Pinder v. Dean

ALPERT, Judge. This “transfer tax” 1 case raises the question of the difference, if any, between the terms “consideration” and “actual consideration.” The facts are undisputed. George and Jane Dean (the Deans), appellees, purchased two parcels of property. The first was purchased on January 2, 1984, at $130,000.

This ²⁵⁴ parcel is known as the Buck Bacchus House. The second parcel, known as the Imperial Hotel, was purchased on April 15, 1984, for $175,000. Both parcels were held as tenants by the entirety. On May 4, 1984, the Deans created a Maryland corporation which they called the imperial Hotel, Inc. The following month, the Deans caused the corporation to issue 50 shares of stock, 25 shares to each of them.

It does not appear that they paid anything to the corporation for that stock, and, as the corporation had no assets at the time, the stock had no real value. Two days after acquiring the stock, the Board of Directors resolved that the corporation would borrow up to $1,375,000 to purchase and to develop the Imperial Hotel. Both the Imperial Hotel and the Bacchus House were transferred from the Deans to the corporation by a single deed dated September 14, 1984. No cash payment was made to the Deans at that time, nor was any additional stock issued to them.

Each continued to own a 50% interest in the corporation. The Deans offered the deed to appellant, Earl H. Pinder, Clerk of the Circuit Court for Kent County, for recording. The deed recited that the Deans conveyed the property to the corporation for “$1 and other good and valuable consideration.” The affidavit of consideration appended to the deed stated that “there is no consideration paid or to be paid for the foregoing conveyance.” Based on both prior and contemporaneous advice of the Office of the Attorney General, the Clerk refused to accept the deed without payment of tax assessed on the fair market value of the property conveyed. Accordingly, the Deans revised their affidavit of consideration so that it read, “the consideration paid or to be paid for the foregoing conveyance is Three Hundred and Five Thousand Dollars ($305,000).” The Deans arrived at that figure by adding together the sums they had previously paid to acquire the two properties. ²⁵⁵ The Clerk accepted the deed with the revised affidavit and assessed $4,056.50 in State and County transfer and recording taxes against the Deans.

This assessment was based on the figure included in the revised affidavit of consideration. The Deans paid the assessment under protest and the Clerk recorded their deed. Thereafter, the Deans filed a claim for refund of those taxes. Their claim was denied by the Clerk of the Circuit Court for Kent County.

On March 29, 1985, the Deans appealed that decision to the Maryland Tax Court, which denied the Deans’ appeal and affirmed the Clerk’s decision. The Deans then appealed the Tax Court decision to the Circuit Court for Kent County. In an articulate memorandum opinion and order dated May 23, 1986, the trial judge reversed the Maryland Tax Court and ordered the Clerk to refund the taxes. From this Order, the Clerk filed a timely appeal and raises the following questions: I. Did the Circuit Court apply an erroneous standard of review by substituting its judgment for that of the Tax Court on the factual question of whether there was consideration for the conveyance of real property from the Deans to Imperial Hotel, Inc.?

II

Even if the Court did not apply the wrong standard of judicial review, did the Circuit Court err in concluding that there was no consideration for the transfer of real property from the Deans to Imperial Hotel, Inc.? Since these two issues are interrelated, we will discuss them together and as our response to the second question is in the affirmative, we reverse. Article 81, section 229(o) of the Maryland Annotated Code sets out the standard for reviewing the findings of the Maryland Tax Court: Decision of circuit court.—In any case, the circuit court for the county shall determine the matter upon the record made in the Maryland Tax Court. The circuit ²⁵⁶ court shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported by substantial evidence appearing in the record.

In other cases, the circuit court may affirm, reverse, remand, or modify the order appealed from. . Md.Ann.Code art. 81, § 229(o) (1980). In Comptroller of the Treasury v. World Book Child-craft International, Inc., 67 Md.App. 424 , 508 A.2d 148 (1986), we outlined a three-step analysis necessary for the reviewing court to determine the correct standard of review. 1. First, the reviewing court must determine whether the agency recognized and applied the correct principles of law governing the case.

The reviewing court is not constrained to affirm the agency where its order “is premised solely upon an erroneous conclusion of law.” 2. Once it is determined that the agency did not err in its determination or interpretation of the applicable law, the reviewing court next examines the agency’s factual findings to determine if they are supported by substantial evidence, i.e., by such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Id. At this juncture, the Ramsay, Scarlett court reminds us that “it is the agency’s province to resolve conflicting evidence, and, where inconsistent inferences can be drawn from the same evidence, it is for the agency to draw the inference.” 3.

Finally, the reviewing court must examine how the agency applied the law to the facts. This, of course, is a judgmental process involving a mixed question of law and fact, and great deference must be accorded to the agency. The test of appellate review of this function is “whether, ... a reasoning mind could reasonably have reached the conclusion reached by the [agency], consistent with a proper application of the [controlling legal principles]”. Id. at 438-39 , 508 A.2d 148 ; Matthew Bender & Company v. Comptroller of the Treasury, 67 Md.App. 693, 703-12 , ²⁵⁷ 509 A.2d 702 (1986).

In United Parcel Service v. Comptroller of the Treasury, 69 Md.App. 458, 465 , 518 A.2d 164 (1986), we explained that “implicit in this methodology is the requirement that the reviewing court must distinguish among the Tax Court’s factual findings, legal conclusions, and applications of fact to law.” In the case sub judice, appellant contends that the Tax Court was called to act only as a factfinder and that the Circuit Court was then required to determine whether “the tax court [could] reasonably find the facts as it did.” Appellant states that the Circuit Court recognized this standard, but failed to apply it properly. Appellant concludes that the “circuit court cavalierly discounted the Tax Court’s finding.” Appellant has improperly described the tasks of the lower courts. To begin with, there was never any factual dispute in this case. To the contrary, at each stage of the controversy the parties submitted an agreed statement of fact from which there were no conflicting inferences to be drawn.

See Supervisor of Assessments of Montgomery County v. Group Health Association, Inc., 308 Md. 151 , 517 A.2d 1076 (1986). Thus, appellant’s characterization of the Tax Court as a mere factfinder is incorrect. Indeed, the parties agreed that the only conclusions which were to be reviewed by that court were legal conclusions and mixed conclusions of law and fact. Clearly then, the Tax Court was called to apply the law to the undisputed facts.

We must now examine how the Tax Court applied the law to those facts. This judgmental process involves a mixed question of law and fact and great deference must be accorded to the Tax Court. See Matthew Bender, supra, 67 Md.App. at 706, 509 A.2d 702 . Since the test is “whether ... a reasoning mind could reasonably have reached the conclusion reached by the [agency], consistent with a proper application of the [controlling legal principles]”, it is our ²⁵⁸ task to evaluate the legal analyses of the Tax and Circuit Courts to determine whether either is incorrect.

Both the Tax Court and the Circuit Court identified Article 81, Sections 277 and 278A as controlling. These sections impose a recording tax, Md.Ann. Code art. 88, § 277(a) (1980), fix the amount of the tax at “.5 percent of the actual consideration paid or to be paid for the conveyances of title,” Md.Ann.Code art. 88, § 278A(b)(l) (1980), and describe the instruments which must be filed before they will be accepted for recording. Md.Ann.Code art. 81, § 278A(b)(3) (1980). 2 Further, both courts considered the import of Pritchett v. Kidwell, 55 Md.App. 206 , 461 A.2d 57 (1983) (interpreting Article 81, sections 277 and 278A) on the issues before them. Nevertheless, after applying the same legal principles to an agreed upon set of facts, the two courts reached diametrically opposite results.

The Tax Court held that “actual consideration” was paid by the corporation to the Deans because the value of the stock they held increased after the transfer was effectuated. The consideration, in the Tax Court’s view, was the economic benefit which flowed to the Deans as a result of the transfer. The Tax Court explained: We disagree with the Petitioners in this case. Petitioner does argue that no consideration has been paid, but under Pritchett versus Kidwell, 55 Md. Court of Special Appeals 206, it’s very clear that actual consideration was paid because there has been some economic benefit which has flowed to the taxpayers.

The economic fact is that the value of the stock increased by the fair market value of the land. ²⁵⁹ We see no distinction between issuing new stock, where the stock was