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Land and Improvements Determine Recordation and Transfer Taxes

CBM One Hotels, L.P. v. Maryland State Department of Assessments and Taxation, No. 2451 Sept. Term 2014, 2017 WL 1788465 (Md. Ct. Spec. App. May 5, 2017), involves the recordation and transfer taxes due on a merger of business entities that held interests in ground leases.

In August 1986, Marriott Corporation, as tenant, entered into two ground leases with Essex House Condominium Corporation, as landlord, concerning two properties, one in Baltimore County and one in Montgomery County. In October 1986, Marriott Corporation assigned its interests to Courtyard by Marriott Limited Partnership, which subsequently changed its name to CBM One Hotels, L.P. In 2012, the landlord merged into the tenant, and recordation and transfer taxes became due on the articles of merger. 

The ground leases provided that the tenant would have full rights to the improvements, including rights to all depreciation deductions and tax credits, during the term of the ground leases. At the end of the term of each ground lease, the applicable improvements would “become part of the realty and the sole and absolute property of Landlord and shall be surrendered to Landlord at that time.” 

The surviving entity after the merger (Taxpayer) submitted recordation and transfer taxes based on the assessed value of the land only. It contended that the improvements did not change ownership in the merger, and the improvements, therefore, should not be subject to recordation and transfer taxes. The State Department of Assessment and Taxation (SDAT) refused to accept the amount of recordation and transfer taxes tendered, so Taxpayer paid the amounts based on the full values of the land and improvements and filed claims for refunds of $208,979.85 for the Montgomery County property and $66,281.52 for the Baltimore County property. After the refunds were denied, Taxpayer appealed to the Tax Court, which ruled for the SDAT. Taxpayer filed petitions with the circuit courts for each of Baltimore and Montgomery Counties. The cases were consolidated in the Circuit Court for Baltimore County.  That court decided against the Taxpayer, which appealed to the Court of Special Appeals.

The Court of Special Appeals, in an opinion by Judge James Kenney, held that unless there is a recorded document transferring title to the improvements, for real property, recordation, and transfer tax purposes, the improvements have not been transferred. The court noted that the unrecorded leases establish “contractual ownership” of the improvements for the purposes of tax benefits and credits. However, because the leases were not recorded, they did not transfer legal title to the improvements. Therefore, the land and improvements were both transferred by the merger to the tenant. 

The court noted that Tax-Property Article §§12-205(g) and 13-205(d) impose recordation and transfer taxes on “the value of the real property determined by the [SDAT] at the date of finality immediately before the date of merger or consolidation.” Therefore, the court held that the applicable statutes require that the recordation and transfer taxes be based on the established value of the land and improvements. Accordingly, the Court of Special Appeals affirmed the judgment of the circuit court.

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


July 24, 2017




Levin, Edward J.


Real Estate