Court of Appeals Holding Reduces County Agriculture Transfer Tax Share

An October 20, 2015, Daily Record article reported that in the case of Montgomery County, Md v. Jean K. Phillips, et al, the Maryland Court of Appeals has ruled that the transfer tax counties receive from the sale of farmland must be reduced by a state surcharge of 25 percent.  Montgomery County had unsuccessfully argued that the surcharge was separate from the transfer-tax calculation and now owes a tax refund of approximately $41,000. The ruling stemmed from the condemnation of the Phillips’ farm by the Montgomery County Board of Education. From the article:

In its 5-2 decision, the high court said the General Assembly “explicitly and clearly” provided in Section 13-407 of the Tax-Property Article that the transfer tax includes the surcharge. Even without the clear statutory language, the legislature in its debates “expressed an intent” that the state surcharge be part of the transfer tax, the court added.

“The legislative history demonstrates that the state surcharge is to be collected and distributed directly to the state, and makes no mention whatsoever that the state surcharge is somehow exempt from the tax ceiling on the ‘total rate of tax under TP Section 13-407(a)(2),” Judge Shirley M. Watts wrote for the majority. “Absent any indication in the statutory language or the legislative history that the General Assembly did not intend the state surcharge to be a part of the state agricultural land transfer tax, we decline to construe the relevant statutes to reach such a strained result.” …

Diane E. Feuerherd, the Phillips family’s appellate attorney, said the family’s tax recovery “was really spelled out in the language of the statute,” which calls for inclusion of the surcharge in the transfer tax.

A key finding in both Watts’ majority opinion and the dissent by Judge Glenn T. Harrell, Jr. was MACo’s lack of objection to a 2008 amendment to the Tax-Property Article, which the Judges interpreted very differently:

[Watts] cited the Maryland Association of Counties’ failure to object to the amendment, Senate Bill 662, as evidence that local jurisdictions did not believe they would be shortchanged at tax time. Watts also said a fiscal and policy note analyzing S.B. 662 made no mention of financial harm to counties. …

But dissenting Judge Glenn T. Harrell Jr. said the fiscal note and MACo’s silence in 2008 more likely indicate a strong belief that the surcharge was not to be included in the transfer tax calculation.

“It is true certainly that the fiscal and policy note does not mention that it was expected that the change would result in diminution of the county’s revenue share, regardless of the tandem operation of the tax ceiling,” wrote Harrell, a retired judge sitting by special assignment. “My intuition and experience with state and local government over 45 years of practice (the last 24 of which were as a judge) suggests, however, that, had the result in the present case been a foreseeable consequence of the revised scheme, the note would have addressed it and Bloody Hell would have been raised by MACo and any affected constituent jurisdiction. That did not occur.”

Leslie Knapp Jr., MACo’s legal and policy counsel, said late Tuesday afternoon that the association is reviewing the high court’s decision.

The article stated that Harrell was joined by Judge Clayton Greene, Jr. in the dissent and Watts was Chief Judge Mary Ellen Barbera and Judges Lynne A. Battaglia, Sally D. Adkins, and Robert N. McDonald.

SB 662 of 2008