A title company filed suit against the city of Baltimore, Md., challenging the city’s alleged construction holdback policy, whereby it charged a recordation tax on any construction holdback identified in purchase money deeds of trust. It argued the practice is unlawful and not supported by the language of state law.
The case is Presidential Title LLC v. Mayor and City Council of Baltimore, et al. (Court of Special Appeals of Baltimore No. 922).
Presidential Title LLC filed suit against Baltimore City, Md., challenging its alleged construction holdback policy--its practice of charging a recordation tax on any “construction holdback” identified in purchase money deeds of trust. Even though state law provides that a purchase money mortgage or a purchase money deed of trust is not subject to recordation tax, Presidential argued the alleged construction holdback policy resulted in recordation taxes wrongfully assessed on purchase money deeds of trust. It alleged Baltimore will not record a purchase money deed of trust without payment of recordation taxes on a construction holdback, which it argues is unlawful and not supported by the language of state law.
In its initial complaint, Presidential provides two examples of this practice. It alleged that when it handled a closing in August 2020, Baltimore officials rejected the purchase money deed of trust and demanded additional sums because the deed incorporated a purchase price of $120,000 and $40,000 in construction funds. In February 2021, Presidential handed another closing and submitted to the city a purchase money deed of trust, assignment of leases and rents, security agreement and fixture filing. The deed of trust identified a face value of $106,000, which incorporated a purchase price of $61,000 and $44,400 in construction funds. In that case, Presidential was required to pay $645 in recordation taxes to close the transaction and ensure the deed of trust was recorded.
Presidential’s suit requested a declaratory judgment, injunctive relief and money damages. Baltimore officials moved to dismiss, arguing that Presidential failed to exhaust administrative remedies by failing to file a request for a refund with the Baltimore director of finance, and if denied, pursue its claim to the Maryland Tax Court. Presidential filed a first amended complaint in May 2021 removing its claim for money damages.
In June 2021, Baltimore filed a second motion to dismiss, asserting that the refund provisions of TP Section 14-907 provide the exclusive statutory administrative remedy to resolve tax disputes and because Presidential did not seek a refund under those provisions, its claims were not properly before the court. Presidential opposed that motion, citing Abington Center Associates Ltd. Partnership v. Baltimore County to argue that because it wasn’t seeking a refund of any taxes, the statutory remedy that deal solely with refund requests is inapplicable.
The lower court determined that Abington was not applicable where the tax had already been paid. It also held that Presidential had failed to exhaust its administrative remedies and therefore could not seek a declaratory jurisdiction. In addition, it found that the matter was not ripe for a declaratory judgment. Presidential appealed.
The appellate court agreed with the lower court that Presidential had failed to exhaust administrative remedies before filing suit.
It rejected Baltimore City’s ripeness and standing arguments, stating “We do not agree that Presidential’s challenge to Baltimore City’s assessment of taxes is grounded upon a ‘state of facts which has not yet arisen.’ As alleged in Presidential’s complaint, the tax has been both asserted and paid by Presidential on at least two occasions. There is thus no dispute that the tax assessment actually took place.
“We also reject Baltimore City’s claim that Presidential does not have standing because it is not a party to the transaction, or because it does not allege that it has any agreement to pay recordation taxes for the properties,” the court stated.
“Nonetheless, we agree that Presidential has failed to exhaust its administrative remedies,” the court continued. “It is a longstanding principle that a party ordinarily may not pursue a declaratory or injunctive action in circuit court until it has exhausted any available administrative remedies created by the legislature.
“Here, Baltimore City asserts that Presidential has failed to invoke and exhaust its administrative remedies because it has not submitted a refund claim to the Baltimore City director of finance,” the court stated. “Presidential does not dispute that it has not sought a refund from the Baltimore City director of finance. Instead, Presidential contends that Abington supports the position that the administrative remedies are not applicable when, as here, a refund is not sought.
“We agree with the circuit court that this assertion misreads our holding in Abington. There, we considered whether an unpaid transfer tax may be challenged in court before exhausting administrative remedies, not whether administrative remedies must be exhausted where the tax had been paid,” the court stated. “Critically, our decision turned not merely on whether a refund was sought, but whether the tax had been paid, explaining that TP §§ 14-512(d) and 14-908 only apply when transfer taxes have been paid and a refund is sought. As [Abington] has not paid the disputed taxes, and does not seek a refund, these provisions are inapplicable in any event. It was because the tax had not been paid that we held that Abington ‘did not have an available administrative remedy, and therefore was entitled to litigate its claim in circuit court.’ Here, because it is undisputed that the taxes have been paid, the exception to the exhaustion doctrine set out in Abington is inapplicable to the facts before us.”