Srour v. Montgomery County

944 A.2d 1149

179 Md. App. 109

F.D.R. SROUR PARTNERSHIP, et al. v. MONTGOMERY COUNTY, Maryland.

No. 2208, Sept. Term, 2006.

Court of Special Appeals of Maryland.

March 27, 2008.

Stephen J. Orens (Rebecca D. Williams, Casey L. Moore, Miles & Stockbridge on the brief), Rockville, for Appellant.

Scott R. Foncannon (Karen L. Federman Henry, Marc P. Hansen, Deputy County Atty., Leon Rodriguez, County Atty. on the brief), Rockville, for Appellee.

Panel: HOLLANDER, JAMES R. EYLER, MEREDITH, JJ.

HOLLANDER, Judge.

This appeal involves a challenge to a decision of the Maryland Tax Court, which upheld an assessment of Montgomery County's Development Impact Tax for Transportation Improvements ("Impact Tax") in connection with two building permits obtained by F.D.R. Srour Partnership ("Srour") and Robert Srour ("Mr. Srour"), appellants. The Tax Court agreed with Montgomery County (the "County"), appellee, in rejecting appellants' claims that they were exempt from the Impact Tax because their project began before the effective date of the amended Impact Tax ordinance, and because they had a vested right in the law as it existed prior to the effective date of July 1, 2002. Unhappy with the Tax Court's ruling, which required appellants to pay an Impact Tax of approximately $300,000, appellants sought judicial review in the Circuit Court for Montgomery County. That court affirmed.

This appeal followed. Appellants present two issues, which we have reworded slightly:

I. Did the circuit court err in sustaining the Maryland Tax Court's holding that the Development Impact Tax that the department of permitting services sought to collect, pursuant to County Council Bill No. 47-01, is applicable to the issuance of Permit No. 4 and Permit No. 5, when "A" building permit was issued for the subject development prior to the July 1, 2002 prospective effective date of the Development Impact Tax?

II. Did the circuit court err in sustaining the Maryland Tax Court's holding that the commencement of construction pursuant to Permit No. 1, for which application was made prior to the July 1, 2002 prospective effective date of the Development Impact Tax, did not vest appellants' right to complete the project without the imposition of the Development Impact Tax?

For the reasons that follow, we shall affirm.

I. FACTUAL AND PROCEDURAL SUMMARY

Effective July 1, 2002, the County enacted Chapter 4 of the Montgomery County Laws of 2002, which amended the County's "Development Impact Tax for Transportation Improvements," codified at Montgomery County Code ("County Code"), § 52-47 et seq. (2004). The Impact Tax is a tax on "development," defined in County Code, § 52-47 as "the carrying out of any building activity or the making of any material change in the use of any structure or land which requires issuance of a building permit and: (1) Increases the number of dwelling units; or (2) Increases the gross floor area of nonresidential development." The Impact Tax, which is assessed when a developer applies for a building permit, id., § 52-49(a) & (b), § 52-50(b) & (c), is "intended to defray a portion of the costs associated with ... transportation improvements that are necessary to accommodate the traffic generated by ... development." County Code, § 52-47.¹ Until 2002, the Impact Tax only applied in designated geographical areas within the County. However, the 2002 amendment broadened the Impact Tax to apply Countywide. Moreover, the 2002 amendment stated that it "applies to any development for which an application for a building permit is filed on or after [July 1, 2002]." 2002 Laws of Montg. Co., ch. 4, § 2(a).

In 1988, Mr. Srour, a licensed Professional Engineer, and his company, F.D.R. Srour Partnership, acquired an undeveloped parcel of real property in the County that sits immediately outside the city limits of Rockville, in a subdivision called Burgundy Park (the "Property"). As a result of the 2002 amendment, the Property is now located within a geographical area that is subject to the Impact Tax.²

Appellants planned to build two warehouses on the Property. However, the topography of the Property presented significant challenges for construction. The Property rose sharply from an elevation of 372 feet at its street-level access to Southlawn Lane up to a height of 444 feet along its southern boundary, and dipped below 360 feet along its eastern edge. The grade was 25% in places. Additionally, the Property is bounded by a forest conservation easement along the slope at its eastern side. As a result, appellants had difficulty designing a feasible warehouse plan. After finally obtaining a design that stabilized the steep topography of the Property, appellants proceeded with the permitting and construction process.

On June 6, 2002, less than a month before the July 1, 2002 effective date of the 2002 amendment to the Impact Tax, appellants filed a building permit application with the County Department of Permitting Services ("DPS"), Application No. 279528 ("Permit 1"), along with a plan view depicting the two proposed warehouses. Permit 1 pertained to the first structures to be constructed as part of the warehouse facilities — three retaining walls and two gabion walls. Then, in November of 2003, appellants filed for a sediment control permit application with DPS. Appellants subsequently revised their application for Permit 1; the permit was issued by DPS on December 23, 2003. No demand was made for the payment of the Impact Tax upon the release of Permit 1.

Two of the retaining walls that are covered by Permit 1 are located on the western side of the Property, along the sides of the driveway that provides the only access to the Property via Southlawn Lane (hereinafter "Wall 1 and Wall 2"). Wall 2 is attached to "Building A," one of the warehouse buildings that was ultimately constructed on the Property. The third retaining wall ("Wall 3") is located on the eastern side of the Property and is also attached to Building A. Construction commenced on Wall 3 in January 2004; it was the first wall constructed pursuant to the issuance of Permit 1.³

The two gabion walls are made of "basketball" size rocks. One wall is situated at the western boundary of the Property along Southlawn Lane, and the other is situated on the eastern side of a stormwater management pond that is also on the western side of the Property.

According to appellants, the five walls, i.e. Walls No. 1-3 and the two gabion walls, are all essential and recognizable elements of the now-completed industrial buildings. In general, the various walls served two necessary purposes. First, they were needed to adapt the severe terrain of the Property to create a flat surface on the Property large enough to build the warehouses. Second, they enabled access to the resulting surface from the Property's entrance at Southlawn Lane, which was at a significantly lower elevation.

Appellants submitted two more permit applications relating to construction of retaining walls on the Property. Appellants applied for Permit No. 326449 ("Permit 2") on December 1, 2003; it was issued on January 2, 2004. Permit No. 338122 ("Permit 3"), for which appellants applied on March 23, 2004, was issued on June 16, 2004. No Impact Tax was assessed for Permits 2 or 3, and construction was commenced and completed under both.

On July 27, 2004, appellants applied for the building permits needed to construct the two warehouse buildings: Permit No. 352990 ("Permit 4") pertained to Building A, and Permit No. 352996 ("Permit 5") applied to the second building, "Building B." The permit application for Building A listed its area as 38,374 square feet, while the application for Building B listed its area at 79,875 square feet.

In June 2005, DPS notified appellants that Impact Tax payments were due for each building, prior to issuance of Permits 4 and 5. The Impact Tax was assessed at the statutory rate of $2.50 per square foot, in the respective amounts of $95,935 for Building A and $199,687.50 for Building B, for a total Impact Tax of $295,622.50.

By letter dated July 28, 2005, appellants contested the assessments and asked the Director of DPS to reconsider. Pending resolution of the issue, and in lieu of paying the assessed amounts, appellants submitted a letter of credit in the amount of the Impact Tax on July 27, 2005, pursuant to County Code, § 52-56. DPS issued permits for the two warehouse buildings the same day, and appellants commenced construction of the warehouses; construction was completed during the pendency of this case.

In a letter dated August 18, 2005, the Director rejected appellants' position. Referring to Permit 1, he wrote that "a permit for a retaining wall does not serve to exempt subsequent development from the tax. Accordingly, it is this Department's determination that the impact tax is due and payable."

Pursuant to County Code, § 52-56, as well as Md.Code (2004 Repl.Vol.), § 3-103 of the Tax-General Article ("T.G."), appellants filed an appeal with the Maryland Tax Court on September 14, 2005, seeking review of the Director's decision. Appellants and the County submitted stipulations to relevant facts, and the Tax Court heard the testimony of Robert Srour. At the close of argument on February 22, 2006, the court ruled from the bench, in favor of the County. In part, the Tax Court said:

We'll start with the tax issue. It doesn't appear to me that there is the same vested rights in tax cases as there might be in zoning. That clearly taxing jurisdictions have the right to change taxes on property.... One could say that's exactly what occurred here.... That being the case, the arguments for vesting, I don't think really apply in this matter.

Which brings us to an interpretation of what exactly does the [effective date provision] mean.

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[T]he building permits that were approved, or at least applied for prior to that date, had no square feet. They were all walls. And that the...