State Tax Commission v. Armco Steed Corp.

⁵³⁵ Hammond, J., delivered the opinion of the Court. Presented for decision is whether in December 1959 the Mayor and City Council of Baltimore could subject to taxation for 1958 and 1959 tangible personal property which this Court had held was exempt under the terms of the ordinances in effect on the dates of finality for those years, by ordaining that the earlier ordinances had not intended what we said they had intended. The question arises on a claim for refund of taxes paid for those years by Armco Steel Corporation, appellee. The appeal is by the City from the decree and order requiring the refunds.

By Ordinance No. 643, approved December 5, 1956, the Mayor and City Council of Baltimore repealed the municipal tax exemption of certain personal property which manufacturers in the City had enjoyed since 1881. Section 4 of the ordinance continued the exemption in favor of “ores and unrefined metals shipped into the City for processing or refining purposes, and metals derived therefrom in the hands of the refiner * * The City concedes (as it has from the time the ordinance was passed) that this was an ad hoc exemption passed after the Council had been persuaded that the American Smelting and Refining Company, unless exempted, would close its plant, to the tax loss and economic detriment of the City. The Council had been told that almost all of American’s business was the refining to a pure state of copper which belonged to others located out of Maryland, and that if such copper were taxed, American could not afford to pay the tax and the owners, if they had to pay, would not ship into Baltimore but would send the copper to plants in other States where there was no similar tax. To say clearly just what is intended, and no more and no less, is as difficult in the drafting of legislation as in the writing of a judicial opinion, and the consequences of failure in the effort may be more momentous—and less easy to correct —in the legislative branch than in the judicial.

This has already become painfully apparent to the City and its awareness of these disagreeable truths will not be lessened by our views on this appeal. ⁵³⁶ Armco believed itself to be within the exemption intended for American Smelting, and asserted its claim to exemption for the year 1957 as to some thirteen millions of a fourteen million dollar assessment. The State Tax Commission and the Circuit Court of Baltimore City upheld the contention of the City that the exemption continued by Ordinance No. 643 was limited to ores and unrefined metals in the hands of a refiner which were owned by another, and then only when the refining resulted in a fine, unmixed and pure product not containing other metals and compounds (a definition tailored to describe American Smelting), and that Armco was without the exemption since it owned the ores and metals it processed and did not end up with the required pure product. In Armco Steel v. State Tax Comm., 221 Md. 33 , the holdings below were reversed. It was decided that Ordinance No. 643 did not say that the ores and unrefined metals had to be owned by another to be exempt, and words would not be read into the statute; it was further found that the term “processing” used in the ordinance must be given effect.

We said: “[I]t thus appears that while the Ordinance was intended to exempt only those processors engaged in a refining operation as to metal it was also intended to include those who not only refined metals but also subjected them to a process that would not be considered part of the refining.” Id. at 44 . The Armco case was decided on November 24, 1959. Ordinance No. 156 was introduced in the Council on December 9 and passed December 18, 1959. Section 1 recited the Armco decision by the Court of Appeals, the interpretation of the State Tax Commission that only non-owning refiners producing a pure product were exempted by Ordinance No. 643, and then said: “In view of the foregoing, it is the intent of the Mayor and City Council of Baltimore by this Ordinance to ratify and confirm the interpretation by the State Tax Commission of the scope of the exemption as explained in subparagraph (c) hereof.” Section 2 ordained that for the period from January 1, 1958, through December 31, 1958, the exemption granted by Sec. 4 of Ordinance No. 643 “shall be and is hereby deemed to have provided as follows”: ⁵³⁷ “* * * And provided, further, that ores and unrefined metals shipped into the City for refining by others than the owners thereof, and the metals derived therefrom, while the said ores and unrefined metals, and metals derived therefrom, are in the hands of the refiner, shall be exempt from assessment and taxation for all ordinary municipal purposes.

The term ‘refining’, as used herein, means the reduction of ores and unrefined metals to a fine and pure state, unmixed and not alloyed with other metals or compounds.” Section 3 in identical language “deemed” that Ordinance No. 1340, approved April 7, 1958 (which had reordained for 1959 the exemption granted by Ordinance No. 643, in identical words), had meant and intended for the period from January 1, 1959, through December 31, 1959, what Section 2 said Ordinance No. 643 had meant and intended for 1958. Armco had claimed exemption for the year 1958 and the State Tax Commission, the assessing agent for both the State and the City, had rejected its claim and entered a full assessment. Since the legal issues were identical and the property involved similar, the Executive Secretary of the Commission wrote counsel for Armco on June 30, 1958, as follows: “If you will waive the hearing in the 1958 assessment and file your appeal in Court within the 30 day period described, we will agree to let the 1958 appeal lay dormant until the final determination by the Court of the 1957 appeal, and then dispose of both appeals in accordance with the Court’s ruling in the 1957 matter.” (Emphasis added.) The offer was accepted by Armco’s counsel by a letter dated July 10, 1958. Ordinance No. 643 was repealed by Ordinance No. 1340, approved April 7, 1958, effective December 31, 1958.

The new ordinance reinstated by stages the old general manufacturers’ exemption (exempting 25% in 1959, 50% in 1960, 75% in 1961). In face of Armco’s well-publicized claim in the courts to the exemption granted by Ordinance No. 643, ⁵³⁸ the Council, as we noted above, used the same language in Ordinance No. 1340 as it had used in Ordinance No. 643 in enacting a one hundred per cent exemption for ore and metal refiners. In 1959 Armco again claimed exemption, this time under the language of Ordinance No. 1340, and again its claim was rejected and 75% of its personal property fully assessed by the State Department of Assessments and Taxation, the then successor to the administrative functions of the State Tax Commission. Thereupon, the same arrangement was made to postpone an appeal as to the 1959 assessment to the Maryland Tax Court as had been made to postpone the 1958 appeal to the Circuit Court—both were to lie dormant and await, and be determined by, the decision of the Court of Appeals as to the 1957 assessment.

Following our decision in Armco in November 1959, the 1959 assessment appeal was heard by the Maryland Tax Court, which held that Sec. 3 of Ordinance No. 156 was not a valid enactment “inasmuch as it merely construes that which had otherwise been authoritatively construed by the Court of Appeals of Maryland. It attempts to state the law to be otherwise than determined by the Court of Appeals in the Armco case, supra, and therefore violates Art. 8 of the Maryland Declaration of Rights.” The City appealed to the Baltimore City Court which Code (1960 Supp.), Art. 81, Sec. 229 (1), had made the appellate forum. By agreement of counsel both the 1958 and the 1959 appeals were heard together in the Circuit Court. Judge Sodaro held Ordinance No. 156 ineffective to subject Armco’s property to taxation for 1958 and 1959 for almost all, if not all, the reasons and arguments advanced by it, and ordered the claimed refunds.

With a dutiful deference for the importance and significance of the litigation—Armco, if successful, will receive in refunds some $800,000, and there are fifteen other taxpayers whose rights to refunds larger in total may depend on the outcome of this appeal—both sides have made complete and thoughtful arguments, printed and forensic, in support of their contentions. The City says and Armco denies: that the retroactive pro ⁵³⁹ visions of Ordinance No. 156 are valid on the theory of ratification of an act of an agent done without prior authority from the principal, or on the theory of permissible taxation of recent transactions; that the retroactive features of the ordinance do not offend the due process clause of the Fourteenth Amendment to the Constitution of the United States nor the doctrine of legislative usurpation of judicial function prohibited by Art. 8 of the Declaration of Rights of the Constitution of Maryland; that the classification made by Ordinance No. 156 is a reasonable one and violates neither the equal protection clause of the Fourteenth Amendment to the Constitution of the United States nor Articles 15 and 23 of the Maryland Declaration of Rights; and, finally, that Baltimore City has the delegated power to impose and levy an ad valorem tax on personal property, effective as of a prior tax year. The respective points of view have been ably presented and are interesting, but we find no need to decide any but the last because we have concluded, as a matter of statutory construction, that the City had no power in December 1959 retroactively to subject to tax tangible personal property which previously was exempt. The Baltimore City Charter (Flack, 1949 ed.) provides in Sec. 56 that “the valuation of the property subject to taxation by Baltimore City, as it shall appear upon the assessment records * * * on the first day of October in each and every year shall be final and conclusive, and constitute the basis upon which taxes for the next ensuing fiscal year shall be assessed and levied * * The October 1 date of finality has been changed to the following January first by Code (1957), Art. 81, Sec. 31 (c), which provides: “All State, county and/or city taxes required to be levied upon assessments made by the State Tax Commission, and all State, county, municipal and other local taxes on tangible personal propérty by whomsoever assessed, shall be levied for the calendar year and as of the first day of January of such year as the date of finality.” ⁵⁴⁰ This was flatly decided by Kimball-Tyler v. Balto.

City, 214 Md. 86, 97-9 . Section 2 (20) of Art. 81 defines date of finality to mean “the date as of which taxes are to be levied for the taxable year in question and upon which assessments become final for such year, subject only to correction as herein authorized.” The authorized corrections relate to assessable but escaped property (Sec. 34 of Art. 81), and to corrections necessary because of disposition, acquisition or omission of property since the last assessment (Secs. 38 and 39 of Art. Si). Property which was exempt on the date of finality is not subject to tax for the ensuing taxable year. In Baltimore City v. Jenkins, 96 Md. 192 , it was held that property owned by a church on October 1, the then date of finality, and so tax exempt, and which was sold to business interests in November, was not taxable for the next year.

The Court said: “Here, on October first, 1901, the property in question was not, and could not rightfully have been, upon the assessment books, either as the property of the committee of the Baptist Church, or of the appellee. * * * it was then exempt from taxation, and had no legal existence for the purposes of taxation. “No property, other than corporate property not subject to taxation on October first in each year, can enter into the taxable basis for the ensuing fiscal year, though it become subject to taxation on the next day.” (Id. at 194-5.) It was said in Hopkins v. Van Wyck, 80 Md. 7, 15 , that the purpose and function of a date of finality is to designate “some definite period * * * as the point of time, in each year, when the valuation or appraisement fixed upon the property actually assessed and charged upon the books to each individual * * * would be conclusively ascertained and made binding upon both the City and the taxpayer alike.” Kimball-Tyler v. Balto. City, supra, upheld Ordinance No. 643 against the contentions of certain exempt manufacturers that the City had no power to repeal the manufacturers’ ex ⁵⁴¹ emption and that, if it had, the Ordinance was ineffective for the year 1957 because it was passed after October 1, 1956, which, it was claimed, was the City’s date of finality for the tax year 1957. It was decided that the date of finality was not October 1 but the following January 1, because the Statewide statute, which was (and is) codified as Code (1957), Art. 81, Sec. 31 (c), was applicable to and binding on the City. The opinion said the question was merely one of statutory construction, “for the power of the legislature to repeal a public local law by the passage of a subsequent public general law is beyond question.” Id. at 99.

The January first date of finality was imposed by the Legislature in order to establish a uniform State-wide date for all assessments on tangible personal property, by whomsoever made. See “Report of the Legislative Council to the General Assembly of 1947,” p. 215; and County Treas. v. State Tax Comm., 219 Md. 652, 654 . The property for which Armco claims exemption was not levied on for either 1958 or 1959. In December 1957 and December 1958 the annual ordinances of levy (Nos. 1140 and 1745 respectively) were passed.

In each case the rate for the ensuing year was “levied and imposed on every One Hundred Dollars of the assessed or assessable value of property in the City of Baltimore.” The property so levied on for 1958 and 1959 respectively was property assessed or assessable on January 1 of that year. Armco’s property was neither assessed nor assessable on either January 1, 1958, or January 1, 1959—in the words of Baltimore City v. Jenkins, supra, it then “had no legal existence for the purposes of taxation” and could not “enter into the taxable basis for the ensuing fiscal year.” It had been exempt prior to the passage of Ordinance No. 643 and continued to be exempt for 1958 under the terms of that Ordinance and for 1959 under the identical terms of the successor Ordinance No. 1340, as the decision of this Court read them. The State-wide requirement that municipalities, including Baltimore, must make annual, and not retroactive, levies is shown by the statutes and the cases. Not only does Sec. 56 of the Baltimore City Charter establish a date of finality ⁵⁴² (which under Sec. 31 (c) of Art. 81 of the Code is now January 1 of the tax year), it provides that the property list as of the date of finality “in each and every year, shall be final and conclusive” and the basis upon which taxes for the year “shall be assessed and levied.” Section 6, and subsection (33) thereof, of the City Charter specify and require an annual levy as follows: “The Mayor and City Council of Baltimore shall have full power and authority to exercise all of the powers heretofore or hereafter granted to it by the Constitution of Maryland or by any Public General or Public Local Laws of the State of Maryland; and in particular, without limitation upon the foregoing, shall have power by ordinance, or such other method as may be provided for in its Charter, subject