B.F. Saul v. Anne Arundel County
Annotate this Case
Download PDF
REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1580 September Term, 1995 _______________________________ B. F. SAUL REAL ESTATE INVESTMENT TRUST v. CLERK OF THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY, ET AL. _______________________________ Bloom, Murphy, Salmon, JJ. ________________________________ Opinion by Bloom, J. ________________________________ Filed: June 5, 1996 Appellant, B. F. Saul Real Estate Investment Trust, filed petitions of appeal with the Maryland Tax Court from the denial of its claims for refunds of recordation and transfer taxes collected by the Clerks of the Circuit Courts for Anne Arundel and Prince George's Counties (the Clerks) on a 1993 transfer of real property from appellant to its wholly owned subsidiary, Dearborn Corporation (Dearborn). After consolidating the appeals, the Tax Court ruled that appellant's transfers were exempt from taxation by virtue of Md. Code (1985, 1994 Repl. Vol.) § 12-108(p) and § 13-207(a)(9) of the Tax-Property Article (T-P). and the The Clerks, who had been joined by Anne Arundel County Director interested of parties, Arundel County, Finance appealed which for to reversed Prince the the George's Circuit Tax Court Court, County for holding, as Anne as a matter of law, that the transfers were not exempt under T-P § 12108(p). In this appeal from that ruling, appellant presents two questions, which we combine and rephrase as follows: Did the trial court err in interpreting T-P § 12-108(p) so that appellant's transfers of property did not fall within the taxation exception? Facts As both the Tax Court and the circuit court noted, the parties do not dispute the facts in this case. On 5 January 1993, appellant conveyed certain real estate holdings located in -2Montgomery, Prince George's, and Anne Arundel Counties to its wholly-owned subsidiary, Dearborn. properties, appellant. Dearborn issued In exchange for the all of its original stock to Appellees do not dispute that this reorganization of assets was not a sale or transfer of real property to a thirdparty or a "step-type transaction." Dearborn expressly assumed the debts secured by existing deeds of trust on the properties and was substituted as the borrower under the debt documents, but appellant, as the parent company and original debtor, obligations or the indebtedness. was not released from its Appellant paid the transfer and recordation taxes charged by the Clerks of the Circuit Courts for Anne Arundel, Prince George's, and Montgomery Counties and filed with each of those Clerks a refund claim on 11 March 1993. The Clerk of the Circuit Court for Montgomery County agreed with appellee that the granted appellant's transaction request was for exempt refunds. from The taxation Clerks of and the Circuit Courts for Anne Arundel and Prince George's Counties issued formal denials of appellant's refund requests by letters dated 18 March 1994 and 12 April 1994, respectively. Appellant filed appeals to the Tax Court promptly after receipt of those letters. I -3At the outset, the Clerk of the Circuit Court for Anne Arundel County, in a cross-appeal, asserts that appellant filed an untimely appeal to the Maryland Tax Court from the Clerk's denial of its refund claim. combination decisions of and the the The cross-appellant argues that the following timing of two statutes appeals of governing tax final decisions bar appellant's claim: T-P § 14-911(b): If a refund claim made under § 14-908 of this subtitle is not allowed and is not denied on or before six months from the date the refund claim is submitted, the person submitting the claim may treat the claim as denied. T-P § 14-512(d): The person who submitted a tax refund claim under § 14-908 of this title may appeal to the Maryland Tax Court on or before 30 days from the date that the notice of disallowance is received by the person. However, if a refund claim under § 14-911 of this title is not allowed or disallowed on or before six months from the date of filing the claim, the person who filed the claim may: (1) deem the claim to be finally disallowed; (2) submit an appeal to the Maryland Tax Court. Cross-appellant asserts that on 18 September 1993, six months after it requested a refund, appellant had to consider the request denied, pursuant to T-P § 14-911(b), because the request had not been acted upon; therefore, the thirty day appeal window ended 11 October 1993, seven months after the initial refund request. Cross-appellant contends that because appellant waited -4a year to inquire about the status of its request and then filed an appeal, that appeal is untimely. Appellant correctly points out, however, that the party requesting a refund has discretion whether to treat the inaction as a denial subject to an appeal after six months or to insist on a formal decision. The word "may" in both statutes clearly demonstrates that appellant was entitled to treat its request as denied but was under no obligation to do so. See Crofton Partners v. Anne Arundel County, 99 Md. App. 233, 247, cert. denied, 335 Md. 81 (1994) (giving Crofton the discretion to treat the County's inaction as a denial in interpreting statute regulating appeals of utility charges). a similar Because we find that T-P §§ 14-911(b) and 14-512(d) do not mandate a time of final decision when the Clerk has failed to act, we affirm the ruling of both the Maryland Tax Court and the trial court in rejecting appellees' cross-appeal claim that the appeal to the Tax Court was untimely. II Appellant contends that the transaction taxed by the Clerks actually falls under the exemption from recordation taxes provided in T-P § 12-108(p) and the corresponding exemption from transfer taxes under T-P § 13-207(a)(9) (which provides that an instrument is not subject to transfer tax to the same extent that it is not subject to recordation tax under T-P § 12-108(p)). -5T-P § 12-108(p) provides: (p) Transfer of corporate property between related corporations. An instrument of writing is not subject to recordation tax if the instrument of writing is: (1) a transfer of title to real estate between a parent corporation and its subsidiary corporation or between two or more subsidiary corporations wholly owned by the same parent corporation, if the parent corporation is an original stockholder of the subsidiary corporation, or subsidiary corporations, or became a stockholder through gift or bequest from an original stockholder of the subsidiary corporation, or subsidiary corporations, for: (i) no consideration; (ii) nominal consideration; or (iii) consideration that comprises only the issuance, cancellation, or surrender of stock of a subsidiary corporation. Appellees concede that the transaction in question meets all the requirements of this section except for the fact that the transferee took the property subject to deeds of trust. Appellees contend that assumption of the debts secured by the deeds of trust constitutes consideration to the transferror in addition to the stock issued by the transferee. Appellant, however, argues that the purpose of this exemption was to allow Maryland businesses the flexibility of reorganizing their assets without burdensome taxes. Moreover, appellant is not avoiding the debt on the property, it is merely delegating the initial responsibility for the debt to its wholly owned subsidiary. As the Tax Court described it, the money owed is coming from the same pants, just from a different pocket. Appellees have offered -6us no logical theory that counters this realistic fact and have not demonstrated any financial gain made by appellant from this transaction. Rather, they rely entirely on formalistic interpretation of the statutes involved. Appellees aver that T-P § 12-108(p) must be read in conjunction with other sections of the subtitle to glean the proper meaning. Specifically, they point to T-P § 12-103(a), Rate of Tax, which provides: Application of recordation tax rates. The recordation tax rates under this section are applied to each $500 or fraction of $500 of consideration payable or of the principal amount of the debt secured for an instrument of writing. The consideration includes the amount of any mortgage or deed of trust assumed by the grantee. Appellees also direct us to T-P § 12-104(a), which states in part: (a) [T]he consideration payable, including any portion of any mortgage or deed of trust assumed by the grantee, or the principal amount of the secured debt incurred, shall be described... in an affidavit.... Appellees rely upon these sections to define consideration in T-P § 12-108(p). As the Tax Court correctly held, however, when applying the exemption statute, we do not reach the calculation of the tax in T-P § 12-103(a) or the recital of the debt under TP § 12-104(a) unless the exemption from taxation provided in T-P § 12-108(p) does not apply. extensive legislative history statutes are simply inapposite. Consequently, regardless of the recited by appellees, those T-P §§ 12-103(a) and 12-104(a) -7impose the tax, consideration if payable the by transaction the is taxable, transferee. If the on the property transferred is subject to a mortgage, the consideration payable by the transferee includes not only the consideration payable to the transferror but also the consideration that will eventually be payable to the mortgagee. concerned with subsidiary the T-P § 12-108(p), however, is not consideration corporation; the eventually exemption payable depends consideration flows to the parent corporation. by on the what If, as in this case, the sole consideration moving to the parent corporation is the stock issued by the subsidiary, the transaction is exempt. We have expressly stated that we interpret the recordation and tax transfer statutes as a tax on the substance of the transfer and not on its form. New Parkman Housing Ltd. Partnership v. State Dept. of Assessments & Taxation, 98 Md. App. 431, 440-41 (1993). Looking to the substance of the transaction in question, we conclude that appellant conveyed to its subsidiary its equity in the real estate and received from its subsidiary only the stock issued by the subsidiary. Appellees also rely upon T-P § 12-108(c), which provides that when property is transferred subject to a mortgage or deed of trust the recordation tax does not apply to the principal amount of the debt assumed by the transferee, if the instrument of writing transfers the property from the transferror to certain family members described therein. Appellees contend that, if the -8Legislature had meant to exempt mortgages and deeds of trust from the definition of consideration, it would have explicitly stated the exception in T-P § 12-108(p) as it did in T-P § 12-108(c). The analogy is faulty. Subsection (c) of T-P § 12-108, unlike subsection (p), does not provide a total exemption from tax; it merely exempts from tax that part of the consideration payable by the transferee to a mortgagee. totally exempts corporation exchange to from a taxation wholly "consideration Subsection (p), as noted supra, owned that a transfer subsidiary comprises if only from it a parent received the in issuance, cancellation, or surrender of stock of a subsidiary corporation." The assumption by the subsidiary corporation of the obligation to retire a debt secured by the lien of a mortgage or deed of trust of the property transferred to it is not consideration flowing to the parent corporation. The intent of the General Assembly in enacting T-P § 12108(p) is indicated by the history of the exemption. We noted in New Parkman, supra, 98 Md. App. at 443 n.5, that [t]he legislative history file for Senate Bill 747 [which included § 12-108(p)] which was enacted as the 1986 Amendment includes an article from the Howard County Sun, dated March 16, 1986, which quotes Senator Levitan as saying that "[t]he bill was never intended to tax transfers between a parent company and a subsidiary, just the deals where they set up a corporation to avoid the tax." Appellees have offered no suggestion that appellant created the subsidiary corporation and conveyed the property to it for the -9purpose of avoiding transfer and recordation taxes. We reject the interpretation of T-P § 12-108(p) that would impose a tax on appellant's transfer to Dearborn of property subject to deeds of trust on the theory that assumption by Dearborn of the obligation to pay the indebtedness secured by the deeds of trust constituted consideration to appellant in addition to the stock issued by Dearborn. While we must construe tax exemptions in favor of the State, New Parkman, supra, 98 Md. App. at 441, our interpretation must be a reasonable one, not incompatible with common sense." (1993). one that is "illogical or State v. Thompson, 332 Md. 1, 8 We hold that the trial court erred in denying appellant the exclusion from transfer taxes to which it was entitled under T-P § 12-108(p). We need not address appellant's alternate interpretation of the statute. JUDGMENT REVERSED. CASE REMANDED TO THE CIRCUIT COURT FOR ANNE ARUNDEL COUNTY WITH INSTRUCTION TO AFFIRM THE DECISION OF THE MARYLAND TAX COURT. COSTS TO BE PAID BY APPELLEES.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
