Scott v. Clerk of the Circuit Court

CATHELL, Judge. The State of Maryland imposes two separate taxes upon the transfer of real property — a recordation tax and a transfer tax. Md.Code (1985, 1994 Repl.Vol., 1995 Supp.), §§ 12-102 and 13-202 of the Tax-Property Article. 1 This case presents us with the issue of whether a transfer made by a family member to a family limited partnership for estate-planning purposes is exempt from those taxes. At the outset, we note that 59 Opinions of Attorney General 681 (1974) has been proffered as authority for such an exemption for situations in which a deed making this type of transfer is accompanied by a certification that the conveyance was made for no consideration. ²³⁷ The Facts We shall begin by setting forth the facts of this appeal, which are neither complicated nor in dispute.

Bruce H. Schmidt and his wife, L. Suzanne Schmidt, appellants, formed a family limited partnership for estate-planning purposes and conveyed to it the title to their tree farm on December 30, 1993. According to the Schmidts, it was their intention to give that property to their two adult children by giving them interests in the limited partnership. The deed recited that the transfer was being made “for no consideration.” Appended to the deed was an Exempt Consideration Statement, which read: This Deed has been prepared, executed, delivered, and is to be recorded, solely for estate planning purposes, and is therefore exempt from Maryland Transfer and Recordation taxes, in accordance with Maryland Opinion of the Attorney General, Opinion Number 59-681,1974. [2] Later that same day, the Schmidts presented the deed to the Clerk of the Circuit Court for Frederick County (the Clerk), appellee. The Clerk declined to accept the deed for recordation without payment of the recordation and transfer taxes.

The Schmidts paid the taxes and, subsequently, on September 19, 1994, filed a claim for Refund of Tax Erroneously Paid to State of Maryland, seeking a refund of the transfer and recordation taxes. The Clerk denied the refund claim, by letter dated October 17, 1994. Thereafter, on November 16, 1994, the Schmidts filed a Petition of Appeal to the Maryland Tax Court. During this same time period, Edward D. Scott, also an appellant, formed his own family limited partnership.

He serves as the general partner, and his two minor children are limited partners. On December 29, 1993, he transferred title to his grain and cattle farm to the Scott Family Limited Partnership “for no consideration.” This deed also contained ²³⁸ an Exempt Consideration Statement identical to that appended to the Schmidts’ deed. His deed was presented to the Clerk for recordation on December 30, 1993, and, similarly, the Clerk declined to record the deed without payment of the taxes at issue. Mr. Scott paid these taxes and, thereafter, asserted a claim for refund.

His claim was also denied, and, on November 16, 1994, he too appealed to the Maryland Tax Court. For purposes of appeal to the Tax Court, the Schmidts’ appeal and Mr. Scott’s appeal were consolidated. 3 Before that administrative body, relying upon 59 Opinions of Attorney General 681 (1974), the same opinion referenced in the Exempt Consideration Statements, appellants argued that they were entitled to a refund of the recordation and transfer taxes. Their counsel explained, “[The Schmidts and Mr. Scott are] entitled to rely on the exception for []estate planning purposes set forth in the Attorney General Opinion letter, and that their transaction^] fall[ ] within that rationale____ They received no consideration for th[ese] transferís]. And ... they should be entitled to an exemption and their refund.... ” The Clerk, after pointing out that appellants’ transactions came within no statutory exemption, see §§ 12-108 and 13-207, averred that the transactions were supported by consideration and that therefore appellants were subject to the taxes.

In finding for appellants, the Tax Court focused on what it termed “taxable consideration.” The court concentrated on appellants’ representations that they had made these transfers to the respective partnerships so that the property could be conveyed to their children by granting them partnership interests. The court opined, “Such gift giving would not involve the grantors receiving taxable consideration[ ].” While the court agreed that the transactions did not come within a statutory exemption, the court distinguished this case from cases in which the transaction was made for some business or commercial reason and found that because appellants had not ²³⁹ received any consideration for the transfers, there was no basis upon which the transfers could be taxed. From this ruling, the Clerk appealed to the Circuit Court for Frederick County, the Honorable G. Edward Dwyer presiding. Relying upon Pinder v. Dean, 70 Md.App. 252 , 520 A.2d 1119 (1987), aff'd, 312 Md. 154 , 538 A.2d 1184 (1988), the circuit court found that the conveyances from appellants to their respective limited partnerships were supported by consideration.

Discounting the Attorney General’s opinion and its focus on a lack of consideration, the court stated: Since th[ese] transferís are] one[s] still governed by Md. Ann.Code, Tax Prop. § 12-108, the only way to avoid the tax is through a statutory exemption. Simply put, there is no exemption in the law____ ... This Court and the parties are bound by Maryland statutory law and case law. The transfer effected in this situation is subject to all recording and transfer taxes.

Accordingly, the circuit court reversed the judgment of the Maryland Tax Court. Unsatisfied with that determination, appellants filed a timely appeal from the circuit court’s judgment, on January 4, 1996. They present one question for our consideration: Did the Circuit Court err in holding that properties transferred from Appellants to their family limited partnerships, made solely for estate planning purposes, involved taxable consideration? We hold that these transactions were supported by consideration and, consequently, are subject to recordation and transfer taxes.

Accordingly, we shall affirm the judgment of the circuit court. The Attorney General’s Opinion Although they recognize that opinions of the Attorney General are not controlling upon this or any Court, appellants argue that we should honor 59 Opinions of Attorney General ²⁴⁰ 681 (1974). According to appellants, the opinion is based upon “sound reasoning,” and, in it the Attorney General ... wisely concluded that deeds to family partnerships motivated solely by the purpose of estate planning should ... be excluded from the assessment of taxes. The Attorney General opined that a deed should be recorded without the payment of recordation or transfer taxes upon receiving an appropriate certification that the conveyance was a no-consideration conveyance made for the sole purpose of estate planning.

The Clerk, who, we note, is represented in the case sub judice by the Attorney General, states that the opinion purports to create an exemption and avers: An opinion of the Attorney General construing a statute will not be disregarded, except for strong reasons; however, an opinion that does not construe a statute, but simply renders a legal conclusion without any statutory basis, will be disregarded. The opinion upon which [appellants] rely, 59 Opinions of the Attorney General 681, has no statutory support for its conclusion.... In other words, the present-day Attorney General, arguing on behalf of the Clerk and recognizing the past error, concedes that its 1974 opinion has no statutory support and therefore should be disregarded. While not binding on this Court, the opinions of the Attorney General are, nevertheless, generally entitled to careful consideration.

Dodds v. Shamer, 339 Md. 540, 556 , 663 A.2d 1318 (1995); Montgomery County v. Atlantic Guns, Inc., 302 Md. 540, 548 , 489 A.2d 1114 (1985); Board of Examiners in Optometry v. Spitz, 300 Md. 466, 476 , 479 A.2d 363 (1984). Additionally, we note that “ ‘... no practice, however generally, or however long, it may have prevailed, can override the clear and manifest meaning of a statute.’ ” Comptroller of Treasury v. American Cyanamid Co., 240 Md. 491, 493 , 214 A.2d 596 (1965) (quoting Horton v. Horton, 157 Md. 127, 133 , 145 A. 355 (1929)). ²⁴¹ At least in part, this case turns on the continued vitality and force of 59 Opinions of Attorney General 681, the opinion cited in appellants’ Exempt Consideration Statements. That opinion is based upon the following set of hypothetical facts — facts which, except for the nature of the family partnership created, are nearly identical to those of the case sub judice: Husband and wife own a parcel of real estate as tenants by the entireties. They are both going to convey their interest in the real estate to a general partnership in which they will be equal partners.

A fictitious name for the partnership might be John Doe and Mary Doe, trading as Doe’s General Partnership.... [T]here will not be any mortgage from the partnership to the individuals and ... no consideration will be given from the partnership to the individuals in exchange for the property. The ... only reason for the conveyance is for the purpose of estate planning. Id. The Attorney General began its discussion by setting forth the general rule, that a conveyance is subject to recordation and transfer taxes if: (1) It is a conveyance to a separate and distinct entity, and (2) the grantor receives consideration in return in the form of cash or something convertible into cash.

Id. Thus, the “general rule” is that a conveyance to a separate and distinct entity for consideration is subject to recordation and transfer taxes. The Attorney General continued: [A] partnership interest, which one can receive in return for his conveyance of real property to the partnership, can be sold and assigned, and thus converted into cash. We would also believe there would be many instances where the existence of the partnership as a separate and distinct entity from the grantor-partner, could be readily recognized. ²⁴² Id. at 682 (citation omitted).

The Attorney General then took what we perceive to be the fatal misstep: [I]n this case[, w]e are not here considering a commercial or business transaction, but one motivated by the “purpose of estate planning.” The normal activity of estate planning involves passing, or preparing to pass, assets to the objects of one’s bounty. In this case the grantors may well intend conveying partnership interests, over a period of years, to their descendants. Such gift giving would not involve the grantors receiving taxable consideration. Accordingly, we believe ... the deed [may be received] for recordation without payment of recordation or transfer tax upon receiving from the attorney appropriate certification that the conveyance is a no-consideration conveyance within the rationale of this opinion. [4] Id.

This Attorney General’s opinion has not come under judicial scrutiny, and, apparently, for over twenty years, this opinion and the exemption resulting from it have been relied upon by some of the clerks of the various courts, who are charged with collection of the taxes at issue. While a long standing interpretation of a statute by an administrative agency is not to be lightly disregarded, where that interpretation has no basis in the law, it cannot be allowed to stand. See Insurance Comm’r v. Bankers Indep. Ins.

Co., 326 Md. 617, 624 , 606 A.2d 1072 (1992); American Cyanamid Co., 240 Md. at 498 , 214 A.2d 596 (holding that an administrative rule “unlawfully extended the exclusions from taxation provided ²⁴³ by” statute); and Rogan v. Baltimore & O.R.R., 188 Md. 44, 54 , 52 A.2d 261 (1947) (“Interpolation of words, to make a statute include matters which the Legislature did not expressly include, invades the function vested solely in the Legislature .... ”). Numerous exemptions to the transfer and recordation taxes have been codified. See §§ 12-108, 13-207. None, however, cover a partner to partnership transfer made for “estate-planning purposes.” 5 Additionally, while there are instances in which we have accepted interpretations contained in opinions of the Attorney General — primarily where it appears that the Legislature has acquiesced to the Attorney General’s opinion — it does not appear that the Legislature has acquiesced to the Attorney General’s interpretation of consideration.

While we presume that the Legislature was aware of the Attorney General’s opinion and note that the Legislature did not take any action on the topic for some twenty years, in both the 1995 and 1996 legislative sessions, two bills were introduced that would have created a statutory exemption for precisely these types of transactions — neither was enacted. See Senate Bill 835, 1995 Legislative Session and Senate Bill 663, 1996 Legislative Session. 6 Therefore, in that attempts were made to enact such estate-planning exemptions, this is not a case where we have legislative acquiescence, to an Attorney General’s construction of a statute, through inaction. Cf. Board of Examiners, 300 Md. at 478 , 479 A.2d 363 ; Twinbrook Swimming Pool Corp. v. Comptroller of Treasury, 274 Md. 88, 94-95 , 333 A.2d 49 (1975) (“In reenacting the statute during the years which ²⁴⁴ have intervened, the General Assembly has impliedly acquiesced in the correctness of the construction placed on it by the Attorney General.”).

Moreover, before Judge Dwyer, the Assistant Attorney General representing the Clerk argued: The problem with the opinion is ... that the Attorney General’s Office has no authority to create exemptions from tax, the most that the Attorney General’s opinions and advice letters can do is interpret existing law. But if there’s no law to interpret then the opinion is not valid. This colloquy between the court and the Assistant Attorney General immediately followed: THE COURT: Well have you ever retracted that opinion or anything like that? MS.FREIT: No Your Honor.

THE COURT: It’s published. And if it’s incorrect shouldn’t you publish a retraction or— MS. FREIT: Yes Your