MICHAEL J. HOLZHEID, ET AL.,
COMPTROLLER OF THE TREASURY OF MARYLAND, ET AL.
Circuit Court for Baltimore City Case No.: 24-C-15-005700
Nazarian, Arthur, Battaglia, Lynne, A. (Senior Judge,
Specially Assigned), JJ. [*]
Maryland resident earns income from sources outside of the
State, the income is taxed as though earned in the State.
Comptroller v. Wynne, 431 Md. 147, 156- 57 (2013),
aff'd, 135 S.Ct. 1787 (2015). Maryland, though,
provides a credit against an individual's State tax
liability for income taxes paid to other states levied on
income earned in the other states. Maryland Code (1988, 2010
Repl. Vol.), Section 10-703 of the Tax-General
Article. Prior to 2013, however, a credit to offset
income taxes collected on behalf of Baltimore City and each
of the counties, oftentimes referred to as a "piggy
back" tax, Coerper v. Comptroller, 265 Md. 3, 5
(1972), was not available for a Maryland resident who earned
out-of-state income, thereby, resulting in a "double
taxation" on the local level. Wynne, 431 Md. at
155. A change to this scheme was occasioned by a suit filed
by Brian and Karen Wynne who challenged the double taxation
by the counties and Baltimore City on income earned in other
Wynnes have been Maryland residents living in Howard County
for a number of years. 431 Md. at 148. In 2006, Mr. Wynne
owned stock in Maxim Healthcare Services, Inc.
("Maxim"), a Subchapter S
corporation. 135 S.Ct. at 1793. That year, Maxim earned
income in states other than Maryland, as it filed state
income tax returns in 39 states. Id. As
"pass-through" income earners of Maxim, the Wynnes
reported a portion of the corporation's income on their
joint federal and Maryland income tax returns. Id.
On their 2006 Maryland income tax return, they claimed an
income tax credit for income taxes they paid to other states
pursuant to Section 10-703(c) of the Tax-General Article
against not only their state tax, but also the "piggy
back" tax. Id.; 431 Md. at 159.
Comptroller, however, assessed a tax deficiency against the
Wynnes and allowed them a credit against their Maryland
"state" income tax but not against their
"county" income tax. 135 S.Ct. at 1793. On appeal
from the county disallowance, the Hearings and Appeals
Section of the Comptroller's office slightly modified the
assessment, but otherwise affirmed the Comptroller's
decision, and the Maryland Tax Court affirmed. Id.
Circuit Court for Howard County, on judicial review, however,
reversed the decision on the basis that the tax system
benefitting the counties and Baltimore City violated the
Commerce Clause. Id. The court remanded the case
back to the Tax Court. The Court of Appeals, however, granted
certiorari before the remand and before this Court heard the
case. 431 Md. at 159.
Court of Appeals affirmed the Circuit Court. In doing so, the
Court evaluated the tax scheme under the four-part test set
forth in Complete Auto Transit, Inc. v. Brady, 430
U.S. 274, 97 S.Ct. 1076 (1977), by which a tax is assessed
under the Commerce Clause to see whether it "applies to
an activity with a substantial nexus with the taxing
state," "is fairly apportioned," "is not
discriminatory towards interstate or foreign commerce,"
and "is fairly related to the services provided by the
State." 431 Md. at 147 (citing Complete Auto
Transit, Inc., 430 U.S. at 279, 97 S.Ct. 1076)). In
Wynne, the Court held that the tax scheme failed
both the fair apportionment and nondiscrimination parts of
the Complete Auto Commerce Clause test. 431 Md. at
165-72; 173-76. With respect to the fair apportionment prong,
the Court initially held that the tax failed the
"internal consistency" test, for if every State
adopted Maryland's tax scheme, the fruits of interstate
commerce would be taxed at a higher rate than intrastate
commerce. Id. at 166-71. The Court further held that
the tax scheme failed the "external consistency"
test because it created the risk of multiple taxation on the
same income. Id. at 171-72.
terms of nondiscrimination, the Court noted that because the
tax scheme denied residents a credit on income taxes paid to
other states and so taxed income earned interstate at a rate
higher than income earned intrastate, that the tax
discriminated against interstate commerce. Id. at
173-76. The Court, however, noted that a "state may
avoid discrimination against interstate commerce by providing
a tax credit, or some other method of apportionment, to avoid
discriminating against interstate commerce in violation of
the dormant Commerce Clause." Id. at 189.
State, though, filed a petition for certiorari to the Supreme
Court, which was granted. 572 U.S. 1134, 134 S.Ct. 2660 (May
27, 2014). The Supreme Court affirmed and held that because
Maryland failed to provide a credit against the county
portion of income taxes, the Maryland tax scheme as applied
to the Wynnes necessarily violated the dormant Commerce
Clause, for reasons similar to those postulated by the Court
of Appeals. 135 S.Ct. at 1792.
result, Wynne and others similarly affected by having had
paid county income taxes as well as taxes to other states for
income earned therein became entitled to refunds of a portion
of their Maryland "piggy back" taxes. Many of the
individuals affected by Wynne then filed amended tax
returns with the Comptroller, claiming a refund on the
portion of tax paid to the counties to which no credit for
out-of-state taxes had been provided.
time of the Wynne litigation, the interest rate on
unpaid income tax refunds was 13% without regard to the
source of the income. Maryland Code (1988, 2010 Repl. Vol.),
Section 13-604 of the Tax-General Article. While
Wynne was pending before the Supreme Court, though,
the General Assembly enacted Section 16 of the Budget
Reconciliation and Financing Act of 2014 ("Section
16"),  which reduced the interest rate on refunds
under Wynne to approximately 3%. 2014 Maryland
Laws, Chapter 464, Section 16.
present case, Michael J. Holzheid, Bruce Feinerman, and
Jeffrey and Arielle Grill, individuals affected by
Wynne, also filed amended Maryland income tax
returns claiming an additional credit against the "piggy
back" portion of their Maryland personal income tax.
They also claimed refunds of Maryland taxes that they had,
under Wynne, overpaid in prior years, along with
applicable interest, and ultimately, they received refunds,
but with interest calculated, not at 13%, but, pursuant to
that they were entitled to 13% interest on their refunds, the
litigants filed a complaint on behalf of themselves and
putative class members in the Circuit Court for Baltimore
City to challenge the legality of Section 16. In Count One
of their complaint, they facially challenged Section 16's
reduced interest rate on the basis that it violated the
Fourteenth Amendment of the United States
Constitution. In Count Two, they claimed that the
reduced interest rate violated the Commerce Clause of the
United States Constitution. In Count Three, they questioned
the reduction of the interest rate on the ground that it
served as an unconstitutional taking without due process or
just compensation, thereby, violating the Fifth Amendment,
as incorporated to the states by the Fourteenth Amendment of
the United States Constitution. And in Count Four, they
alleged that the Comptroller was liable to them and all other
putative class members, in his personal capacity, for the
aforementioned alleged constitutional violations, pursuant to
Section 1983 of Title 42, United States Code.
State moved to dismiss the complaint on the ground that the
group had failed to exhaust their administrative remedies for
the resolution of tax disputes by failing to pursue their
action in the Maryland Tax Court. Initially, the Circuit
Court denied the motion to dismiss, and subsequently, denied
the State's motion for reconsideration. Thereafter, the
litigants filed a motion for class certification, which the
State opposed, and both sides filed cross-motions for summary
hearing on the motions, Judge Yvette Bryant of the Circuit
Court for Baltimore City revisited the State's motion to
dismiss, and subsequently, dismissed the suit on the ground
that the Circuit Court lacked jurisdiction, because the
litigants failed to exhaust their administrative remedies. In
so finding, Judge Bryant reasoned that "the process for
resolution of issues related to tax refunds, including the
proper rate of interest, rests exclusively with the Tax
Bryant noted, however, that if the Circuit Court had
jurisdiction over the matter, she would have denied class
certification, ruled that sovereign immunity barred claims
against the Comptroller in his individual capacity, but would
have ruled also that Section 16 violated the dormant Commerce
clause, positing that
[w]hile the court finds its determination that administrative
remedies are a condition precedent to this court's
consideration of Plaintiffs' cause of action, this court,
in the absence of dismissal, would have found that
Plaintiffs' claims against the Comptroller in his
individual capacity are barred by sovereign immunity but that
the remaining claims are not barred by sovereign immunity.
Additionally, the court would have found that applying a
different rate to any interest owed to Plaintiffs would
violate the dormant Commerce Clause.
The court has not provided in-depth written analysis as to
what it would have found if ruling upon the parties'
motions for summary judgment because of the determination
that Plaintiffs must exhaust administrative remedies in this
case. However, this court recognizes that the Court of
Special Appeals may be called upon to review the court's
determination, and, to that end, would like to advise of its
view of the case in light of the parties' pleadings,
limited exhibits, and arguments.
timely Notice of Appeal was filed by the litigants, now the
present Appellants, contending, primarily, that the Circuit
Court erred in dismissing their action.
reasons that follow, we shall affirm the judgment of the
Circuit Court and hold that Appellants were required to
exhaust their administrative remedies before the Maryland Tax
Court prior to availing themselves of judicial review before
the Circuit Court; we will not reach any of the other issues
review of the circuit court's grant of a motion to
dismiss is de novo. Reichs Ford Rd. Joint Venture v.
State Rds. Comm'n of the State Highway Admin., 388
Md. 500, 509 (2005); Evans v. Cty. Council of Prince
George's Sitting as Dist. Council, 185 Md.App. 251,
256 (2009). In the course of that review, "we must
determine whether the trial court's decision was legally
correct[, ]" Med. Mgmt. & Rehabilitation Servs.,
Inc. v. Md. Dep't of Health & Mental Hygiene,
225 Md.App. 352, 360 (2015) (citing Napata v. Univ. of
Md. Med. Sys. Corp., 417 Md. 724, 732 (2011)), and
"accord no special deference to the Circuit Court's
legal conclusions." Heavenly Days Crematorium, LLC
v. Harris, Smariga & Associates, Inc., 433 Md. 558,
568 (2013). We examine "whether the complaint, assuming
all well-pleaded facts and reasonable inferences drawn
therefrom in a light most favorable to the pleader, states a
legally sufficient cause of action." Reichs Ford Rd.
Joint Venture, 388 Md. at 509 (citing Adamson v.
Correctional Med. Servs. Inc., 359 Md. 238, 246 (2000)).
Dismissal is proper only "if the complaint would fail to
provide the plaintiff with a judicial remedy."
Id. (citing Bobo v. State, 346 Md. 706, 709
rationale underlying the exhaustion requirement stems from
the "expertise which the agency can bring to bear in
sifting the information presented to it" and the idea
that allowing "interruption for purposes of judicial
intervention at various stages of the administrative process
might well undermine the very efficiency which the
Legislature intended to achieve in the first instance."
Soley v. Comm'n on Hum. Rel., 277 Md. 521, 526
(1976). Furthermore, administrative agencies "are fully
competent to resolve issues of constitutionality and the
validity of statutes or ordinances in adjudicatory
administrative proceedings which are subject to judicial
review." Furnitureland South, Inc. v.
Comptroller, 364 Md. 126, 138 (2001) (quoting
Montgomery Cnty. v. Broadcast Equities,
Inc., 360 Md. 438, 451 n. 8 (2000)). This includes the
"constitutionality of an enactment as applied, as well
as the constitutionality of enactment as a whole."
Prince George's Cnty. v. Ray's Used
Cars, 398 Md. 632, 651 (2007) (citation omitted).
pivotal issue in the instant case involves whether Appellants
needed to exhaust their administrative remedies before the
Maryland Tax Court when they challenged the reduction of
the interest rate on their Wynne refunds. To resolve
this issue, we turn to Zappone v. Liberty Life Insurance
Company, 349 Md. 45 (1998), in which the Court of
Appeals analyzed the relationship between statutorily
provided administrative remedies and coextensive judicial
remedies and defined the three possible decision-making
First, the administrative remedy may be exclusive, thus
precluding any resort to an alternative remedy. Under this
scenario, there simply is no alternative cause of action for
matters covered by the statutory administrative remedy.
Second, the administrative remedy may be primary but not
exclusive. In this situation, a claimant must invoke and
exhaust the administrative remedy, and seek judicial review
of an adverse administrative decision, before a court can
properly adjudicate the merits of the alternative judicial
Third, the administrative remedy and the alternative judicial
remedy may be fully concurrent, with neither remedy being
primary, and the plaintiff at his or her option may pursue
the judicial remedy without the necessity of invoking and
exhausting the administrative remedy.
Zappone, 349 Md. at 60-61.
of the three categories is applicable to a particular
administrative remedy is ordinarily a question of legislative
intent. Id. at 61 (citations omitted). On occasion,
the General Assembly will "expressly set forth its
intent in this regard." Id. at 61-62 (providing
examples of express legislative intent with regard to each of
the three categories: exclusive, primary, and concurrent).
Most often, however, statutes fail to specify the category in
which an administrative remedy falls, leaving the task up to
the courts. Id. at 62.
respect to exclusivity, "[o]rdinarily a statutory
administrative and judicial review remedy will be treated as
exclusive only when the Legislature has indicated that the
administrative remedy is exclusive or when there exists no
other recognized alternative statutory, common law, or
equitable cause of action." Id. Courts may also
evaluate the comprehensiveness of an administrative remedial
scheme to determine that the Legislature intended the
administrative remedy to be primary, whereas a
non-comprehensive administrative scheme suggests the
contrary. Zappone, 349 Md. at 64 (citing
Luskin's Inc. v. Consumer Protection Div., 338
Md. 188, 196-97 (1995); Bd. of Ed. for
Dorchester Cty. v. Hubbard, 305 Md. 774, 787-92 (1986)).
determining whether appellants needed to exhaust their
administrative remedies before the Maryland Tax Court when
they challenged the reduction of the interest rate on their
Wynne refunds, we will first determine whether
individuals challenging a refund on income tax must exhaust
their administrative remedies before the Tax Court. With
respect to the recovery of refunds, before Zappone,
the Court of Appeals, in Apostol v. Anne Arundel
County, reasoned that the remedies contained in the tax
code were exclusive:
It is firmly established in this State that once a taxpayer
voluntarily pays a tax or other governmental charge, under a
mistake of law or under what he regards as an illegal
imposition, no common law action lies for the recovery of the
tax absent a special statutory provision sanctioning a
refund. This is true even if payment is made under protest.
Moreover, in these circumstances, no common law or
declaratory judgment action lies to challenge the validity of
tax so paid. . . . [W]here there is statutory authorization
for a refund and a special statutory remedy set forth, that
remedy is exclusive.
288 Md. 667, 672 (1980) (citing Baltimore Cty. v. Xerox
Corp., 286 Md. 220 (1979); White v. Prince
George's Cty., 282 Md. 641, 650-54 (1978);
Rapley v. Montgomery Cty., 261 Md. 98 (1971)). In
Washington Suburban Sanitary Commission v. C.I. Mitchell
and Best Co., 303 Md. 544, 577 (1985), the
Court further explained its holding in Apostol,
stating that, "once the taxes were paid, the refund
remedy necessarily became exclusive because under the
voluntary payment rule, the declaratory judgment and
injunction remedies had been extinguished." See also
Bowman v. Goad, 348 Md. 199, 204 (1997) (stating that,
in the context of refunds, "the General Assembly has now
provided broad administrative refund remedies covering every
type of tax, fee, or charge improperly collected by a
Maryland governmental entity.").
the Zappone standard to determine exclusivity, we
reach the same result regarding refunds of income taxes. The
Tax-General Article, in its entirety, is comprehensive
because it extensively, if not exhaustively, governs the
means by which state and local taxes are to be collected.
See Comptroller v. Science Applications Intern.
Corp., 405 Md. 185, 199 n. 4 (2008) (stating that the
creation of the Tax-General Article, enacted by Chapter 2 of
the Laws of Maryland 1988, was a comprehensive re-enactment
of the general tax code). The Tax-General Article is also
comprehensive in nature in that it details specific
procedures an aggrieved party must take when seeking relief
from an adverse decision of a tax collector,  which
includes matters raised before the Maryland Tax Court.
See Furnitureland South, Inc., 364 Md. at 134-35
(stating that the special statutory remedies for the
resolution of tax controversies, "involving both
administrative and judicial proceedings," provided by
the General Assembly are "comprehensive" and that
the Court "has consistently treated the special
statutory administrative remedies for the determination of
tax questions to be exclusive or primary.");
Comptroller v. Zorzit, 221 Md.App. 274, 293-94
(2015) ("Given the extensive and comprehensive
administrative remedies available to taxpayers under the
Tax-General Article, we are persuaded that it is important to
clarify and reinforce the necessity of exhausting those
remedies before seeking relief in the circuit
the breadth of the tax code is the inclusion of the Maryland
Tax Court. The Maryland Tax Court, created by Chapter 757 of
the Laws of Maryland 1959 (HB619), is "an independent
administrative unit of the State
government." Maryland Code (1988, 2016 Repl. Vol.),
Section 3-102 of the Tax-General ("Tax-Gen.")
Article. As a "quasi-judicial" agency, the Tax
Court, has the authority to "hear, try, determine, or
remand any matter before it." Tax-Gen. §
13-528(a)(1). Its jurisdiction, which is delineated in
Section 3-103(a) of the Tax-General Article, provides that
[t]he Tax Court has jurisdiction to hear appeals from the
final decision, final determination, or final order of a
property tax assessment appeal board or any other unit of the
State government or of a political subdivision of the State
that is authorized to make the final decision or
determination or issue the final order about any tax issue,
(1) the valuation, assessment, or classification of property;
(2) the imposition of a tax;
(3) the determination of a claim for refund;
(4) the application for an abatement, reduction, or revision
of any assessment or tax; or (5)the application for an
exemption from any assessment or tax.
(1988, 2016 Repl. Vol.).
Tax-General Article further delineates instances in which an
aggrieved person or entity may appeal an adverse decision of
the Comptroller, or other tax collector, to ...