Rapley v. Montgomery County

Singley, J., delivered the opinion of the Court. In June, 1969, Mr. Rapley and his sister, Mrs. Mac-Martin, the appellants here and plaintiffs below, acquired legal title to Avenel Farm, a tract in Montgomery County, Maryland (the County), some 904 acres of which they transferred in December, 1969 to Sheffield Enterprises, Inc., for a consideration of $4,069,805.72. $3,849,805.72 of the sale price was attributed to the value of the land. The property had been owned and actively farmed since 1945 by a corporation of which the appellants were the sole stockholders and since 1956 had been assessed as land devoted to agricultural use. When the deed was recorded, the appellants paid under protest a transfer tax of 6% on the sale price of the land, or $230,988.34, and then instituted suit against the County, the County Council and the County’s Director of Finance in the Circuit Court for ¹⁰⁰ Montgomery County for the recovery of the tax paid.

From a judgment in favor of the appellees this appeal was taken. While we propose to dispose of this case, as did the court below, on the narrow ground that taxes voluntarily paid under a mistake of law, even though paid under protest, are not recoverable in the absence of express legislative sanction, a discussion of the background of the controversy is essential to bring the problem into sharp focus. By Chapter 52 of the Laws of 1960, the General Assembly had accorded special tax treatment to land devoted to agricultural use. 1 This provision, which is now Code (1957, 1969 Repl. Vol.) Art. 81, § 19' (b) (1), and provides in part: “Lands which are actively devoted to farm or agricultural use shall be assessed on the basis of such use, and shall not be assessed as if subdivided, it being the intent of the General Assembly that the assessment of farmland shall be maintained at levels compatible with the continued use of such land for farming and shall not be adversely affected by neighboring land uses of a more intensive nature.” was before us in Supervisor of Assessments for Montgomery County v. Alsop, 232 Md. 188 , 192 A. 2d 484 (1963).

When the General Assembly was persuaded that the preferential treatment accorded farm land was being taken advantage of by speculators, steps were taken to permit the County to recapture, in appropriate cases, a part of the revenue which had been lost during the time when land had been assessed for farm use. Chapter 633 of the Laws of 1968 amended Montgom ¹⁰¹ ery County Code § 2-127 to permit the County Council to impose a tax on transfers, not to exceed “6% of the value of the consideration for any transfer of land (excluding improvements thereon) which, while owned by the transferor, has been assessed at any time during the 5 years preceding transfer on the basis of being actively devoted to farm or agricultural use. * * *” In October of 1968, the County Council implemented Chapter 633 by adopting Ordinance No. 6-126, which amended § 84-25 of the County Code and imposed a transfer tax of 6% “of the value of the consideration for any transfer of land * * * which, while owned by the transferor, has been assessed at any time during the five years preceding transfer on the basis of being actively devoted to farm or agricultural use, said tax to be paid by the transferor of such land.” Property taxes on the 904 acres sold by appellants had totalled $21,707.85 in the six years commencing in 1964. Had the farm assessment not been in effect, the total of taxes on the same land for the same period would have been approximately $369,908, assuming that the sale price, after being retrospectively adjusted for inflation, was indicative of fair market value. As a result of the farm use assessment, the appellants saved about $348,-200.

The County maintains, and no one denies, that even after the payment of the transfer tax, conceding the correctness of the assumption, the appellants were richer by $117,211.66, without so much as considering the saving from 1956' through 1963, when the property had also been assessed as farm land. The appellants present a many-faceted argument in support of their contention that they are entitled to recover the transfer tax. They say that they did not own ¹⁰² the property at any time during the five years preceding the transfer when it was assessed as farm land; 2 that the 6% transfer tax is discriminatory, unreasonable and arbitrary; that Chapter 633 of the Laws of 1968 is a special law, impermissible under Maryland Constitution, Art. Ill, § 33; that Montgomery County, as a charter county, has only the powers conferred by Code, Art. 25A, § 5, and subsection (0) which deals with the taxing power, does not include the power to impose excise or transfer taxes, and cannot be supplemented by a public local law because of the prohibition contained in Constitution, Art. XI A, § 4; and finally, that since Ordinance 6-126 was adopted by the County Council at an executive rather than at a legislative session, it is invalid. For the reason which was given early on, we need not reach, these contentions, because even if every one of them were correct, the appellants could not recover.

Instead, we shall confine ourselves to the threshold question: Can a taxpayer who pays a local excise tax voluntarily, but under protest, bring suit for the recovery of a tax which he regards as having been illegally imposed, in the absence of a statutory provision sanctioning refunds? Judge (later Chief Judge) Markell, in his dissenting opinion in Wasena Housing Corp. v. Levay, 188 Md. 383, 394 , 52 A. 2d 903 (1947), observed with a note of melancholy, “Men must turn square corners when they deal ¹⁰³ with the Government.” 3 As we shall demonstrate, no one must turn corners more squarely than a taxpayer in Maryland. Governments are inclined to protect their systems of taxation with considerable zeal in order to minimize interference or disruption, and the objective has been reached by different routes. Field, Recovery of Illegal and Unconstitutional Taxes, 45 Harv.

L. Rev. 501 , 506 (1932) ; Annotations, 80 A.L.R.2d 1035 , 94 A.L.R. 1223 . In the federal system, litigants are prohibited from seeking injunctions which prevent the collection of taxes, 26 U.S.C. § 7421 , and there, taxpayers ordinarily seek relief from a tax which has been improperly or illegally collected by an action at law to recover the payment, which has been held to be an adequate remedy, Magness v. Loyola Fed. Sav. & Loan Ass’n, 186 Md. 569 , 47 A. 2d 769 (1946) and particularly the cases cited at 580. For all of the last century, Maryland has adhered to a practice which is the diametric opposite of that followed in the federal courts. In the absence of express statutory warrant, we have laid a heavy hand on actions brought at law to recover taxes paid, even if paid under protest, when the taxpayer made payment without seeking injunctive relief to test the validity of the imposition.

Compare Lester v. Mayor & City Council of Baltimore, 29 Md. 415 (1868) (unsuccessful action at law) with Mayor & City Council of Baltimore v. Porter, 18 Md. 284 (1862) (successful injunction proceeding). Both cases challenged the validity of the same assessment, but Lester took the wrong road, and Porter , the right one. The appellants say, and we think with some justification, that injunctive relief is simply inappropriate if a real estate transaction of the magnitude of theirs is to be consummated in an orderly fashion, citing Oakland Cemetery Ass’n v. County of Ramsey, 98 Minn. 404 , 108 N. W. 857 (1906). Judge Markell took a somewhat simi ¹⁰⁴ lar view in his dissent in Wasena, supra, 188 Md. at 396 , when he said that the Court’s narrow construction of the Act of 1929 [to be discussed infra] “amounts to a trick to tease taxpayers with an illusory remedy, which narrows the Acts of 1807 and 1852 [also infra] and embalms in statute form the Maryland rule as to ‘voluntary’ payments.” The Maryland law respecting the recovery of taxes is an interesting mosaic of statutes and decisions which evolved slowly during the nineteenth century and only commenced to offer a modern and comprehensive mechanism in 1929.

In his opinion in Wasena, supra, 188 Md. at 395 , Judge Markell suggests that it was the onslaught of the federal income tax which had made generally known to taxpayers the difference between the Maryland and the federal procedures as regards tax refunds, and brought the remedial legislation into being. The first effort of the General Assembly to ease the plight of the harried taxpayer had appeared in Chapter 129 of the Laws of 1807: “WHEREAS it is represented to this general assembly, by sundry inhabitants of the state, that errors have been committed by assessors, in consequence whereof many citizens have been compelled to pay twice on the same property; therefore, “BE IT ENACTED, by the General Assembly of Maryland, That from and after the passage of this act, it shall and may be lawful for the levy courts in the several counties of this state, and they are hereby authorized and empowered, when they shall be satisfied that any error has arisen by assessing property not liable to be assessed by any assessor, or in any other way, to rectify such errors, and to levy and assess, in the same manner as other county charges, any sum of money which any person may have been charged with and paid in consequence of any ¹⁰⁵ such error, and to pay the said sum of money, so assessed, to the person, or his order, for whom the same was levied.” The 1807 Act survived until 1852 when it was supplanted by Chapter 337 of the Laws of that year, which was codified as Code (1860) Art. 28, § 7 and as Art. 25, § 9 of the Code of 1888 and thereafter, remaining a section of Article 25, until it was repealed by Chapter 701, § 1 of the Laws of 1941. Art. 28, § 7 provided: “They [the County Commissioners] shall, when satisfied that any error has arisen by assessing property not liable to be assessed, rectify such error and levy and pay to the proper person any money that may have been paid in consequence of such error.” 4 All the while, unhappy taxpayers were sharing their problems with the courts. In Mayor & City Council of Baltimore v. Lefferman, 4 Gill 425 (1846), our predecessors dealt with a situation which has some elements in common with the case before us.

In 1821, the General Assembly had empowered the City of Baltimore to require owners of property abutting on Jones Falls to wall up their land. Acting under an ordinance intended to implement the grant of authority, the City notified Lefferman to construct a wall, which he did, at a cost of $1,-140.73. He sued in assumpsit for the recovery of the expenditure, contending that the Act of 1821 was unconstitutional. The lower court, holding the Act to be unconstitutional, permitted Lefferman to recover.

On appeal, an equally divided Court affirmed the holding of unconstitutionality, but denied recovery, on the ground: “It is now established, by an unbroken series of adjudications in the English and American ¹⁰⁶ Courts, that where money is voluntarily and fairly paid, with a full knowledge of the facts and circumstances under which it is demanded, it cannot be recovered back in a Court of law, upon the ground that the payment was made under a misapprehension of the legal rights and obligations of the party.” 4 Gill at 431 Curiously, the English and American cases relied upon, Brisbane v. Dacres, 5 Taunt. 143 (1813) ; Clarke v. Dutcher, 9 Cow. 674 (1824) ; Mowatt v. Wright, 1 Wend. 355 (1828), all stemmed from Bilbie v. Lumley, 2 East. 469 (1802) in which the rule was first announced and all dealt with private actions in contract, holding that voluntary payments made under a mistake of law are not recoverable. They rested their somewhat novel rationale on the idea that all persons have equal access to, if not equal knowledge of, the law. See 13 Williston, Contracts §§ 1581-4 at 535-55 (3d ed. 1970) ; 27 Am.Jur.2d Equity