomery County v. Maryland Soft Drink Ass’n, 281 Md. 116, 127-31 , 377 A.2d 486 (1977), had earlier recognized Montgomery County’s general taxing authority under Chapter 808, codified in section 52-17 of the Montgomery County Code, subject to certain limitations. The ¹⁰ tax, which the Court upheld, was an excise tax Montgomery County placed on the act of supplying non-reusable beverage containers.

Id. at 125-27 , 377 A.2d 486 . Based on Maryland, Soft Drink Association, the language of Chapter 808, and the Court’s failure to mention Chapter 808, we interpret footnote 4 in Eastern Diversified to mean the Court of Appeals was not deciding whether a development impact tax in general would be valid under Chapter 808. Certainly, the Court of Appeals was aware of the existence of Chapter 808; in its brief to the Court of Appeals in Eastern Diversified , Montgomery County argued that if the Court found the fee was in fact a tax, the Court should hold the County had authority to enact the tax under Chapter 808. Eastern Diversified argued in its brief that since the County had not raised the issue of its authority to enact a development impact tax under Chapter 808 in the circuit court, the County could not raise the issue on appeal.

We think the footnote indicates that the Court accepted Eastern Diversified’s position that the matter had not been raised and thus was not then properly before that Court. The Circuit Court for Montgomery County interpreted the holding of Eastern Diversified to mean that the County did not have authority to enact a development impact tax, even under the authority of Chapter 808. As we have indicated, we think that the circuit court’s interpretation does not properly reflect the Court of Appeals’ holding. A determination of Montgomery County’s authority to enact a “development impact tax” would necessarily involve a decision as to what type of tax the “development impact tax” was.

If it was a tax on intangible personal property or another type of tax prohibited by Chapter 808, § 1, paragraph (b), then the County would not have any authority to impose it under Chapter 808. If, however, a development impact tax was a type of tax that was within the State’s power to assess and not otherwise prohibited, then the County would have authority to enact it. Thus, if Chapter 808 had been considered, the Court would have had to decide the issue that it stated it was not deciding—the type ¹¹ of tax. It is in that context that footnote 4 has the most relevance to the Court’s decision. 2.

MONTGOMERY COUNTY’S AUTHORITY TO ENACT A DEVELOPMENT IMPACT TAX UNDER CHAPTER 808 7. THE IMPACT TAX IS AN EXCISE TAX Appellant gives two reasons for finding that it had authority under Chapter 808 to enact a development impact tax: (1) Chapter 808, § 1, paragraph (a) provides “The County Council for Montgomery County is ... authorized to have ... the power to tax to the same extent as the state has ... as a part of its general taxing power;” and (2) Chapter 707 enacted in 1990 was enacted “[for] the purpose of clarifying and confirming the authority of Montgomery County to impose and provide for the collection of development impact taxes.... ” The only statute that could have been clarified and confirmed by Chapter 707 of the Acts of 1990 was Chapter 808 of the Acts of 1963. 1 By its use of language that necessarily related to the prior statute in the context of impact fees, the Legislature recognized that impact taxes are excise taxes, not property taxes. We further note that Chapter 808 contains an extensive listing of various taxes that are exempted from the taxing authority there granted. The exemptions include: Gasoline taxes, motor vehicle registration, titling taxes, motor vehicle taxation, income tax, taxes on parimutuel betting, bonus taxes, taxes on corporations, franchises, recordation taxes, corporate recordation taxes, taxes on bank deposits, taxes on insurance premiums, inheritance taxes, estate taxes, taxes on commissions, tobacco taxes, sales taxes, taxes on alcoholic beverages and on intangible personal property.

Conspicuously absent from the ¹² list of exemptions from the authority being granted Montgomery County is “impact taxes.” The general principles of statutory construction applicable in regard to the meaning of Chapter 808 of the Acts of 1963 and Chapter 707 of the Acts of 1990 are important to the issue of whether Chapter 808 permits the taxes in the first instance, but of particular importance is that rule of construction used when statutes contain exemptions. Because the interpretation of a statutory provision exempting certain activities from its scope is involved, we are constrained to apply a strict construction analysis.... ... “[Sjtrict construction” is in no way violated if the words ... are given their full meaning. [Citation omitted.] The term “excludes mere implications, but does not require a literal and blind adhesion to mere words.” Howard County v. Carroll, 71 Md.App. 635, 644-45 , 526 A.2d 996 (1987) (citations omitted), quoting from McKeon v. State, 211 Md. 437, 443-44 , 127 A.2d 635 (1956). One of the early cases dealing with such provisions in statutes was Johns v. Hodges, 62 Md. 525, 537 (1884), where the Court opined: The office of a proviso in a statute is either to restrain its general application or except something from it and exclude misinterpretation. The same authority says it is always to be strictly construed.

This provision is in the nature of a proviso, and must be construed accordingly, by giving it a strict construction and restricting the exception within the limits which the language naturally imports. [Citation omitted.] In the case sub judice, Chapter 808 provides that Montgomery County is authorized to “tax to the same extent as the state ... could ... as a part of its general taxing power____” The Act then contains the specific exceptions to the County’s taxing authority we have mentioned. Under the strict construction rule in regard to provisions contained in statutes, and given the language of the statute, the act confers upon Montgomery County all of the State’s power to tax except in those areas specifically exempted. By the inclusion ¹³ of general broad taxing authority, and the inclusion of specific exemption provisions to that authority it is clear that the General Assembly did not intend to impose any limits upon the County’s taxing powers other than those contained in the exemptions. Chapter 707’s clarifying and confirming purposes, coupled with the specific reference to impact taxes, indicates the Legislature’s belief that its intentions when it enacted Chapter 808 were to give the County authority to enact impact taxes.

We hold, therefore, that the County had the power to impose impact taxes in 1986, despite the fact that the statute actually imposing them recited an inapplicable statutory source of power. The Court of Appeals opinion in Eastern Diversified , in the circumstances of that case, was limited to a holding that Article 25A (the Home Rule Act) did not grant the authority. It did not address Chapter 808. Therefore, its holding there in no way applies to Chapter 808’s separate statutory authority.

We shall further address this issue in holding that the development impact tax is an excise tax that the County had authority to enact under the language of Chapter 808, § 1, paragraph (a) and Maryland Soft Drink Ass’n, 281 Md. at 127 , 377 A.2d 486 . “The line that separates an excise tax from a property tax is a difficult one to draw, and courts have not fully succeeded in developing a truly useful definition of either concept.” Weaver v. Prince George’s County, 281 Md. 349, 356 , 379 A.2d 399 (1977) (citing Blaustein v. Tax Comm’n, 176 Md. 423, 426 , 4 A.2d 861 (1939)). A three-part test, however, has been developed to help distinguish between property and excise taxes, which is: (1) the designation placed on the tax by the legislature; (2) the subject matter of the tax; and (3) the incidents of the tax, ie., the manner in which it is assessed and the measure of the tax. Id. The legislation defines this development impact tax as “a pro rata tax imposed before a building permit is issued for development in an impact tax district which is intended to defray a portion of the costs associated with impact highway improvements in the tax district that are necessary to accom ¹⁴ modate the traffic generated by the development.” Montgomery County Code sec. 52-47(h).

This definition does not clearly designate the tax as either a property tax or an excise tax. “[A] property tax is a charge on the owner of the property by reason of his ownership alone without regard to any use that might be made of it.... ” Weaver, 281 Md. at 357 , 379 A.2d 399 (citing Bromley v. McCaughn, 280 U.S. 124, 136 , 50 S.Ct. 46, 47 , 74 L.Ed. 226 (1929)); Dawson v. Kentucky Distilleries Co., 255 U.S. 288, 294 , 41 S.Ct. 272, 275 , 65 L.Ed. 638 (1921); Flint v. Stone Tracy Co., 220 U.S. 107, 152 , 31 S.Ct. 342, 349 , 55 L.Ed. 389 (1911); Herman v. M. & C.C. of Baltimore, 189 Md. 191, 197 , 55 A.2d 491 (1947)). “[T]he modern conception of an excise tax includes any tax not levied directly on the ownership of property as such.” Weaver, 281 Md. at 362 , 379 A.2d 399 . The subject matter of this tax is the end point decision to apply for actual permits to physically develop real property. Thus, the tax at issue here is on the use of property and is not a tax on the owner of the property solely because of his or her ownership of property. Should the owner never decide to develop the property at all, no impact tax would ever need be paid and the owner would continue to own the property without this tax being imposed upon it.

Thus, it is not a tax on ownership, i.e., it is not a property tax. The subject matter of the tax is a single definitive use of the property and, therefore, more like an excise tax. The development impact tax is assessed in the following manner. First, impact tax districts are established -within the county.

These are areas where it has been determined that the current (and presently planned) highway and transportation systems will be overburdened by additional development. Second, only when a party attempts to build or physically improve his or her property is there assessed a development impact tax based on “the number and type of dwelling units and square footage and type of nonresidential development,” Montgomery County Code sec. 52^8(h), before a building permit is issued. ¹⁵ “[I]t has been held that where a tax is levied directly by the Legislature without assessment and is measured by the extent to which a privilege is exercised by a taxpayer without regard to the nature or value of his assets, it is an excise. Where, however, the tax is computed upon a valuation of the property and is assessed by assessors, and where the failure to pay the tax results in a lien against the property it is a property tax, even though a privilege might be included in the valuation.” Weaver, 281 Md. at 358 , 379 A.2d 399 (citing Society for Savings v. Coite, 73 U.S. (6 Wall) 594, 610, 18 L.Ed. 897 (1868); Maryland Soft Drink Ass’n, 281 Md. at 127, 377 A.2d 486 ; Walker v. Bedford, 93 Colo. 400 , 26 P.2d 1051, 1053 (1933)). Moreover, the manner in which this tax is levied is more like an excise tax than a property tax because it is based on the size and type of the proposed development and not the value of the property or an assessment of its value.

Appellees maintain that the size of the development determines its value and therefore basing the tax on size is the same as basing it on value. We disagree. Size may be one indication of value but, at best, it is an indirect indication and in no event is it the sole factor in determining value. In addition, although the failure to pay the tax can eventually result in a lien against the property, Montgomery County Code sec. 52—50(i), which is normally indicative of a property tax, Weaver, 281 Md. at 358 , 379 A.2d 399 , the failure to pay the tax will first prevent the Department of Environmental Protection from issuing a building permit.

Montgomery County Code sec. 52-50(c). It appears that, under the County Code, it is only in the rare and unlikely situations where, contrary to sec. 52-50(c), the Department of Environmental Protection issues a building permit before the tax has been paid or where the property is developed without a building permit, that the property would be subject to a lien for failure of the property owner to pay the development impact tax. In other words, the primary method that the County will use to collect the tax is to wait until the tax on the use is paid before issuing the permit permitting construction of the land or structural improvements. Only in rare cases would situations ¹⁶ occur where a lien would be placed on property for the failure to pay this tax.

Further, section 52-18D of the Montgomery County Code permits a lien to be imposed on the property of a taxpayer who fails to pay any excise tax. Thus, under the Montgomery County taxing scheme, the fact that a lien is placed on a taxpayer’s property for failure to pay a tax is not an indication of whether the tax is a property or an excise tax. Property taxes are payable on specific dates. Weaver, 281 Md. at 364 , 379 A.2d 399 .

The development impact taxes are not due on a specific date but rather are due before a building permit is issued. For all of these reasons, we hold the development impact tax is an excise tax and not a tax on intangible property. 3A. The MARYLAND CONSTITUTION 2 In finding the tax unconstitutional, the circuit court stated: I am also going to since you are going on these issues take also a somewhat giant step which I am not totally comfortable with but hold that the tax itself, the impact tax, and it is not to suggest that you cannot impose an impact under the authority granted by the legislature that would meet constitutional muster, but the tax as it is imposed in this instance is constitutionally invalid. ... [A] subdivision plan approval is subject to the requirement that they establish that the existing facilities are adequate to support the development of that property including traffic which must make a specific finding. Since there is a requirement and a determination that the property is suitable for development and the present road conditions are sufficient to meet the traffic that is going to be generated by the proposed development to then put an impact tax for the improvement of the road to now meet ¹⁷ what they say is traffic that is going to be generated by the development which is now not sufficient is an unconstitutional tax on that development for the benefit of both existing and future developments.

I guess if you had one where it said fine, we will improve the roads and the improvement will end right at your property line the argument might be somewhat different. But to suggest that the entire project that they have to pay a proportion of it in order to generate sufficient revenue to meet the County’s proposed projects for road improvements violates the Maryland Constitution of equal taxation and accordingly [I] will strike down the entire impact tax as being unconstitutional in its application to require a building permit for these developments before they can get that building permit. [Emphasis added.] Earlier in its decision, the circuit court found that the impact tax was not an excise tax but a tax on an intangible. It thus appears that the circuit court based its decision that the tax was unconstitutional, at least in part, on Article 15 of the Maryland Declaration of Rights in the Maryland Constitution. Article 15 of the Maryland Declaration of Rights provides: That the levying of taxes by the poll is grievous and oppressive and ought to be prohibited; that paupers ought not to be assessed for the support of the government; that the General Assembly shall, by uniform rules, provide for the separate assessment, classification and sub-classification of land, improvements on land and personal property, as it may deem proper; and all taxes thereafter provided to be levied by the State for the support of the general State Government, and by the Counties and by the City of Baltimore for their respective purposes, shall be uniform within each class or sub-class of land, improvements on land and personal property which the respective taxing powers may have directed to be subjected to the tax levy; yet fines, duties or taxes may properly and justly be imposed, or laid with a political view for the good government and benefit of the community. ¹⁸ Cases interpreting Article 15 “go to the extent of holding, and no further, that when taxes are laid directly upon property, they must be equal and uniform upon all property in the State.” State v. Philadelphia, Wilmington and Baltimore R.R. Co., 45 Md. 361, 378 (1876) (emphasis in original). “As the current formulation of the Article makes clear, however, the requirement that taxes be equal and uniform applies only to property taxes.” Weaver, 281 Md. at 355 , 379 A.2d 399 (citations omitted).

The language of the Article, “[Y]et fines, duties or taxes may properly and justly be imposed, or laid with a political view for the good government and benefit of the community,” has been interpreted to “depart from the principle of uniformity in taxation where the particular revenue measure enacted was an excise.... ” Id. As we have decided, the circuit court erred in determining the development impact tax was a tax on intangible personal property. It is an excise tax, not a property tax. Therefore, the tax is not subject to the uniformity requirements of Article 15. 3B.

THE UNITED STATES CONSTITUTION 3 It is not clear that the circuit court held the tax unconstitutional under the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. Since the parties raise the Equal Protection issue, however, we shall address it. The development impact tax passes constitutional muster under the Equal Protection Clause of the 14th Amendment to the United States Constitution. The Supreme Court stated in Nordlinger v. Hahn, — U.S. —, —, 112 S.Ct. 2326, 2331-32 , 120 L.Ed.2d 1 (1992) that this Court’s cases are clear that unless a classification warrants some form of heightened review because it jeopardizes exercise of a fundamental right or categorizes on the ¹⁹ basis of an inherently suspect characteristic, the Equal Protection Clause requires only that the classification rationally further a legitimate state interest.

There have been no claims that the development impact tax jeopardizes the exercise of a fundamental right or that it categorizes on the basis of an inherently suspect characteristic. Therefore, the tax must be examined under the rational basis test. In general, the Equal Protection Clause is satisfied so long as there is a plausible policy reason for the classification, see United States Railroad Retirement Bd. v. Fritz, 449 U.S. 166, 174, 179 , 101 S.Ct. 453, 459, 461 , 66 L.Ed.2d 368 (1980), the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decision maker, see Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 464 , 101 S.Ct. 715, 724 , 66