O'Donnell v. Comptroller of the Treasury

Smith, J., delivered the opinion of the Court. We here find ourselves concerned with what quite obviously is a matter of principle since the amount of taxes involved including interest and penalty was but $44.62 when the matter was determined by the Maryland Tax Court. The question presented is whether a Maryland lawyer who gives up his private practice to accept appointment to a judicial office is permitted to deduct in the computation of his taxable income for Maryland income tax purposes his filing fees and campaign expenses connected with his subsequent election to that office. Since the adoption of Art. Ill, § 35A of the Constitution of Maryland by the people of Maryland on November 5, 1940, possibly as a sequel to Gordy v. Dennis, 176 Md. 106 , 5 A. 2d 69 (1939), the salary of Maryland judges has been taxable by the State.

Oddly enough, Judge William J. O’Donnell, appellant here with his wife, was bailiff to Baltimore Chief Judge Samuel K. Dennis, the appellee in that case, at the time of the 1939 litigation. ⁴¹⁴ The facts are not in dispute. On September 16, 1964, Judge O’Donnell, who was then the State’s Attorney for Baltimore City, was appointed as a Baltimore City trial judge by the Governor of Maryland. He resigned as State’s Attorney and took his oath of office as judge on October 5, 1964. In order to remain in office two years later in accordance with Art. IV, § 5 of the Constitution he was obliged to seek election by the people of Baltimore City to that office.

Since he filed in both the Republican and Democratic primaries, he incurred filing fees of $300, $25 for each of the legislative districts of Baltimore City for each nomination, under what was then Code (1957) Art. 33, § 57 (a), the fee being payable under § 59 (a) by “[t]he Board of Supervisors of Elections of Baltimore City ... to the mayor and city council of Baltimore.” Under “the sitting judge policy” discussed in Smith v. Higinbothom, 187 Md. 115 , 48 A. 2d 754 (1946), Judge O’Donnell paid an “assessment” in the amount of $500 to the Committee of the Bar Association of Baltimore City for the Election of the Sitting Judges. After the deduction of campaign contributions he had other expenses of $44.41 in connection with his successful campaign for election. He claimed the total of $844.41 as a deduction on his 1966 Maryland income tax return. This sum was disallowed by the Comptroller and by the Maryland Tax Court, thus producing this appeal.

Code (1957, 1965 Repl. Vol.) Art. 81, § 304 (a) in effect at the time here relevant, unchanged since then, required the Comptroller to “apply as far as practicable the administrative and judicial interpretations of the federal income tax law.” The provisions of law here involved are Art. 81, § 281 (a) permitting deduction of “[a] 11 ordinary and necessary expenses . . . paid or incurred during the taxable year in carrying on any trade or business . . .” and § 281 (n) allowing deduction of “[a] 11 ordinary and necessary expenses . . . paid or incurred during the taxable year for the acquisition of income . . . .” These sections have been replaced by Chapter 142 of the Acts of 1967 so that § 281 (a) now provides that if a ⁴¹⁵ resident individual “has itemized his deductions from adjusted gross income in determining his federal taxable income, he may elect in determining his taxable income under [Article 81] to deduct the sum of such itemized deductions.” The taxpayers here put forth three theories under which they should be permitted to deduct these expenses, (1) that the expenditures were ordinary and necessary expenses in the carrying on of a trade or business, (2) that they were ordinary and necessary expenses paid or incurred in the acquisition of income, and (3) that the filing fees constituted taxes. In McDonald v. Commissioner of Internal Revenue, 323 U. S. 57 , 65 S. Ct. 96 , 89 L. Ed. 68 (1944), the Supreme Court had before it the question of the deductibility of campaign expenses of an individual who gave up his private law practice to accept appointment to the Court of Common Pleas of