Weaver v. Prince George's County

Levine, J., delivered the opinion of the Court. In this appeal, we are called upon to determine whether the Prince George’s County Multifamily Occupancy Tax (the Occupancy Tax) is a property tax subject to the uniformity requirements of Article 15 of the Maryland Declaration of Rights and whether the County acted ultra vires the State enabling Act (the State Act) in denying recipients of military housing allowances the benefit of the State Act’s exemption for families receiving a “housing subsidy.” 1 ³⁵² Appellants, who are tenants, .landlords and rental management companies in Prince George’s County, commenced this declaratory judgment proceeding in the Circuit Court for Prince George’s County. There, the chancellor (Bowling, J.) upheld the constitutionality of the Occupancy Tax on the grounds that the plaintiffs were foreclosed from raising the issue by the doctrine of collateral estoppel. 2 The circuit court, however, did rule that by applying the tax to persons receiving military housing allowances, the County had exceeded its authority under the State Act. All parties appealed to the Court of Special Appeals, which, in Weaver v. Prince George’s County, 34 Md. App. 189, 205 , 366 A. 2d 1048 (1976), reversed the chancellor’s ruling with respect to the military housing allowances.

Holding also that appellants’ constitutional claims were not barred by the doctrine of collateral estoppel, the Court of Special Appeals considered each of the constitutional challenges and held ultimately that both the State Act and the implementing County ordinance were constitutional in all respects. We then granted certiorari, and for reasons that follow, we affirm. I Chapter 925 of the Laws of 1976 authorizes Prince George’s County to levy a tax not to exceed 4% of the rent paid by lessees of “multifamily residential units” during the period of possession by the lessee. A “multifamily residential unit” is defined to include “any building . . . operated as a single unit in which the landlord provides ... two or more rental dwelling units.” The statute further permits the County to render the operator or owner of a multifamily residential unit personally liable for collection and remittance of the tax to the appropriate local authorities.

The County may also require landlords to collect' ³⁵³ the Occupancy Tax as part of the tenant’s monthly rental installment, and upon failure of a tenant to pay the tax may proceed against him as in an ordinary case for nonpayment of rent. The State Act specifically exempts from the operation of the tax families receiving a “housing subsidy.” The County Ordinance, enacted pursuant to the grant of authority in the State Act, imposed the maximum 4% tax on monthly rents charged for the use and occupancy of rental multifamily residential units. Under the Ordinance, landlords who fail to remit the tax are subject to criminal prosecution and fines up to $500.00. A civil penalty equal to ten times the unpaid tax plus interest is assessed against any landlord who refuses to collect the tax.

Tenants failing to remit the tax may be guilty of a misdemeanor punishable by a fine not to exceed $500.00 or no more than three months in jail. Although the State Act and County Ordinance are for the most part identical, the Ordinance supplements the Act in several respects. First, the Ordinance adds a definition of the term “rent” as “consideration paid or required to be paid by a tenant for the use or occupancy of any structure and appurtenance thereto, valued in money, . . . including utilities . . .” (emphasis added). Secondly, the Ordinance supplies a definition of the phrase “housing subsidy,” as used in the State Act, to include “direct or indirect payments by the federal or state government, payable to either a tenant or to a landlord on behalf of a tenant where the amount is based on the tenant’s income or ability to pay and used exclusively for the payment of rent.” The Ordinance further provides that this “term shall not include quarters allowances or similar military housing allowances.” (emphasis added).

II Appellants contest the constitutionality of the Prince George’s County Occupancy Tax on two grounds, both of which arise under the uniform taxation mandate of Article 15 of the Declaration of Rights. First, say appellants, the tax is infirm because it is a property tax on a tenant’s leasehold ³⁵⁴ estate, which is not based on the actual worth of the possessory interest in the hands of the tenant. 3 Secondly, it is contended that the uniformity limitation of Article 15 is violated because the County Ordinance defines “rent” to include utilities charges; therefore, the tax unreasonably discriminates against those apartment dwellers whose monthly rental payments cover utilities, since they are compelled to pay a higher effective rate of tax than similarly situated tenants who do not pay utility fees together with their rent installments. In its entirety, Article 15 of the Declaration of Rights presently provides: “That the levying of taxes by the poll is grievous and oppressive and ought to be prohibited; that paupers ought not to be assessed for the support of the government; that the General Assembly shall, by uniform rules, provide for the separate assessment, classification and sub-classification of land, improvements on land and personal property, as it may deem proper; and all taxes thereafter provided to be levied by the State for the support of the general State Government, and by the Counties and by the City of Baltimore for their respective purposes, shall be uniform within each class or sub-class of land, improvements on land and personal property which the respective taxing powers may have directed to be subjected to the tax levy; yet fines, duties or taxes may properly and ³⁵⁵ justly be imposed, or laid with a political view for the good government and benefit of the community. (emphasis added).

Under the Article, taxes laid directly upon property, as such, must be equal, uniform and according to the actual worth of all property in the same class located within the State. See State Tax Comm. v. Gales, 222 Md. 543, 560 , 161 A. 2d 676 (1960); National Can Corp. v. Tax Comm., 220 Md. 418, 426 , 153 A. 2d 287 (1959), appeal dismissed, 361 U. S. 534 , 80 S. Ct. 586 , 4 L.Ed.2d 538 (1960); State v. P., W. &B.R.R. Co., 45 Md. 361, 378 (1876). As the current formulation of the Article makes clear, however, the requirement that taxes be equal and uniform applies only to property taxes, Katzenberg v. Comptroller, 263 Md. 189, 196-97 , 282 A. 2d 465 (1971); A. Niles, Maryland Constitutional Law 32-34 (1915). As early as 1776, the framers of Article 15 expressly permitted the General Assembly to depart from the principle of uniformity in taxation where the particular revenue measure enacted was an excise, that is, a tax imposed or laid with a political view for the good government and benefit of the community.

Williams’ Case, 3 Bland. 186, 257 (1831); accord, Oursler v. Tawes, 178 Md. 471, 485-86 , 13 A. 2d 763 (1940). The keystone of appellants’ challenge to the Prince George’s County Occupancy Tax and the central issue of this appeal is whether the tax is a direct tax on the tenant’s property or whether it constitutes an indirect excise tax on the privilege of using or occupying a rented multifamily residential unit. If the latter, our inquiry is at an end, since, as we have indicated, there are no uniformity or ad valorem restrictions on the Legislature’s power to levy excise taxes. Several preliminary observations are in order at this juncture.

First, our decisions have acknowledged that a strong presumption exists in favor of the constitutionality of legislative enactments, Department of Natural Res. v. Linchester Sand & Gravel Corp., 274 Md. 211, 218 , 334 A. 2d 514 (1974); Md. Bd. of Pharmacy v. Sav-a-Lot, 270 Md. 103, 106 , 311 A. 2d 242 (1973), including revenue measures such ³⁵⁶ as the County Occupancy Tax at issue here. See Adm’r, Motor Veh. Adm. v. Vogt, 267 Md. 660, 674 , 299 A. 2d 1 (1973). Secondly, the Legislature’s power of taxation, is an inherent attribute of the sovereignty of the state, and the right of the Legislature to exercise it should seldom be questioned except in cases where it is plain that the power has been relinquished or where invocation of the power would clearly overstep a limitation placed on its exercise by either the federal or state constitution.

State v. C. & P.R.R. Co., 40 Md. 22, 44 (1874); see State Tax Comm. v. Gales, 222 Md. at 549 . The line that separates an excise tax from a property tax is a difficult one to draw, and courts have not fully succeeded in developing a truly useful definition of either concept. Blaustein v. Tax Comm’n., 176 Md. 423, 426 , 4 A. 2d 861 (1939). To draw that line here, we examine the designation placed upon the tax by the Legislature, the subject matter of the tax, and the incidents of the tax, i.e., the manner in which it is assessed and the measure of the tax.

Although the nature of any tax should be determined by reference to its actual operation and practical effect, rather than by any particular descriptive language which may have been employed by the legislative body, Herman v. M. & C.C. of Baltimore, 189 Md. 191, 198 , 55 A. 2d 491 , 173 A.L.R. 1310 (1947), we are nevertheless cognizant of the rule that the declaration of the Legislature as to the character of a levy is entitled to considerable weight in our own independent determination. American Nat’l v. M. & C.C., 245 Md. 23, 35 , 224 A. 2d 883 (1966). Both the State enabling act and the County Ordinance denominate the tax as a “multifamily occupancy” tax. Furthermore, the Ordinance states specifically that the tax is levied “upon rents charged for the use and occupancy of rental multi-family residential units.” (emphasis added).

The term “rent” is defined in the Ordinance as “consideration paid or required to be paid by a tenant for the use or occupancy of any structure. . .” (emphasis added), and a “rental dwelling unit” is denoted as “any structure . . . which a landlord, for consideration, ³⁵⁷ provides for use as a residence.” (emphasis added). Finally, the Ordinance provides that “in the event of a vacancy for a portion of the month the four percent (4%) tax shall be prorated for that portion of the month that the rental unit was occupied.” At no point in either the State Act or the County Ordinance is there any indication that the tax was intended as a direct charge on a tenant’s possessory estate. Thus, on its face, at least, the tax appears to be a levy on the use and occupancy of a dwelling rather than an assessment directly against any property interest in the tenant’s hands. The consensus of opinion appears to be that a property tax is a charge on the owner of property by reason of his ownership alone without regard to any use that might be made of it, Bromley v. McCaughn, 280 U. S. 124, 136 , 50 S. Ct. 46 , 74 L. Ed. 226 (1929); Dawson v. Kentucky Distilleries Co., 255 U. S. 288, 294 , 41 S. Ct. 272 , 65 L. Ed. 638 (1921); Flint v. Stone Tracy Co., 220 U. S. 107, 152 , 31 S. Ct. 342 , 55 L. Ed. 389 (1911); Herman v. M. & C.C. of Baltimore, 189 Md. at 197 ; a tax on the mere right to own or hold property is a property tax.

Flynn v. City & County of San Francisco, 18 Cal. 2d 210 , 115 P. 2d 3, 6 (1941). An early definition of the term “excise tax” was propounded by Professor Cooley in his treatise on the law of taxation: “[Excises are] taxes laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue, certain occupations and upon corporate privileges.” 1 T. Cooley, The Law of Taxation § 42 (4th ed. 1924). Accord, Herman v. M. & C.C. of Baltimore, 189 Md. at 197 ; see also 2 W. Blackstone, Commentaries ³¹⁷-18 (Tucker ed. 1803). More recently, courts have employed a more expanded definition.

In Continental Motors Corp. v. Township of Muskegon, 376 Mich. 170 , 135 N.W.2d 908, 911 (1965), an excise was defined as “a tax imposed upon the performance of an act, the engaging in an occupation, or the enjoyment of a privilege.” (emphasis added). Accord, Village of Lombard ³⁵⁸ v. Illinois Bell Telephone Co., 405 Ill. 209 , 90 N.E.2d 105, 108 (1950); Callaway v. City of Overland Park, 211 Kan. 646 , 508 P. 2d 902, 907 (1973). Indeed, an excise is said to embrace every form of taxation that is not a burden directly imposed on persons or property. Gila Meat Co. v. State, 35 Ariz. 194 , 276 P. 1, 2 (1929); City of Glendale v. Trondsen, 48 Cal. 2d 93 , 308 P. 2d 1, 7 (1957).

Finally, the property tax and the excise tax may be differentiated by the methods used to impose them and to fix their amount. Thus, it has been held that where a tax is levied directly by the Legislature without assessment and is measured by the extent to which a privilege is exercised by a taxpayer without regard to the nature or value of his assets, it is an excise. Where, however, the tax is computed upon a valuation of the property and is assessed by assessors, and where the failure to pay the tax results in a lien against the property, it is a property tax, even though a privilege might be included in the valuation. Mont.

Co. v. Md. Soft Drink Ass 'n 281 Md. 116, 127 , 377 A. 2d 486 (1977); Walker v. Bedford, 93 Colo. 400 , 26 P. 2d 1051, 1053 (1933); City of DeLand v. Florida Public Service Co., 119 Fla. 804 , 161 So. 735, 738 (1935). See Society for Savings v. Coite, 73 U. S. (6 Wall) 594, 610 (1868). As we noted earlier, the County tax is a charge, at least nominally, on the privilege of using and occupying a rented multifamily residential dwelling.

The Legislature has made no overt attempt to tax the underlying leasehold estate. The State enabling act authorizes imposition of the tax only during the “period of possession” by the tenant. Furthermore, the County Ordinance provides for an abatement of the tenant’s liability during that portion of the month when the apartment is unoccupied. Thus, despite appellants’ assertions to the contrary, a tenant appears to be responsible for the tax only when the residential dwelling is actually used or occupied by him. 4 This Court has indicated that a tax on the use of property, as distinguished from a tax based on ownership exclusively, ³⁵⁹ is in the nature of an excise.

Lane Corp. v. Comptroller, 228 Md. 90, 94 , 178 A. 2d 904 (1962). The privilege of using property is only one of the many incidents which make up the bundle of rights, powers, privileges and immunities, collectively regarded as property or ownership. Henneford v. Silas Mason Co., 300 U. S. 577, 582 , 57 S. Ct. 524 , 81 L. Ed. 814 (1937). See also Billings v. United States, 232 U. S. 261, 280-81 , 34 S. Ct. 421 , 58 L. Ed. 596 (1914).

As the Supreme Court stated in Bromley v. McCaughn, 280 U. S. at 136 , “a tax imposed upon a particular use of property or the exercise of a single power incident to ownership, is an excise.” The Occupancy Tax, then, is in name and effect a valid excise on the privilege of occupying a residential rental dwelling unit, since the tax falls on only one of the manifold attributes associated with ownership of a leasehold interest in property. Our conclusion is buttressed by two decisions from Pennsylvania and New York upholding the constitutionality of taxes levied on the privilege of using and occupying commercial property. In John Wanamaker, Philadelphia v. School District, 441 Pa. 567 , 274 A. 2d 524 (1971), the Supreme Court of Pennsylvania held that the Philadelphia Business Use and Occupancy Tax was a privilege tax and was therefore not subject to or violative of the uniformity clause of the Pennsylvania constitution. The Philadelphia ordinance imposed a tax of $1.25 per $100 of assessed value of real estate on the “use or occupancy of real estate within the School District . . . for the purpose of carrying on any business ... or other commercial and industrial activity.” The tax was levied against the user or occupier of real estate in addition to any ad valorem property taxes imposed on the owner of the property.

The court stated: “The use and ownership of property are distinct and separate. The right to use property is just one of several rights incident to ownership. “While economically the incidence of the tax is on the property itself, its legal incidence is on the ³⁶⁰ privilege of using, making it a true excise tax.” Id. at 526, 527 (emphasis added). A similar result was reached in Ampco Printing-Adv. Offset Corp. v. City of New York, 14 N.Y.2d 11 , 247 N.Y.S.2d 865 , 197 N.E.2d 285 (1963), appeal dismissed, 379 U. S. 5 , 85 S. Ct. 47 , 13 L.Ed.2d 21 (1964), where the New York City Commercial Rent or Occupancy Tax Law was challenged as invalid under a state constitutional provision requiring real estate taxes to be based on a percentage of the “average full valuation of taxable real estate.” There, the New York Court of Appeals held that the occupancy tax was not one imposed on real estate.

Plaintiffs in that case had argued that the economic impact of the tax was on the property thereby rendering the charge a tax on real estate. The court rejected the contention relying on Bromley v. McCaughn, 280 U. S. at 136 , quoted earlier. The Ampco court also rejected the argument that the tax was an ad valorem tax on intangible personalty, saying that the city levy was “not based merely on ownership or possession, regardless of whether the property is used or not.” 197 N.E.2d at 288 . Cf.

Florida Revenue Comm’n v. Maas Bros., Inc., 226 So. 2d 849, 851 (Fla. App. 1969), cert. denied, 237 So. 2d 177 (Fla. 1970) (tax imposed on tenants for privilege of renting or leasing commercial offices or buildings is an excise tax). Recently, the Internal Revenue Service has specifically ruled that the 1975 Prince George’s County Occupancy Tax, which, for all intents and purposes, was identical to the 1976 version at issue here, was an excise tax and not a property tax deductible under section 164(a)(1) of the Internal Revenue Code permitting a federal income tax deduction for state, local and foreign property taxes paid or accrued. Rev. Rul. 75-558, 1975- 2 C.B. 67 .

In reaching this conclusion, the Service relied heavily on a decision of the United States Tax Court in Waxenberg v. Commissioner, 62 T. C. 594 (1974). There, the court held that an English tax, the United Kingdom General Rate Act of 1967 (“Rates Tax”), was a non-deductible excise for purposes of I.R.C. § 164(a)(1). The English statute imposed a tax on the occupation of real ³⁶¹ property. Occupiers of land were not assessed on the basis of the fair market value of the real estate; instead, they paid a tax based on a pro rata portion of the net annual rental value of the property, computed as a function of the period during which the taxpayer actually occupied the premises.

The Tax Court concluded that the Rates Tax was “an excise on the privilege of occupying or using real property” and therefore not deductible as a property tax. Following the reasoning in Waxenberg , the Internal Revenue Service determined that the Prince George’s Occupancy Tax was likewise a tax imposed on rents for the occupancy of the property. See also Rev. Rui. 73-600,1973- 2 C.B. 47 (declaring the United Kingdom Rates Tax to be a levy on the occupation and use of real property and not a tax on the property itself.) Relying upon the decision of this Court in Anne Arundel County v. English, 182 Md. 514 , 35 A. 2d 135 , 150 A.L.R. 842 (1943), appellants here contend that a tax on the occupation or use of a residential dwelling, as opposed to a commercial building, is not a tax on a privilege at all, but rather a tax on a necessity of life, and is therefore the functional equivalent of a tax on ownership per se. They argue strenuously that the Occupancy Tax is not levied on an incident of ownership, but is instead a charge on a power so indispensable to the enjoyment of the ownership that a tax on it must be characterized as a property tax.

English involved a challenge to a “license” tax on mobile homes in Anne Arundel County imposed at a flat rate of $30.00 per annum per trailer, for the payment of which occupiers were primarily responsible. Failure to pay the tax resulted in a lien being placed on the trailer. Taxpayers there claimed the tax was invalid for two reasons. First, the tax was attacked as being arbitrary and invidiously discriminatory against owners and occupiers of residential trailers in violation of Article 23 of the Declaration of Rights and the Fourteenth Amendment of the Federal Constitution on the grounds that ordinary home-dwellers were not subject to a similar tax.

Secondly, and most importantly for present purposes, the tax was said to contravene the ³⁶² uniformity mandate of Article 15. The Court agreed with both contentions and struck down the tax with this rationale: “By no stretch of the imagination could