Supervisor of Assessments v. Chase Associates

MURPHY, Chief Judge. Since 1979, the State Department of Assessments and Taxation has reviewed all real property assessments on a staggered triennial basis. See Maryland Code (1957, 1980 Repl.Vol.), Article 81, § 232(8). 1 Under the statutory procedure, the Department reviews each year one-third of the assessable real property in the state. The property is then assessed for a three-year period beginning on the next “semiannual date of finality,” July 1.

The assessment is derived from the property’s full cash value on the “date of finality,” January 1, preceding the three-year cycle. See §§ 14(b); 29A. Ordinarily, the Department does not modify its assessment during the ensuing cycle. Under certain statutorily enumerated circumstances, however, property may be revalued and reassessed during an existing triennial cycle.

These circumstances include those set forth in § 232(8)(d), which states that “[a]ny property shall be reviewed, physically inspected, and revalued ... in any year that: (1) The zoning classification of the property is changed; ⁵⁷¹ (2) A substantial change occurs in the use of the property; (3) Extensive improvements are made to the existing property; (4) The previous assessment was clearly erroneous due to an error in calculation or measurement of the improvements on the property.” In addition, § 19(a)(1) provides that “land may be reassessed whenever it has been subdivided or the character or use is changed after the date of finality but before the semiannual date of finality.” The principal issue in these consolidated cases is the legality of a mid-cycle reassessment of a 22-story residential apartment building in Baltimore City. The reassessment was instituted by the Supervisor of Assessments solely in response to the establishment of a condominium regime on the property. The Supervisor maintains that the reassessment was authorized by both § 232(8)(d)(2) and § 19(a)(1). We must determine, therefore, whether either of these statutory provisions provides an adequate legal foundation for the Supervisor’s mid-cycle reassessment of this property- I. Since the building’s construction in 1967, it has accommodated a limited amount of office and restaurant space on its first two floors, and the remaining 20 floors have been devoted exclusively to residential apartment units.

Until June 1981, the property was owned as a cooperative. Chase Associates, a Maryland partnership and one of the appellees in this case, purchased all the outstanding stock of the cooperative on January 21, 1981. In June of that year, Chase filed a condominium declaration establishing a condominium regime of 246 units on the property. Sales of individual units began immediately, and the first settlement ⁵⁷² was held in early July. 2 Marvin Ellin, another appellee, purchased eleven units during the following four months.

Earlier, on December 12, 1980, the Supervisor had issued a Notice of Assessment for the apartment building for the triennial cycle beginning on July 1, 1981. The date of finality for the assessment was January 1,1981. The notice showed a proposed full cash value for the land and the building of $3,603,700.00, which represented an increase of $1,259,500.00 over the valuation for the 1980/81 tax year. The increased valuation was to be phased in over the ensuing triennial cycle.

In June 1981, Chase received a tax bill in the amount of $79,985.27, based upon an assessment of $1,294,260.00 for the first year of the triennial cycle. Chase paid this bill, less an early payment discount, on July 1, 1981. As individual units in the condominium were sold, the purchasers reimbursed Chase for their proportionate share of the real property taxes, prorated according to the time remaining in the tax year and the percentage of their ownership interest in the common elements. On October 15 and 19, 1981, the Department issued new, individual Notices of Assessment for each of the 246 condominium units.

Each notice showed a proposed full cash value for a single unit; the aggregate of these values for all the units in the condominium was $14,175,350.00. The corresponding reassessments were to apply retroactively to the existing triennial cycle that had begun on July 1, 1981. Chase, to whom all of the reassessment notices were addressed, noted timely appeals and attended a hearing with the Supervisor on November 20. On December 29, final Notices of Assessment were issued for each condominium unit.

These notices rescinded the reassessment for the first year of the triennial cycle, but affirmed the reassessments for the second and third years. ⁵⁷³ Chase, Ellin, and other owners of condominium units filed timely appeals to the Property Tax Assessment Appeals Board from these final notices. The Board conducted a hearing on March 8, 1982, and, by orders dated March 19, upheld the reassessments shown on the final notices. From the Board’s orders, two separate petitions were filed to the Maryland Tax Court, one individually by Ellin, and the other by Chase and the remaining unit owners. The Tax Court in each case conducted de novo proceedings at which the parties stipulated to the relevant facts.

The Supervisor argued in both cases that the condominium conversion constituted a substantial change in the use of the property for purposes of § 232(8)(d)(2), asserting that the use had changed from what it characterized as “rental apartment use” to “condominium use.” The parties stipulated that the Supervisor had consistently treated the establishment of a condominium regime as a change in use for purposes of this statute. In the case involving Chase, the Supervisor advanced the alternative argument that the conversion entailed a subdivision of land within the meaning of § 19(a)(1), and that the reassessments were therefore also authorized under this provision. The Tax Court concluded that the conversion did constitute a substantial change in use and, by separate orders dated October 29, 1984, upheld the reassessments in both cases solely on the basis of § 232(8)(d)(2). The Supervisor’s alternative argument under § 19(a)(1) was summarily rejected by the Tax Court.

From the Tax Court’s orders, two appeals were taken to the Circuit Court for Baltimore City, one by Ellin and the other by Chase and the remaining unit owners. The circuit court reversed in both cases, reasoning that the establishment of a condominium regime does not of itself constitute a change in use within the meaning of § 232(8)(d)(2). The court also upheld the Tax Court’s conclusion that § 19(a)(1) was inapplicable. From the adverse judgments of the circuit court, the Supervisor appealed to the Court of Special ⁵⁷⁴ Appeals!

We issued writs of certiorari on our own motion before the intermediate appellate court’s consideration of the cases.

II

The scope of a circuit court’s review in an appeal from the Tax Court is prescribed by § 229(o) of Article 81 (1957, 1980 Repl.Vol. & Supp. 1984): “In any case, the circuit court for the county shall determine the matter upon the record made in the Maryland Tax Court. The circuit court shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported by substantial evidence appearing in the record. In other cases, the circuit court may affirm, reverse, remand, or modify the order appealed from.” Thus, as we recently explained in Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834 , 490 A.2d 1296 (1985), “a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law.” Of course, various considerations may persuade a court to adopt a statutory interpretation advanced by an administrative agency, such as the Tax Court. See Balto.

Gas & Elec. v. Public Serv. Comm’n, 305 Md. 145, 161-62 , 501 A.2d 1307 (1986). However, an agency’s identification or interpretation of the controlling law is entitled to no presumption of correctness; the reviewing court must apply the law as it understands it to be. See, e.g., Supervisor of Assess, v. Carroll, 298 Md. 311, 315-19 , 469 A.2d 858 (1984); Supervisor v. Ort Children Tr., 294 Md. 195, 200-12 , 448 A.2d 947 (1982); Condominium Owners v. Supervisor, 283 Md. 29, 36 , 388 A.2d 116 (1978); Comptroller v. Mandel Re-Election Com., 280 Md. 575, 578-85 , 374 A.2d 1130 (1977).

The issues before us in this case involve the proper interpretation of two statutory provisions, and are therefore solely questions of law. As indicated earlier, the Tax Court ⁵⁷⁵ rejected the Supervisor’s argument that the mid-cycle reassessment was authorized by § 19(a)(1), which states that “land may be reassessed whenever it has been subdivided ... after the date of finality but before the semiannual date of finality.” In so doing, the Tax Court concluded that the word “land,” as used in this statute, did not encompass improvements such as the appellees’ building. The Tax Court, therefore, did not reach the issue of whether the condominium conversion constituted a subdivision of the building itself, but held only that the conversion did not constitute a subdivision of the land for purposes of this statute. Although the Tax Court did not set forth its reasons for reaching this decision, we conclude that the agency has correctly interpreted the language in question.

The distinction for purposes of this statute between land and improvements is recognized in the