Relating to Real Estate

Background hero atmospheric image for Agricultural Transfer Tax Is Subject to Cap so Montgomery County Tax Bite Must Be Reduced

Agricultural Transfer Tax Is Subject to Cap so Montgomery County Tax Bite Must Be Reduced

Agricultural Transfer Tax Is Subject to Cap so Montgomery County Tax Bite Must Be Reduced

In Montgomery County, Maryland v. Jean K. Phillips, 445 Md. 55, 124 A.3d 188 (2015), the Court of Appeals held in a 5 to 2 decision that there is a ceiling that can be charged for the agriculture tax on the sale of property, and that ceiling includes the State surcharge plus the amount that the applicable county can charge. Therefore, Montgomery County had to reduce the amount of the agricultural tax paid to it so that the ceiling would not be exceeded.

The case arose out of Montgomery County’s condemnation of the Phillips family farm to build an elementary school. The county and the farm owners agreed that the fair value of the farm was $4,142,500. The agricultural land transfer tax for the State was 4% of the agricultural value of the land, plus a 25% State surcharge, totaling $206,910. Montgomery County calculated a county farmland tax of 2%, or $82,850. The sum of these taxes was $289,760, or about 7% of the agricultural value of the land.

After paying these taxes the taxpayers requested a refund of $41,468 because they claimed the maximum of these taxes should have been 6% of the agricultural value of the land pursuant to Maryland Code, Tax-Property Article (“TP”) § 3-407. The county took the position that the 25% State surcharge was not part of the combined transfer tax, and therefore should be ignored when determining the maximum tax. The taxpayers appealed to the Maryland Tax Court, which agreed with Montgomery County. On appeal, the Circuit Court for Montgomery County reversed the decision of the Tax Court. The county appealed to the Court of Special Appeals, which certified the issue to the Court of Appeals.

The Court of Appeals held that in order to comply with TP §13-407 there is a 6% cap on the combined State agricultural land transfer tax and the county farmland transfer tax – and that this 6% limitation includes the State surcharge. To the extent that the sum of these taxes exceeds 6%, the county must reduce its farmland transfer tax. Therefore, the Court of Appeals held that the taxpayers were entitled to a refund of $41,468.

Judge Shirley Watts, who wrote the majority opinion, reached this result based on the “plain reading” of the applicable statutes. The facts that the State surcharge is determined not on the basis of the value of the property but on the amount of another tax, and that its source is in a different subsection of the Tax-Property Article were not meaningful to Judge Watts’s analysis. Also, Judge Watts reviewed the legislative history of Senate Bill 662, which was passed by the General Assembly in 2008, and found that the State surcharge was intended to be a part of, and an increase to, the State agricultural land transfer tax – not a separate tax.

Judge Glenn Harrell, retired but sitting by assignment, wrote in dissent that there was no way that Montgomery County or the other Maryland counties would have supported the 2008 legislation that changed the agricultural tax if the consequences of that action would have been to reduce the taxes paid to a county. Judge Harrell’s review of Senate Bill 662 uncovered no legislative history that was contrary to his position.

For questions, please contact Ed Levin (410) 576-1900.


January 27, 2016




Levin, Edward J.


Real Estate