SUPERVISOR OF ASSESSMENTS OF CALVERT CTY. v. St. Leonard Shores Joint Ven.

ALPERT, Judge. The issue we must decide herein is whether bulk ownership of a subdivided tract of land should be considered by the tax assessor when assessing multiple lots owned by a single taxpayer. Appellant, the Supervisor of Assessments of Calvert County, did not consider the bulk ownership in accordance with a directive from the State Department of Assessments and Taxation (“SDAT”). We believe that the SDAT directive was properly issued and thus find bulk ownership is not a proper consideration in the assessment process.

Facts and Proceedings The instant appeal arises from the assessment of a large tract of waterfront property in Calvert County, subdivided into 117 lots. Appellee-developer purchased the tract with the hope of developing the property and reselling the lots to the public at large. Only 12 lots were sold as of the date of finality, January 1, 1982. Appellant, Supervisor of Assessments, assessed the property at $2,635,000.00 as of the date ²⁰⁷ of finality.

The parties’ disagreement revolves around the method of assessment utilized by the State. Appellee contends that in order to assess properly the property’s value, the assessor must consider the “sell-out period,” i.e., the estimated period of time required to sell the lots. 1 To this end, appellee’s expert analogized the unsold to inventory in stock in a business. This theory of assessment is contrary to the SDAT directive which states: “Each lot should be valued at its full cash value as of the date of finality, regardless of ownership____ Bulk ownership should not be considered.” In light of this directive, the assessment was affirmed by the Property Tax Assessment Appeal Board for Calvert County. Appellee-developer next appealed to the Maryland Tax Court, which also affirmed the assessment finding that it represented the full cash value of the property, as required by statute.

In a written order and recommendation, the Hearing Examiner of the Tax Court opined: Petitioner’s [appellee’s] approach to fair market value is a staged sell-out over a period of years, ... finally reducing the end result to a net profit figure. This is good, sound business practice. Unfortunately, it is not the way the assessment process works. To implement Petitioner’s approach to value, would be to put the Assessor in the position of being a joint venturer with the petitioner: If all the lots sold in one year, we have a value certain; if all lots sell over a period of years, we have a value dependent upon the future whims of the market place, (emphasis added).

The procedure is clear: recording all 117 lots, prior to the date of finality, gave them all a fair market value as of the date of finality. That fair market value was established by the Property Tax Assessment Appeal Board as the retail sales price of each lot, added each to ²⁰⁸ the other, for a total of $2,635,000. (emphasis in original). I agree with this means of achieving a realistic market value of a hypothetical sale as of a hypothetical date.

Accordingly, having considered all evidence presented, I recommend that the decision of the Property Tax Assessment Appeal Board be affirmed. Still unwilling to accept the amount of assessment, appellee then appealed to the Circuit Court for Calvert County, where it prevailed. The Circuit Court noted that each party’s expert recognized that a “sell-out” period was a viable consideration in appraisals. Accordingly, ignoring this period was found to result in a valuation exceeding the statutory requirement of “full cash value.” 2 The decision of the Maryland Tax Court was reversed and the case remanded.

Furthermore, the Circuit Court instructed the Tax Court to disregard that portion of the SDAT directive indicating that bulk ownership should not be considered. THE LAW I. SDAT’s Authority To Promulgate Directives To County Assessors The threshold consideration in the instant appeal is whether the SDAT possessed the requisite authority to issue the directive in controversy here. A review of the Maryland Code indicates that the SDAT is statutorily permitted to issue instructions to its officers. Md.Ann.Code art. 81, § 232(2) (1980 Replacement Vol.).

This statute provides: Instruction to Officers. — To supervise the administration of the assessment and tax laws of Maryland, and of each county or city thereof. As part of its supervision of such laws, the Department shall print or otherwise dupli ²⁰⁹ cate suitable instructions and directions which are to be distributed to the several boards of county commissioners, all assessing officers and others having any duties in relation to assessments, such instructions and directions to cover generally the duties to be performed and the procedures to be followed in the making and recording of assessments. Subsection (7) of the same statute provides: Standards or units of assessment; instructions. — To formulate, whenever the Department shall deem it practicable, standards or u'nits for the assessment of various kinds of property, and to issue instructions to local supervisors of assessments in regard thereto and to require the use thereof. To confer with county commissioners and the board of municipal and zoning appeals of Baltimore City and visit each county as often as necessary.

Furthermore, Md.Ann.Code art. 81, § 244 (1980 Replacement Volume) permits the SDAT to formulate a uniform plan for the various assessors to follow. This statute provides: The State Department of Assessments and Taxation from time to time shall formulate a uniform plan for the assessment of property, which shall be followed strictly by the property tax assessment appeal boards and by all assessors, for all subsequent reassessments and reviewals of assessments authorized by this article. Hence, the SDAT is clearly empowered to issue such a directive. Moreover, administrative rules and regulations are generally valid if such rules are “reasonable and consistent” with the agency’s statutory authority.

See Sullivan v. Board of License Commissioners for Prince George’s County, 293 Md. 113, 121 , 442 A.2d 558 (1982) and cases cited therein. “The modern tendency of the courts is towards greater liberality in permitting grants of discretion to administrative officials in order to facilitate the administration of the laws as the complexity of governmental and economic conditions increases.” Id. ²¹⁰ II. The Substantive Validity Of The SDAT Directive Having determined that the SDAT has the general power to issue such directives, we must now specifically examine the substantive validity of the directive at issue. The directive is dated November 13, 1980, and in its entirety provides: The valuation of subdivided lots should consider each lot as a single legal entity. Each lot should be valued at its full cash value as of the date of finality regardless of ownership.

This valuation should consider the highest and best use of each individual lot. Bulk ownership should not be considered. Article 81, Section 45(a) allows the separate assessment of each lot in a subdivision and Article 81, Section 14(b)(1) requires the valuation of all real property at full cash value. Additionally, Article 81, Section 19(a) requires the consideration of the highest and best use of the land.

The memorandum specifically instructs assessors to disregard the fact of bulk ownership, and, consequently, any applicable “sell-out” period. This is not to say the directive delineates a specific appraisal method; it, instead, limits the scope of factors to consider. a. Method of Assessment Utilized Is a Factual Determination The choice of the particular method of assessment employed is a question of fact, and, consequently within the expertise of the administrative agency. In Verkouteren v. Supervisor of Assessments, Montgomery County, 38 Md. App. 216 , 380 A.2d 642 (1977), the taxpayers challenged the method and computation of depreciation.

The case was dismissed for failure to exhaust administrative remedies, but this Court did discuss the merits in a general way. The propriety of an assessment was deemed to be an area within the expertise of the administrative agency. 38 Md. App. at 221 , 380 A.2d 642 . The Court went on to state, “Determining whether the method of depreciation causes the appellant’s property to be assessed at something other ²¹¹ than full cash value is basically a factual question____” 38 McL App. at 222, 380 A.2d 642 . Similarly, in Bornstein v. State Tax Commission, 227 Md. 331 , 176 A.2d 859 (1972) the taxpayer-owner of an apartment building clashed with the assessor over the method used to capitalize gross income.

The taxpayer contended that the cost of reproduction should be utilized as an overall ceiling. The Court of Appeals disagreed and stated “It is firmly established in this State that the relative weight to be accorded to any relevant factor in a particular case is for the assessing authorities and not for the courts.” 227 Md. at 337 , 176 A.2d 859 (citations omitted). In the case sub judice, the method of assessment, and the decision to exclude consideration of bulk ownership, is also a factual determination and therefore within the purview of the administrative agency, not the courts. “The valuation of property is not a judicial function, and the court cannot be required to act as a board of review in the assessment of property.” Weil v. Supervisor of Assessments of Washington County, 266 Md. 238, 251-52 , 292 A.2d 68 (1972) (quoting C & P Telephone Co. v. State Tax Commission, 158 Md. 512, 517 , 148 A. 832 (1930)). By effectively ordering the Calvert County assessor “to disregard that portion of the directive [providing] that 'Bulk ownership should not be considered,’ ” the circuit court usurped the authority of the administrative agency.

This was not a matter of law where the court could freely substitute its legal judgment for that of the agency. See Supervisor of Assessments v. Carroll, 298 Md. 311 , 469 A.2d 858 (1984). b. The “Rational Basis Test” Viewed from another perspective — that of the recently enunciated “rational basis test” — we believe that the circuit court erred in reversing the decision of the tax court. Ordinarily in analyzing the scope of judicial review, we would look to Md.Ann.Code art. 81, § 229(o)