State Department of Assessments & Taxation v. Clark

Lowe, J., delivered the opinion of the Court. Background In establishing tax rates on real property, government must first have determined the assessed value of the property it may tax. This presupposes a cutoff date after which the valuation will remain fixed for purposes of the succeeding taxable year. That cutoff date, statutorily designated “the date of finality”, is at the root of the issue appealed here.

The tax statute, Md. Code, Art. 81, designates this “date of finality” as the 1st day of January preceding the tax year. Art. 81, § 2 (20), § 29A. Procedural protection is provided a dissatisfied taxpayer by first requiring that notice of assessment be given to him. He is then given an opportunity and a time within which he may protest the assessment to ¹³⁸ the Supervisor of Assessments (from whom it originally emanated).

Art. 81, § 29 (a). In the event of further dissatisfaction, he may protest to the local Property Tax Assessment Appeal Board and, beyond that, to the Maryland Tax Court. Art. 81, § 255. Limited review of the Maryland Tax Court’s judgment is available in the circuit courts. 1 These courts may not second-guess the assessment, but may determine only whether it was supported by substantial evidence on the record or was erroneous as a matter of law.

See American Oil Co. v. Bd. of Appeals, 270 Md. 301, 310-311 ; Ch. 338, Laws of 1976. These statutory remedies are exclusive, see Tanner v. McKeldin, 202 Md. 569, 577 , and one who does not avail himself of them is generally bound by the assessment as of the date of finality, with but preciously limited relief. Recognizing that absolute adherence to an inflexible date of finality may cause injustice to both taxpayer and State, the legislature specifically provided for a reassessment when property is subdivided or when the property’s character or use is changed after the date of finality (January 1st) but before the semi-annual date of finality (July 1st). Art. 81, § 19 (a).

Furthermore, for property damaged or destroyed, after the date of finality but before the semi-annual date, by fire or any other event which should cause the property to be removed from the tax rolls, Art. 81, § 31 (f) (2) alleviates taxes for the last 6 months of the taxable year and provides for refund if taxes have already been fully paid. Aside from these particular provisions, however, there is no statutory right to relief from an assessment for the taxable year after the date of finality. The taxpayer is of course free to apply for reassessment of the property prior to the next date of finality for the ensuing tax year and comply with the protest requirements thereafter. ¹³⁹ Undoubtedly recognizing that even these specific exceptions still left possibilities of unforeseeable injustice, the legislature enacted Ch. 732, Laws of 1949, declaring it to be an emergency measure. It is currently codified as Art. 81, § 67.

At the time this litigation arose, that section read as follows: “The county commissioners in each county, the chief administrative officer in Montgomery County, and the department of assessments in Baltimore City, as to local taxes, and the Comptroller upon certificates of the county commissioners, the chief administrative officer in Montgomery County, or department of assessments in Baltimore City, as to State taxes, shall make all just allowances to the respective collectors for insolvencies and .removals and for refunds of taxes made in accordance with the provisions of law. The final assessing authority, the supervisor of assessments and the county treasurer (in Montgomery County the director of finance) of each county and in Baltimore City, the city solicitor, and the director of the department of assessments, and in any incorporated town in Caroline County, the town boards, may by an order, decrease or abate an assessment after the date of finality for any year, whether a protest against said assessment was filed before the date of finality or not, in order to correct erroneous and improper assessments and to prevent injustice, provided, that the reasons for such decrease or abatement shall be clearly set forth in such order.” 2 Appellees’ dissatisfaction with the way in which relief was granted under this section prompted the litigation below. Facts Appellees own a five-and-one-half acre parcel of land located at the intersection of Muddy Branch Road and ¹⁴⁰ Interstate 70S (now 270) in Montgomery County. Upon their initiative, the property was rezoned on August 25,1970 from rural-residential to multiple family, medium density residential.

As a result of that rezoning they were notified on December 10,1971, pursuant to Md. Code, Art. 81, § 29, that their land assessment was increased from the previous year’s (1971) $12,640 assessment to $132,150 for the prospective year (1972). Agreeing that the rezoning had substantially enhanced the value of their land, appellants did not protest or appeal the assessment within the time provided by Md. Code, Art. 81, § 255. On January 1, 1972, therefore, the assessment became final. In May 1972 a sewer moratorium, which had the effect of preventing sewer extensions and attachments to appellants’ land, was proclaimed by the Washington Suburban Sanitary Commission.

The foundation for the increased assessment was thus denied realization, at least temporarily. On August 29, 1972, appellees wrote to the Supervisor of Assessments requesting “reassessment of the property to be effective for the next 6 month period” in view of the cloacal restrictions. Because the legislature had not provided for reassessments within the taxable year following the date of finality, the Supervisor treated the request as a petition under Art. 81, § 67, the only statutory relief after the date of finality. That section, as indicated, authorizes the decrease or abatement of an assessment after the date of finality “in order to correct erroneous or improper assessments and to prevent injustice. . . .” The relief may be granted whether a protest against the assessment was filed before the date of finality or not; however, it may only be granted by the joint action of three officials — the final assessing authority, the Supervisor of Assessments and the County Treasurer (or in Montgomery County, the Director of Finance).

Recommending a reduction from $132,150 to $99,110, the Supervisor forwarded the matter to the Appeal Tax Court for Montgomery County. 3 After holding a hearing, during ¹⁴¹ which appellees were afforded the opportunity to present evidence and argue their position, the Appeal Tax Court issued a memorandum and order authorizing the reduction recommended by the Supervisor. The order was forwarded to the Director of Finance, and he approved it on February 23, 1973. The Appeal Tax Court then notified appellees, by letter dated March 7,1973, that an order had been entered in their case reducing the land assessment from $132,150 to $99,110 for the taxable year 1972. Appellees filed a petition of appeal to the Maryland Tax Court on April 9, 1973 4 and, on April 11, 1973, brought a “declaratory action” in the Circuit Court for Montgomery County.

They sought: 1. to enjoin the collection of taxes levied without providing a rehearing on the question of the value of their property as affected by the sewer moratorium; and, 2. to declare Md. Code, Art. 81, § 67 unconstitutional as applied to them on the grounds that it violated appellants’ rights to equal protection of the laws, due process, “and amounts to a taking without just compensation.” Following the customary procedural skirmishing during which both sides sought discovery and filed motions for summary judgment, the circuit court ruled that it had jurisdiction, that the amount of the reduction had been reached arbitrarily and that the matter was not moot because appellees had already paid the tax, albeit in escrow. The court denied appellants’ motions and granted appellees’ motion to the extent of remanding the case to the Supervisor of Assessments, Director of Finance, and Property Tax Assessment Appeal Board for further proceedings. Although not reaching the constitutional question, the trial judge filed ¹⁴² a well written and convincingly reasoned opinion that lacked excellence primarily in that it was wrong. The issues therein abiding were three: jurisdiction, arbitrariness of proceeding, and right to refund; but the greatest of these was jurisdiction.

The State Department of Assessments and Taxation, the Supervisor of Assessments for Montgomery County, the Property Tax Assessment Appeal Board and the Director of Finance for Montgomery County have appealed. Jurisdiction Appellants contend that by its very language § 67 is a creature of legislative grace and provides no entitlement to relief. 5 They rely primarily upon LaBelle v. State Tax Comm., 217 Md. 443 , cert. den. 358 U. S. 889 . The question involved there was: “... whether the State Tax Commission had jurisdiction to hear an appeal by the property owner from the refusal of the taxing authorities of Montgomery County to reduce an assessment that had become final before they were asked to act.” Id. at 446-447. Mrs. LaBelle had failed to avail herself of the protest requirements within the prescribed time.

There, as here, her belated protest was treated as a petition for relief under § 67 (then § 66) of Art. 81. However, Mrs. LaBelle received no relief (although the Appeal Tax Court had proposed a reduction) because neither the Supervisor of Assessments nor the Director of Finance of Montgomery County concurred in the proposed reduction. She appealed from the circuit court’s ruling that the State Tax Commission had no jurisdiction to hear an appeal from the denial of relief under § 67. The Court of Appeals affirmed.

It held that § 67 was a “matter of grace and not a matter of right.” The Court noted that the taxpayer can appeal to the State Tax Commission as a matter of right only if he follows the steps prescribed by statutes: “If, however, he permits an assessment to become final, he can only hope that the three taxing and ¹⁴³ fiscal authorities who are named in Sec. 66 [now § 67] of Art. 81 will agree that his cause is just and demands relief. If they do not, the statute gives him no further remedy and the assessment that has been allowed to become final remains on the books for the year in question. The powers of the State Tax Commission are entirely statutory and the statutes confer jurisdiction on it only if an assessment is protested before it has become final.” 217 Md. at 452 . Appellants point out that the LaBelle result and its reasoning were affirmed by the Court of Appeals as recently as June 26,1975, in Mont.

Co. Council v. Supervisor, 275 Md. 339 . They argued that that case comes even “closer to home”, for it was generated by the 25% reduction of assessments of nineteen property owners in Montgomery County, due to the sewer moratorium. As in LaBelle, the basic question related to jurisdiction to hear an appeal from a § 67 proceeding. Noting that the State Tax Commission was the predecessor of the Maryland Tax Court and that the legislature had not expanded the jurisdiction of the Tax Court, Judge Eldridge, writing for the Court in Mont.

Co. Council , held that LaBelle controlled the question of the Maryland Tax Court’s jurisdiction to hear appeals from § 67, regardless of whether relief was granted or denied: 6 “However, this Court’s decision in LaBelle was based upon the ‘jurisdiction’ of the State Tax Commission [now the Maryland Tax Court] over § 67 proceedings and not upon the standing of particular parties depending upon the nature of their interest in the § 67 proceeding. While the Court explained that the purpose of a § 67 proceeding was to grant or deny relief to the taxpayer as a matter of ‘grace’ instead of as a matter of right, nothing in the Court’s opinion indicated that the State Tax Commission’s power to ¹⁴⁴ review § 67 determinations depended upon whether the taxpayer had won or lost in the § 67 proceedings. Instead, the Court held that the statutes confer ‘jurisdiction on it [the State Tax Commission] only if an assessment is protested before it has become final.’ ” 275 Md. at 344 . Although these cases appear dispositive at first blush, the trial judge below perceived that a more fundamental right of appeal exists than that provided by statutes or administrative regulations.

Relying upon Criminal Inj. Comp. Bd. v. Gould, 273 Md. 486 , he held that the circuit court had jurisdiction to review the appellants’ actions because of its inherent power to correct abuses of discretion and arbitrary, illegal, capricious or unreasonable acts. He held that the Mont.

Co. Council case and LaBelle, upon which it rested, presented no problem: “ ... because the matter now before this Court is not a statutory appeal but an invocation of the court’s inherent powers of judicial review and the Gould case would appear to be completely controlling.” We fully agree. In a scholarly analysis, the late Judge William O’Donnell pointed out in Gould that neither the absence of a defined jurisdictional authority nor the express abrogation thereof by the legislature can deprive litigants of the right to raise questions involving their fundamental rights in an appropriate judicial forum. Likewise, the courts cannot be deprived of the right to decide such questions in an appropriate proceeding: “Chief Judge Hammond, who delivered the majority opinion in Insurance Comm’r v. National Bureau of Casualty Underwriters, supra, [ 248 Md. 292 ] stated: ‘The courts have been alert to exercise their residual power to restrain improper exercises of administrative powers whether judicial or legislative in nature. If the legislature has not expressly provided for judicial review, a court ¹⁴⁵ will ordinarily utilize its inherent powers to prevent illegal, unreasonable, arbitrary or capricious administrative action.

In Heaps v. Cobb, 185 Md. 372, 379 , this Court said: ‘The legislature is without authority to divest the judicial branch of the government of its inherent power to review actions of administrative boards shown to be arbitrary, illegal or capricious, and to impair personal or property rights; * * *,’ and then quoted the opinion in Hecht v. Crook, 184 Md. 271 , 280: ‘Courts have the inherent power, through the writ of mandamus, by injunction, or otherwise, to correct abuses of discretion and arbitrary, illegal, capricious or unreasonable acts; but in exercising that power care must be taken not to interfere with the legislative prerogative, or with the exercise of sound administrative discretion * * * ” 248 Md. at 300 , 236 A. 2d at 286 .” Gould, 273 Md. at 501-502 . See also Schneider v. Pullen, 198 Md. 64, 68-69 . The message of Gould is clear. A legislature may not circumvent the system of checks and balances which guarantee that no branch of government, however designated, may be granted an untrammelled right arbitrarily to grant or withhold that which is derived from the people, be it due as a matter of right, sought as an aspiration, or bestowed as largess.

A democracy does not recognize such monarchical discretion. Entitlement Appellants attempt to distinguish Gould by noting that the petitioner there had established his entitlement to relief under the Criminal Injury Compensation Act which, although provided by the General Assembly as a matter of the State’s moral responsibility, sets forth what persons ¹⁴⁶ shall be eligible. Md. Code, Art. 26A, § 5 (a). Appellants argue that, by contrast, § 67 exists as a matter of legislative grace and prescribes neither positive duty nor discernible standard of relief. 7 Appellants contend that because appellees have voluntarily foregone their entitlement to review of their assessment by not protesting it before the date of finality, they can claim no entitlement under § 67.

This argument was apparently inspired by a law review interpretation of Gould which read into that opinion an “entitlement” prerequisite to review under the court’s inherent powers: “If the Board had denied Gould’s claim for compensation because it found that Gould was not the victim of a crime but a participant in it and Gould had claimed that this finding was not supported by substantial evidence on the record as a whole, the Gould Court plainly would not have reviewed the evidence because Gould limited its holding on the availability of judicial review to claimants whose eligibility as a crime victim under Section 5 of the Act had already been established.... However, the Court in Gould did determine that Gould possessed a sufficient personal right once he met the eligibility requirements of a crime victim. At that point his claim for compensation was transformed into a right protected by the Court’s inherent power to review administrative actions for arbitrariness.” Tomlinson, Constitutional Limits on the Decisional Powers of Courts and Administrative Agencies in Maryland, 35 Md. L. Rev. 414 , 424 (1976). 8 ¹⁴⁷ While noting that neither Judge O’Donnell nor the Court of Appeals added the “entitlement” impediment to the exercise of a court’s inherent power, we find it unnecessary to decide that academic argument. By virtue of the tripartite agreement of the three parties provided by § 67, appellees were granted relief.

Appellants’ act presupposes appellees’ “entitlement”. Thus, the Court need not address that issue even if it is a condition precedent to relief under the trial court’s inherent power. As Professor Tomlinson wrote: “At that point his claim for compensation was transformed into a right protected by the Court’s inherent power to review administrative actions for arbitrariness.” Id. at 424. Indeed, to review or second-guess that factual determination of “entitlement” by the administrators involved, when to that extent their decision is not alleged to be arbitrary, is to exceed the scope of the inherent power of review.

We have pointed out that to invoke a court’s inherent power of review in the absence of a statutory right, a petitioner must assert arbitrary, illegal, capricious or unreasonable acts such as constitute a breach of the exercise of discretion under the statute. See Gould, supra, at 513 . But we hasten to add that while the circuit court is vested with jurisdiction upon such allegations, it may not be exercised for a petitioner’s benefit unless he can carry the heavy burden of proving such arbitrariness. In the exercise of the court’s inherent power, care must be taken not to interfere with the legislative prerogative, or the exercise of sound administrative discretion.

See Hecht v. Crook, 184 Md. 271, 280-281 . ¹⁴⁸ Appellees’ Summary Judgment Both sides moved for summary judgment. The appellants contended that there were only two issues to be resolved: “1. The remedies provided by Article 81 for the contest of property assessments are exclusive, and therefore, the Petition should be dismissed. 2. Even assuming for purposes of argument that this Court has jurisdiction over this matter, the undisputed