5 2 [8 6 O p . A tt ’y CO UNTI ES T AXAT I ON

– R E CORDA T I ON A ND T RA NS FE R T AX ES

– R E FE RE ND A

– A B S E NT A UT HORI T Y F R OM G ENERAL A SSEMBLY , C OUN T Y M AY N OT R E FUN D T AX R EVENUES P AI D U ND E R E MER GE NC Y T AX R E J E CT E D B Y R E FE RE ND UM
February15, 2001

L. R us s el lMolnar P re sid e n t, W

ico m ico C o u n ty C o u n c il O n behal f of t he W i comi co C ount yC ounci l , y ou have i nqui r ed w hethert he C ounci l has t he pow er t o r efund a t r ans fert ax as s es s ed a n d c o llec ted u n d e r e m e rg e n c yleg isla tio n th a t w a s s u b se q u e n tly rej ect ed by t he voter s i n a r eferendu m . Incl ud ed w i t h y ou r r equ est w a s a c o p yo f

th e o p in io n o f

th e C o u n tyA tto rn e yth a t th e C o u n ty m a yn o t le g a lly re f

u n d th e ta x e s th a t w e re c o lle c te d

. W e h a v e c a re f

u llyre v iew e d th e o p in io n o f th e C o u n ty A t t o r n e y . W e a g r e e t h a tt h e Cou n c i l l a c k s a u t h o r i t yt o e n a c ta t ax r efu n d

. I n o u r v i e w, a r e a s o n a b l e a r g u me n t ma y b e ma d e t hat t he G e n e ra l A ss e m b lyc o u ld p ro v id e a u th o rityf o r a re f u n d if it w e re to a m e n d th e C o u n ty ’s ta x in g a u th o rityto p e rm it ref u n d s o r ta x c re d its rel at ed to t ho se pay m ents

.

I Backg r ound A . Count

y Trans f erT ax W ico m ico C o u n ty h a s ad o p ted c h a rte r ho m e ru le u n d e r A rticle X I

- A of t he M ar y l and C ons t i tut i on. A s a char t er county , W i comi co C ount yhas br oad l egi s l at i ve author i t yundert he Expre s s Pow ers A c t. See A nnot at ed C ode of M ary l and, A r t i cl e 25A , §§4, 5.G en. 52] 53

Charter and codehome rule c ounties h ave a uthority under the 1 Express Power s Act to impose proper ty taxes. Annotated Code of Maryland, Article25A, §5(O) ; Article 25B , §13. Therewere a numbe r of e x emptions to the tax. In authorizing the 2 County to impose the tax , the L eg islature exempted transf ers that a re exempt from th e S tate tra nsfer tax under Annotated Code of Maryland, Tax-Property

Article ( “TP”), §13-207. Consistent with TP §13-407(b) , land transf

ers subjec t to the agricultural land transfe r tax under TP §13- 301 et. seq. were also e x empted. WCC §203-23(c)(3)

. In addition to the e x emptions provided in theenablingleg islation, th e Council provided a

n exemption for the first $50,000 payable towa rd qualifying owner- occupie d real property , consistent with State law. B ill No . 2 00 0-5, Se c tio n I , WCC § 20 3- 24 (b )( 3) . T heCounc il also gra nd fathere d p ro pe rt

y tr ans fers purs ua

nt to s a le s c ontr a c ts that w e refully executed on or be foreJune 15, 2000. WCC §203-29. H o w e v e r, w h ile th e E x p re ss P o w e rs A c t au th o riz e s th e C o u n tyto i m p o s e p r o p e r t y t a x e s , i td o e s n o tg r a n tg e n e r a l t a x i n g a u t h o r i t y. 1 I n 1992, t he G ener al A sse m bl yenac t ed a publ i c l ocal l aw enabl i ng t he W i comi co C ount yC ounci l t o im p o s e deve l opm ent i m pactfee s and a t r ans fer t ax. C hapt er399, L aw s of M ary l and 1992, now codi f i ed as W i comi co C ount yC ode ( “W C C ”) , §§203- 22, 203- 2 3

. Th e ma x i mu m r a t e o f t h e a u t h o r i z e d t r a n s f

e rt a x i s 1 %

. W CC § 2 0 3 -2 3

. U n d e r t h e a u th o rityo f W C C § 2 0 3 -2 3 , the C o u n tyC o u n c il p a s s e d a 1 % lo c a l tr a n s f e r t a x o n M a y3 1 , 2 0 0 0

. See W i comi co C ount yC ounci l B i l l N o. 2000- 5 ( enr ol l ed bi l l )

. R evenue fr om t he 2 t ax w as dedi cat ed t o s chool cons t ruct i on or t o r educt ion o f debt in c u rr e d in c o n n e c tio n w ith s c h o o l c a p ita l p roje c ts

. I d. , Sect i on I ( enac t i ng W C C §203- 27)

. T he t ax w as enac t ed as an emer gency m e a s u re a n d to o k e f

f e c t o n th e d a te o f

its e n a c tm e n t. I

d. , S ec ti o n II. B. Ref

e r e ndum T he bi l l enac t i ng t he t r ans fer t ax w as pet i t i oned t o r efe r endum pur s uant t o §309- 1 of t he W i comi co C ount yC har t er . A tt he el ect i on hel d on N ovember 7, 2000, t he tr ans fert ax or di nance w as r ej ect ed byt he vot er s . B eca us e the or di nance had been enact ed as an e m e r g e n c y m e a s u r e , t h e t r a n s f e r t a x r e m a i n e d i n e f

f e c tu n t i l 3 0 d a ys af ter the election

. See W i comi co C ount yC har t er§309- 1( d)

. H ad the o rdin an ce n o t bee n en ac ted as an em erg en cy m ea su re, ho w ev er, a val i d r efe r endum pet i t i on w oul d have de l ay ed ef fec t i venes s of t he5 4 [8 6 O p . A tt ’y

I f, in a pa rticular c ase, thetax was errone ously or illeg ally assessed 3 or collec ted, the taxpayer c ould seek a refund administratively

. See Annotated Code of

Maryland, Article24, §9-710 et seq .; TP §14-908. In another

contex t , the Court of Appe als has re cognized a 4 dis tin c tio n b e tw e e n a

c ounty ’s po wer t o tax an d its inhe rent p ow e r t o appropriate public money

. City of Annapolis v. Anne Arundel County, 347 Md. 1, 698 A.2d 523 (1997). However, whe ther the County could invoke (continued...) tax u n til a p p ro v a l o f

th e m e a su re b yth e v o ter s. W ico m ico C o u n ty C h a rt e r § § 3 0 8 -1 (g ), 3 0 9 -1 (d ). T he tran sfert ax es t abl i s hed byt he emer gencyor di nance w as t hus i n eff

ectforappr oxi m at el ys i x m ont hs fr o m i t s pas s age a tt he e n d o f M a yu n til th e b e g in n in g o f D e c e m b e r. Y o u sta te th a t, fol l ow i ng r ej ect i on of th e tr an s fert ax or di nance byt he vot er s , t he C ount yC ounci l i s “of the unani m ous vi ew t hatt he t axes col le ct ed p u rs u a n t to th e o rd in a n c e s h o u ld b e re f u n d e d .”

II A n a ly sis A . A uthorit

y to R ef und T axes N o ques t i on has appar ent l ybeen r aised as t o w hethert he or di nance es t abl i s hi ng t he tr ans fert ax w as val i dl yenac t ed or w hethert he tax es w er e pr oper l ycol l ect ed. A ccor di ngl y , y our 3 ques t i on i s w hethert he C ount ym ayvol unt ar i l yr etur n the funds col l ect ed undera val i dl y en ac ted t ax thati s l at erover tur ned by r e f e r e n d u m. W e agr ee w i t h t he C ount yA t t or neyt hatt he C ount yl acks author it y s i m pl yt o r efund the moni es col l ect ed ort o enac ta t ax exempt i on fort he bene fi tof t hos e t axpay er s w ho pai d t he tr ans fer t ax. N ot w i t hs t andi ng chart erhom e rul e, W i comi co C ount y does not have ge ner al t axi ng autho ri t y . A s t he C ount yA t t or ney ’ s opi ni on poi nt s out , nei t herW C C §203- 23 nor t he T ax- Pr oper t yA r t i cl e of the A n n o tate d C o d e o f

M a ry lan d g iv e s th e C o u n typ len a ryp o w e r to ena c t t a x e x e mpt i o n s . Nor d o e s t h e p o wer t o t a x d e l e g at ed t o a p o lit ica l su b d iv isio n n e c e ss a rily in c lu d e th e p o w e r to c re a te exempt i ons fr om a t ax. C hur ch H om e and I

nf i r m ar y v. Mayorand 4G en. 52] 55

(...continued) 4 that inhere nt authority

to make a ref

und not otherwise authorized is open to question. Th e c on sti tution s o f m os t st ate s p ro hib it the g if t of pu bli c fu nd s to 5 private persons. Stevenson, An tie au on Loc al Gov e rn ment §67.02[2] (2d ed. 2000). C i t y C ou ncil

of Ba l t i m ore , 178 M d

. 326, 330- 32, 13 A

. 2d 596 (1 9 4 0 ). T h e C o u n tyc o u ld , o f

c o u rse , as k th e G e n e ra l A ss e m b lyto amend t he t axi ng author i t ygr anted b y W C C §203- 23 t o gi ve the C ount yexpr es s author i t yt o r etur n amount s col l ect ed outof t he C o u n ty’ s g e n e ra l f

u n d s. T h e C o u rt o f

A p p e a ls h a s n o ted th a t, beca us e the G ener al A s s embl yhas author i t yt o author i ze a t ax, i thas t he po w er “b yr etr oact i ve l egi s l at i on t o . . . i ns ur e equa l i t yof tr e a tm e n t” b y e n a c tin g a re tr o a c tiv e e x e m p tio n . B a lti m o re C o u n ty v. C hur chi l l

, Lt d. , 271 M d. 1, 313 A

. 2d 869 ( 1974)

. W hethertha t cour s e of a ct i on is p ermi s s i bl e depe nds upon w hethergr ant i ng a r efund i n t hes e ci r cumst ance s s er ves a publ i c purpos e. B . T h e P u b lic P u rp o se R e q u ire m e n t I ti s b ey ond di s put e thatpubl i c moneym aynotgener al l ybe d e v o ted to a p riv a te p u rp o se . “ B y th e D e c lar a tio n o f R ig h ts , A rt. 5 15, as w el l as t he fundament al m axi m s of a f r ee gove r nm ent , t axes can onl ybe i m pos ed t o r ai s e m oneyforpubl i c purpos es . ” Snow den v . A n n e A ru n d e l C o u n ty , 2 9 5 M d

. 4 2 9 , 4 3 4 , 4 5 6 A

. 2 d 3 8 0 (19 8 3 ), quot i ng B al t o. & E. S. R

. R

. C o. v. Spr i ng , 80 M d. 510, 31 A

. 208 (1 8 9 5 ); s ee al

s o C i t y of Fr os t bur

g v. Jenk i ns , 2 1 5 M d

. 9 , 1 4 , 1 3 6 A. 2d 852 ( 1957) ( “I ti s a general ru le t hatt he publ i c funds of m uni ci pal i t i es cannot pr oper l ybe devot ed t o pr i vat e us e, even w hen e x p re s s ly au th o ri z e d b yth e L e g is la tu re ” ). O n t he ot herhand, paym entof publ i c funds t o i ndi vi dual s or pr i vat e i ns t i tut i ons i s noti m pr operi f a publ i c pu rpo se i s s er ved. Snow den , 29 5 M d

. at435. D et er m i nat i on of a “ publ i c purpos e” defi es cr eat i on of a br i ghtl i ne t es t: “the li ne of de m ar cat i on i s not i m m ut abl e ori ncapa bl e of a dj us t m entt o changi ng s oci al and e c o n o mi c c o n d i t i o n s t h a ta r e p r o p e r l yo f p u b l i c c o n c e r n. ” C it

y of Frost bu rg , 2 1 5 M d . at 1 6 ; see al so F in a n v . M

a y o r a n d C ity C o u n c il5 6 [8 6 O p . A tt ’y of C um ber l and , 154 M d. 563, 5 6 5 , 1 4 1 A

. 269 ( 1928) ( w hat c o n stitu tes a “ p u b lic p u rp o se ” is “ n o t a m a tter o f e x a c t d e f in iti o n ; it is a lm o s t e n tir e ly a m a tte r o f g e n e ra l a c c e p ta n c e ” ). “P ub l i c pu rpose” has bee n d escr i bed gen era llyas a purpo se t h a t“ h a s f

o ri t s o b j e c t i v e t h e p r o m o t i o n o f t h e p u b l i c h e a l t h , s a f

e t y, m o ra ls, g e n e ra l w e lf

a re , se c u rity , p ro sp e rity , an d c o n ten tm e n t o f a ll th e in h a b ita n ts o r re s id e n ts ” o f a ju ri s d ic tio n . Bo wl i n gv . Br o wn , 57 M d. A pp. 248, 259, 469 A

. 2d 896 ( 1984)

. I n r evi ew i ng l egi s l at i ve a c tio n , “ it is o n lyn e c e ss a ryth a t th e leg isla tiv e d e ter m in a tio n to s pend a part i cul ar amount of publ i c funds be r eas onabl e and ba s ed on an hones tj udgm entof t hos e off i ci al s char ged w i t h t he car e of the publ i c pur s e thatt he expe ndi tur e i s fort he bes ti nt er es t s of t he [j ur i s di ct i on. ] ” T

o w n o f W ill ia m s p o rt v . W

a sh in g to n C o u n ty Sani t ar y D is tr i ct , 2 4 7 M d . 3 2 6 , 2 3 1 A . 2 d 4 0 (1 9 6 7 ). C . W hethera “Mor al

O bli gati on” Su

ppor t s a P ubli c Pu r

pos e A r etur n of t he re venues col l ect ed purs uant t o t he tr ans fert ax betw een t he dat e of i t s enac t m ent and i t s demi s e appe ar s cons i s t ent w ith th e v o ter s’ r e

jec tio n o f

th e a u th o riz in g o rd in a n c e . It i s under s t andabl e t hat t he C ounci l m ay fee l t hat i t has a “m or al o b li g ati o n ” to re tu rn the tax rev en u e c o ll ec ted d u ri n g the v ery lim ite d p e ri o d w h e n th e tr a n s f e r t a x w a s in e f

f e c t. T he C ount yA t t or neyhas acc ur at el ydes cr i bed in hi s opi ni on t w o cas es fr om ot hers t at es i n w h ich appel l at e court s r ej ect ed i ni t i at i ve or di nance s t hat w er e desi gned i n par t t o r efund t axes l evi ed underpr i orval i d or di nance s . I n t hos e cas es, th e cour t s found t hat t he prop o sed t ax r efunds of val i dl ycol l ect ed t axes w oul d l ack a p u b lic p u rp o s e . See C i t y of Y akim a v. H

uza , 407 P.2d 8 1 5 (W as h. 1965) ( pr opos ed i ni t i at i ve or di nance t hat co u ld r es ul ti n r efund of pastt ax p ay m ents w o uld const i tute an un con st i tuti on al gift , un l ess tax in g o rd in a n c e s w e re th e m se lv e s in v a lid o r th e re w a s s o m e d u ty o n th e p a rt o f

th e c ityto re f

u n d th e tax e s); Ut

z v . Ci t y of Newport , 25 2 S. W

. 2d 43 4 ( K y . Ct

. A pp . 19 52 ) ( ho l di ng i nv a l i d t a xpay ers ’ i ni t i at i v e thatw oul d have r equi r ed the r etur n of t axes pai d under p rev iou slyen ac ted o rdin an ce s). H ow ever , paym entof a “ m o ral obl i gat i on” mays at i s fyt he publ i c purpos e r equi r ement

. “B yt he w ei ghtof author i t y , l ocal g o v e rn m e n t p a y m e n ts o f m o ra l o b lig a tio n s w ill n o t v io la te

... c o n s titu tio n a l b a n s u p o n g if ts o f p u b lic m o n e y .” S te v e n s o n , A nt i eauG en. 52] 57 on LocalG ove rn m ent

§ 6 7 .0 4 [ 1 0 ] ( 2 d e d . 2 0 0 0 ). See a l so St at e v. G i es s el , 266 W i s . 547, 64 N

. W

. 2d 421 ( 1954) ( i nadvert entr epea l of a l ongs t andi ng exempt i on es t abl i s hed mora l obl i gat i on t hatj us t i fi ed tax re f u n d , n o tw ith sta n d in g v a lid ity o f th e r e p e a l); S ta te e x re l. V oelkel v. Thi es s en , 232 W i s . 126, 286 N

. W

. 561 ( 1939) ( uphol di ng r etur n of s peci al as s es s m ent s val i dl ycol l ect ed overs ever al y ea rs bas ed on mora l obl i gat i on w hen other s p rov i ded s er vi ce w er e not a s s e s s e d ). G i ven tha tt he C ounci l appar ent l ybel i eves i thas a “mor al o b li g ati o n ” to re fu n d the a m o u n t paid b ytaxp ay ers d u ri n g the s h o rt p e rio d in w h ich th e tra n sf e r tax w a s in e f

f e c t, th e p ru d e n t co u rse to achi eve t he C ounci l ’ s curr ent obj ect i ve w oul d be t o obtai n the addi t i onal aut hor i t yfr om t he G ener al A s s embl y . T he pre ambl e of anysuch b i l l cou l d reci t e t hat i ti s desi g n e d t o refl ectvo t ers ’ rej ect i on of the t ax i n t he refer end um . T he C ou ncil ’s subsequ ent use of s uch author i t yt o s uppor tan appr opr i at i on of funds fora t ax r e f u n d wo u l d p r e s u ma b l y b e b a s e d o n t h e s a me p r e mi s e . T h u s , t wo leg isla tiv e b o d ies – th e G e n e ra l A ss e m b ly a n d th e C o u n c il – w o u ld have de t er m i ned thatr ei m bur s ement of t hos e t ax paym ent s s er ved a pu bli c pu rpose. A revi ew i ng cou rtw ou l d li kely d e f e r t o those l egi s l at i ve det er m i nat ion s, p arti cu larl y in t hes e uni que c ir c u m s ta n c e s . H ow ever , t hi s concl us i on i s notfr ee f r om doubt

. A l t hough t he M ary l and court s gen er al l ydefe rt o l egi s l at i ve det er m i nat i ons of p u b l i c p u rp o s e , “ t h e c o u r t s h a v e a d u t yt o d e t e r mi n e whe t h e rt he par t i cul arus e [of

publ i c f

u n d s] i s w i t hi n t he s cope of t he co n s t i tut i onal pow er . ” C i t y of Frost bu rg , 215 M d. at16. T he M ary l and appel l at e cour t s have not had occas i on t o addr es s t he i s s ue w hethera “m o ra l ob l i gati on ” such a s i l l ust rat ed b yt hese c ir c u m s ta n c e s c o n s titu te s a p u b lic p u rp o s e .
III C oncl usi on In o u r o p in io n , the C o u n tyC o u n c il cu rre n tlylac k s a u th o rityto e n a c t a r e f

u n d o f tax e s p a id w h ile th e C o u n tytra n sf e r tax w a s b rie f

ly i n eff ect

. H ow ever , a r eas onabl e ar gum entcan be m ade that , i f t he G ener al A s s embl yw er e t o p rov ide t he nec es s aryauthor i t y , an a p p ro p ria tio n b y th e C o u n c il t o re im b u rse th o se tax p a y m e n ts w o u ld s er ve a publ i c purp o se b y di s char gi ng a “mor al obl i gat i on” of the C ount y . T o pur s ue s uch a cour s e, t he C ount ym us ts eek e nabl i ng5 8 [8 6 O p . A tt ’y

a u th o rity f

ro m th e G e n e ra l A ss e m b lyth a t sp e c if ica llye m p o w e rs it to re f u n d th e ta x e s . J. Jo sep h C u rran , Jr. A t t or ney G ener al W i l l i am R

. V ar ga A ss i s t an t Att o r n e yGen e ral R ober tN

. M cD onal d* C hi ef C ouns el O pi ni ons and A dvi ce *A s s i s t antA t t or neyG ener al R i char d E

. I s r ael contr i but ed s ig n if ic a n tly to th e p re p a ra tio n o f th is o p in io n .
E ditor ’s N

ote: Subse quentt o t hi s opi ni on, t he G ener al A s s embl yauthor i zed th e W ico m ico C o u n tyC o u n c il t o p ro v id e f o r ref u n d s o f th e C o u n ty tr a n s f e r t a x . See C hapt er562, L aw s of M ary l and 2001.