Vournas v. Montgomery County

Liss, J., delivered the opinion of the Court. This is an appeal from a declaratory judgment entered by the Circuit Court for Montgomery County, finding that the County farmland transfer tax imposed upon a transferor is due and payable by the transferor, an individual owner, on land previously assessed as farmland, upon transfer by condemnation of that land to the United States. Appellant, George C. Vournas, owned 200.68 acres of land located at 15000 River Road, Potomac, Montgomery County, Maryland, designated as the Callithea Farm. On October 7, 1975, the United States of America instituted a condemnation proceeding in the United States Dis ²⁴⁵ trict Court for the District of Maryland to acquire 57.92 acres of Vournas’ land for public use as part of the Chesapeake and Ohio Canal National Historical Park.

In November of 1975, Montgomery County entered an appearance in the litigation to protect its interests regarding any taxes due on the property as of the day of taking, and to request that any such taxes be paid out of any money awarded to Vournas. Subsequently, an award was made to Vournas in the amount of $591,300.00, of which $64,800.00 represented severance damages and $526,500.00 compensation for the value of the property. This award, dated January 25, 1979, was made subject to all liens, encumbrances, and charges against the land. On March 15,1979, the Clerk of the United States District Court in Baltimore received from the United States $591,300.00 in full satisfaction of the judgment.

Title vested in the United States upon receipt of the money. Thereafter, by order of the District Court dated April 3, 1979, the clerk of that court was directed to pay the $591,300.00 to the Commonwealth Title Insurance Company of Washington, D.C. to discharge all taxes, assessments, liens and encumbrances against the property and to remit the balance to the parties entitled to receive it. On April 11, 1982, the documents evidencing the transaction were recorded in the land records of Montgomery County, Maryland. The record does not disclose the settlement sheets, if any, prepared by the title company when it disbursed the funds.

However, all parties agree that no transfer tax was retained or paid to Montgomery County prior to the recording of the conveyancing documents, nor has any such tax been paid to the County since. On May 22, 1979, Montgomery County, pursuant to the provisions of Section 52-17 through 52-27, of the Montgomery County Code, sent a bill to Vournas in the amount of $35,478.00, representing the farmland transfer tax alleged to be due on the conveyance to the United States of the 57.92 acres of Vournas’ farm as described above. The tax was computed on the consideration of $591,300.00. A revised bill was sent by ²⁴⁶ the County on December 17, 1979, reducing the tax base by the amount of the severance damages ($64,800.00) and recomputing the tax at $31,590.00 plus interest from June 22, 1979 to December 31, 1979 of $1,474.20 for a total of $33,064.20.

To date the plaintiff has not paid any monies on account of the transfer tax, but instead instituted this litigation on June 20,1980, asserting that he is not liable for the tax. By Chapter 633 of the Laws of Maryland 1968, (codified at Section 52-20 of the Montgomery County Code), the General Assembly specifically authorized the County to levy and impose a tax at six percent of the value of the consideration on the transfer of certain farmland and land rezoned to a more intensive use, and one percent on all other transfers. By county law this tax is fixed at varying percentages under differing circumstances to and including six percent. Appellant’s land is taxable at the top rate [Montgomery County Code Section 52-21 (d) (4)].

By this same law [Section 52-21 (d)] the tax is to be paid by the transferor, and by definition in Section 52-19 a transfer includes acts by the parties or by law through which title to property is conveyed from one person to another. Sections 52-22 and 23 provide that the tax is to be paid at the time of recording the instrument of conveyance in the land records of Montgomery County. Conveyances are not to be accepted for recording unless the tax has been paid and the official stamp of the County Director of Finance affixed. The trial court held that Sections 52-19, 52-20, 52-21, 52-22, Montgomery County Code, (1972,1977 Repl.

Vol.) are constitutional, valid and enforceable and granted a judgment in favor of Montgomery County. Vournas appealed, raising the following issues: I. Whether the transfer tax authorized by Chapter 633 of the laws of Maryland 1968 and imposed by Section 52-21 of the Montgomery County Code (1972, 1977 Repl. Vol.) is illegal, unconstitutional and void? ²⁴⁷ II. Whether the transfer tax is applicable to an involuntary conversion of property by reason of condemnation proceedings instituted by the United States Government?

III

Whether the appellee is precluded from collecting the transfer tax because of its failure to secure payment out of the condemnation award at or before recording of the transfer on the land records of Montgomery County? I. Appellant initially complains that the Maryland Legislature had no rational basis for enacting an enabling act permitting imposition of a six percent property transfer tax only in Montgomery County, see 1968 Md. Laws, Chapter 633. He argues that the tax violates the Fourteenth Amendment to the United States Constitution which guarantees equal protection of the laws, as there is nothing unusual about the cost of recording deeds or transferring agricultural property in Montgomery County, as opposed to agricultural property in other Maryland counties, which should single out such deeds or property for a six percent transfer tax when most other property transferred in the State of Maryland and in Montgomery County is subject to substantially lower rates. He further argues that geographical restrictions upon the application of a law are required to have some rational basis.

See Dasch v. Jackson, 170 Md. 251 (1936). The equal protection clause of the Fourteenth Amendment does not require absolute mathematical equality in regard to taxation. In Lane Construction Corporation v. Comptroller of the Treasury, 228 Md. 90 (1962), the Court of Appeals said: [I]t [the equal protection clause! permits great "flexibility and variety that are appropriate to reasonable schemes of state taxation” as long as a classification is not per se or in practical operation ²⁴⁸ palpably arbitrary. Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522, 526 , 3 L.Ed.2d 480 .

"[T]he presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive demonstration against particular persons and classes.” Madden v. Kentucky, 309 U.S. 83, 88 , 84 L.Ed. 590 . If on any imaginable factual basis, the state legislature had a reason to distinguish between certain transactions, and thus to tax them somewhat differently, the classification will be upheld. Allied American Co. v. Comm’r, 219 Md. 607, 623 . [ 228 Md. at 97 ], Only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes can the presumption of constitutionality be rebutted. Hooks v. Comptroller of the Treasury, 265 Md. 380, 388 (1972).

The fact that in a particular instance the effect of the tax imposed may be to treat certain transactions or taxpayers differently, absent a showing that it is without reasonable basis and is entirely arbitrary, does not amount to such a discriminatory classification as to be violative of constitutional guarantees. Id. at 388-89 . The Court of Appeals clearly stated this rule in Villa Nova Night Club v. Comptroller of the Treasury, 256 Md. 381, at 391 (1970): The point is that the Legislature, when it passes a revenue measure, has the power to classify, and may impose varying tax burdens on different groups. It is only when the attempted classification has no reasonable basis in the nature of the businesses classified and burdens are imposed unequally on taxpayers between whom there is no real difference that the courts will interfere.

In 1968, the General Assembly authorized the County Council to impose a transfer tax on any transfer of land which had been assessed as farmland. The Legislature has absolute power of taxation over all property within the ²⁴⁹ State, except as restricted by the United States Constitution and the Maryland Constitution. McLane v. State Tax Commission, 156 Md. 133, 140 (1928). The transfer tax is imposed at the time of sale and transfer of property and is based on the consideration for the sale.

The rationale for the tax is that at the time of transfer of farm assessed land the County seeks to recapture part of the revenue lost during the time the land received a lower preferential farmland assessment. Rapley v. Montgomery County, 261 Md. 98, 100 (1971). During the time the land is actively devoted to farm or agricultural use, the land is assessed as farmland, and the owner, whether an actual farmer or a developer farming for tax relief, is free to farm forever. The transfer tax in effect could be said to encourage farming and discourage transfer.

Only upon the sale or transfer of farm assessed land is the transfer tax required to be paid. When an owner sells land assessed as farmland the owner realizes the increase in the monetary value of the land. The transfer tax seeks only to recoup a portion of the value of the farm assessed land, not reached through ordinary real property taxation because of the low farm assessment. In this case, appellant sold and transferred land which had been assessed and taxed at only $30 to $220 per acre, to the United States for $9,100 per acre.

The transfer tax is admittedly a revenue measure. Where the primary objective of a tax is raising revenue, it is a revenue measure and the amount of the tax is not reviewable by the courts. Maryland Theatrical Corp. v. Brennan, 180 Md. 377, 381 (1942). Appellant, who has the onerous burden of showing that the classification does not rest upon any reasonable basis, has failed to establish any invidious discrimination in the application of the transfer tax either to himself or to others.

See Allied American Mut. Fire Ins. Co. v. Commissioner of Motor Vehicles, 219 Md. 607, 623 (1959). The tax imposed upon the transfer of real property is an excise tax and not a property tax, Rapley v. Montgomery County, supra at 110, which is imposed upon the privilege of ²⁵⁰ recording a deed or other instrument.

Pittman v. Housing Authority of Baltimore City, 180 Md. 457, 463 (1942). The transfer tax is similar to a sales tax in that it is imposed upon the occurrence of an event. Central Credit Union v. Comptroller of the Treasury, 243 Md. 175, 182-83 (1966). The County transfer tax, as an excise tax, is not subject to the equality and uniformity requirements of Article 15 of the Maryland Declaration of Rights.

Weaver v. Prince George’s County, 281 Md. 349 (1977). We find the transfer tax to be constitutional in all respects.

II

Appellant contends that the farmland transfer tax is not applicable to a federal condemnation proceeding, and is violative of the federal system created by the United States Constitution. McCulloch v. Maryland, 4 Wheat. 316, 425-37 (1819). He