Pressman v. State Tax Commission

Delaplaine, J., delivered the opinion of the Court. These two suits challenge the constitutionality of Chapter 783 of the Laws of Maryland of 1953, which amends the State Revenue and Tax Law by reducing the franchise tax on the mutual savings banks situated in this State. Code 1951, art. 81, sec. 126. Both suits were filed in the Circuit Court of Baltimore City.

One was filed by Hyman A. Pressman, a citizen and taxpayer of Baltimore, against the State Tax Commission, State Comptroller, and the savings banks. The other was filed by the Mayor and City Council of Baltimore against the State Tax Commission, State Comptroller, State Treasurer, Attorney General, and the savings banks. Complainants prayed for a judicial declaration that the Act of 1953 is unconstitutional and for an injunction prohibiting the State Tax Commission, in calculating the amounts of the franchise taxes to be paid by the savings banks for 1954 and annually thereafter, from using a rate lower than that prescribed by the Revenue and Tax Law prior to the passage of the Act, i.e., one-fourth of one per cent on the total amount of deposits. In each case defendants demurred to the bill of complaint.

Each appeal is from a decree sustaining the demurrers and dismissing the bill. We consider at the outset the suggestion of defendants that declaratory judgment proceedings are not proper in these cases for the reason that a special form of remedy is provided for cases of this nature. They rely on the following provision of the Uniform Declaratory Judgments Act: “When, however, a statute provides a special form of remedy for a specific type of case, that statutory remedy must be followed; but the mere fact that an actual or threatened controversy is susceptible ⁸³ of relief through a general common law remedy, or an equitable remedy, or an extraordinary legal remedy, whether such remedy is recognized or regulated by statute or not, shall not debar a party from the privilege of obtaining a declaratory judgment or decree in any case in which the other essentials to such relief are present; * * Code 1951, art. 31A, sec. 6. It is true that the Eevenue and Tax Law expressly provides that any taxpayer or any City, claiming to be aggrieved because of any final action taken by the State Tax Commission, in the exercise of its original jurisdiction in assessing any property or computing any tax, has the right to appeal to the Circuit Court of any County or the Circuit Court or Circuit Court No. 2 of Baltimore City, in which the property may be situated, or in which the taxpayer may reside or be taxable in respect thereto, or in which the office of the Commission may be situated.

From the decision of the Court hearing such appeal, any party may take an appeal to the Court of Appeals. Code 1951, art. 81, sec. 255. Thus, in Reiling v. Comptroller of Maryland, 201 Md. 384 , 94 A. 2d 261 , where an employee of the Government in Washington, who maintained citizenship and domicile in the State of Illinois, but owned a home and resided in the State of Maryland, had been notified by the State Comptroller of the estimated assessment of Maryland income tax, it was held that his remedy was an appeal in the manner provided by the statute, and he could not maintain a suit for a declaratory decree and injunction. It has long been the policy of the State of Maryland to disapprove of the by-passing of administrative action, especially where such action is within the expert knowledge of the administrative agency, except where there is a clear necessity for a prior judicial decision.

However, before the Declaratory Judgments Act was passed by the Legislature of this State, Laws 1939, ch. 294, retail dealers were entitled to attack the constitutionality of ⁸⁴ a gross receipts tax by a suit for an injunction. Jones v. Gordy, 169 Md. 173, 178 , 180 A. 272 . Since 1939 the procedure of the Declaratory Judgments Act has been used many times to test the constitutionality of statutes and ordinances. It was used to attack the Unfair Sales Act.

Daniel Loughran Co. v. Lord Baltimore Candy & Tobacco Co., 178 Md. 38 , 12 A. 2d 201 . It was used to attack the Income Tax Law. Oursler v. Tawes, 178 Md. 471 , 13 A. 2d 763 . It was used to attack the statute regulating advertising by physicians and surgeons.

Davis v. State, 183 Md. 385 , 37 A. 2d 880 . It was used to attack the act authorizing the regulation of private trade schools. Schneider v. Pullen, 198 Md. 64 , 81 A. 2d 226 . We repeat that where a statute provides a special form of remedy, the plaintiff must use such form rather than any other, but constitutional issues may be decided in an action for a declaratory judgment or decree or injunction if there is no by-passing of an administrative agency in a case calling for determination of facts within the sphere of the agency’s expertness.

Commissioners of Cambridge v. Eastern Shore Public Service Co., 192 Md. 333 , 64 A. 2d 151 ; Francis v. MacGill, 196 Md. 77 , 75 A. 2d 91 ; Kracke v. Weinberg, 197 Md. 339 , 79 A. 2d 387 ; Schneider v. Pullen, 198 Md. 64 , 81 A. 2d 226 ; Miller Bros. Co. v. State, 201 Md. 535, 540 , 95 A. 2d 286, 288 ; Tanner v. McKeldin, 202 Md. 569, 577 , 97 A. 2d 449, 453 . We specifically hold that the constitutionality of a statute may be challenged in a declaratory judgment action on the ground that the title of the statute is not descriptive of the body, as required by the State Constitution. State Budget Commission v. Adams, 249 Ky. 680 , 61 S. W. 2d 314 ; Jefferson County Fiscal Court v. Thomas, 279 Ky. 458 , 130 S. W. 2d 60 ; Gouge v. McInturff, 169 Tenn. 678 , 90 S. W. 2d 753 ; Knoxville Housing Authority v. City of Knoxville, 174 Tenn. 76 , 123 S. W. 2d 1085 ; Houston County Board of Revenue v. Poyner, 236 Ala. 384 , 182 So. 455 ; Meara v. Brindley, ⁸⁵ 207 Ind. 657 , 194 N. E. 351 ; Kindy Opticians, Inc. v. Michigan State Board of Examiners, 291 Mich. 152 , 289 N. W. 112 ; Ziegler v. Pickett, 46 Wyo. 283 , 25 P. 2d 391 ; Multnomah County v. First National Bank of Portland, 151 Ore. 342 , 50 P. 2d 129 .

In the cases before us the complainant taxpayer and the City of Baltimore might have lost substantial rights if the Act which they challenged were unconstitutional, and they were required to wait for the action of the State Tax Commission and subsequent decisions of the Circuit Court and the Court of Appeals. We hold, therefore, that, in view of the desirability of having the question of constitutionality determined for the benefit of the members of the State Tax Commission and other State, City and County officials, as well as the savings banks and the taxpayers generally, the request for a declaratory decree was not inappropriate. It can readily be appreciated that a public official sometimes faces a dilemma either in refusing to act under a statute he believes to be unconstitutional, or in carrying it out and subsequently finding it to be unconstitutional. In commenting on the value of a judicial declaration in such a situation, Professor Borchard wrote as follows: “To compel an officer * * * thus to stake his security and livelihood in every case on the correctness of his conjecture on the constitutionality of the statute is a burden which no civilized system should impose upon any officer. * * * Needless to say, the declaratory judgment, initiated either by the officer or by the citizen affected, supplies the way out of the dilemma.

It avoids all the attendant risks of mistaken and unconstitutional action, without delaying seriously the performance of public functions.” Borchard, Declaratory Judgments, 2d Ed., 771. The State Comptroller and State Treasurer were not necessary parties to the proceedings. They do not take any part in determining the amounts of the franchise taxes on the deposits of the savings banks, or in apportioning such taxes between the State and the City of Baltimore or the County in which the bank is situated. ⁸⁶ The State Tax Commission calculates the amounts Of the franchise taxes and then apportions them. It is then the duty of .the Commission to certify to the Comptroller the amounts due to the State, after which the money is received by the Treasurer.

Therefore, the functions of these officials were not affected by the challenged Act. Code 1951, art. 81, sec. 126. Nor was the Attorney General of Maryland a necessary party to the proceedings. Section 11 of the Declaratory Judgments Act provides: “In any proceeding which involves the validity of a municipal ordinance, or franchise, such municipality shall be made a party, and shall be entitled to be heard, and if the statute, ordinance, or franchise is alleged to be unconstitutional, the Attorney-General of the State shall also be served with a copy of the proceeding and be entitled to be heard.” Hence, the Attorney General was entitled to have notice of the proceedings, and to have the opportunity to decide whether to intervene on behalf of the State or any State agency affected.

Passing to the merits of the cases, we consider the first contention that the Act is ambiguous. The Act provides that the tax rate on the deposits of the savings banks shall be as follows: 22 cents per $100 on the total amounts of deposits for the year 1954; 19 cents per $100 for the year 1955; 16 cents per $100 for the year 1956; 13 cents per $100 for the year 1957; 10 cents per $100 annually thereafter. Immediately following this list of rates are the words: “of one per centum on the total amount of deposits held by such savings bank, institution or corporation.” Complainants argue that one possible interpretation of the Act is that, in addition to the tax at the rate of 22 cents for 1954, 19 cents for 1955, 16 cents for 1956, 13 cents for 1957, and 10 cents thereafter, there is a further annual tax of one per cent on the amount of deposits. Under that interpretation, the Act would have the effect of increasing, rather than reducing, the franchise tax on savings banks. ⁸⁷ In so doing, it would frustrate the intention of the Legislature as shown by the history of the Act.

It appears that the savings banks had been protesting for some years that the franchise tax imposed upon them was grossly discriminatory. They presented figures to show that the rate of the Maryland tax was more than five times the national average. They further showed that, as a result of an increase in deposits and a decrease in the return on investments, the effective rate of the tax in relation to the net rate of interest earnings had risen 93 per cent between 1934 and 1949. Accordingly a bill was introduced in the State Senate at the 1949 session to reduce the tax.

At that session other bills had been introduced to reduce various taxes and licenses on the ground that they were inequitable and imposed undue hardships; and the Legislature, announcing that it was unable to give sufficient consideration to all of those bills at that session, passed three Joint Resolutions requesting the Governor to appoint Commissions to study the laws of Maryland imposing-taxes and licenses. Governor Lane, complying with those Resolutions, appointed the Maryland Tax Survey Commission, with Richard W. Case, of the Baltimore bar, as chairman. That Commission, in its report to the Governor and Legislature, took cognizance of the appeals of the savings banks for a reduction of the franchise tax from one-fourth of one per cent on the total amount of deposits to one-tenth of one per cent. The Commission reported that, although such a reduction would result in an overall loss in revenue of approximately $600,000 annually in terms of 1949 deposits, nevertheless the tax was so high in comparison with the share tax levied on commercial banks that the reduction was not only warranted but necessary for the alleviation of an undue hardship.

Report, Md. Tax Survey Commission of 1949, March, 1951, 196-201. On March 11, 1953, a bill was introduced in the House of Delegates to reduce the franchise tax from one-fourth of one per cent to one-tenth of one per cent. The bill ⁸⁸ was referred to the Ways and Means Committee, and that Committee reported the bill favorably with amendments on March 26, several days before final adjournment of the Legislature. The Committee favored a reduction of the tax if made gradually over a period of five years.

It is evident that the draftsman of the amendments for the Committee saw that it would be much simpler to state the five tax rates in number of cents per $100 on the total amount of deposits than in fractions of one per cent. It is evident that in striking