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Special Tax District Tax Disallowed Because New Carrollton Cannot Impose an Excise Tax

In Fountain Club, LLC v. City of New Carrollton, No. 1507, Sept. Term, 2015, 2018 WL 3360624 (Md. Ct. Spec. App. July 10, 2018), the Court of Special Appeals upheld a challenge to a special tax district in the City of New Carrollton because the enabling ordinance imposed an excise tax, which New Carrollton did not have the authority to impose.

Article 23A, §44(a) of the Maryland Code (now Local Government Article §21-401) permitted municipalities to create a special taxing district for property taxes for particular reasons, including increasing police services, and it authorized municipalities to impose ad valorem taxes in such districts.  In 2006, the City of New Carrollton passed on ordinance that created a special taxing district for all commercial and industrial properties in the city.

In 2012, New Carrollton passed an ordinance that expanded the special taxing district to include all multi-family rental properties within the corporate limits of the city.  Fountain Club, LLC, which owned apartments in New Carrollton, objected to the tax and challenged it in the Circuit Court for Prince George’s County. The circuit court ruled against Fountain Club, which appealed to the Court of Special Appeals.

The Court of Special Appeals struggled with the question of whether the tax was a property tax, which New Carrollton had the authority to impose, or an excise tax, which it did not.  Under cases going back to 1977, there are three standards to determine this:

1.  The name of the tax.  Here, the court observed that New Carrollton characterized the tax as a property tax.

2.  The effect of the tax.  The court held in this case that the tax was imposed on the use of the property, rather than its value. This suggested the tax was an excise tax.

3.  The nature of the tax; that is, the way in which the tax is assessed and the measure of the tax.  The New Carrollton tax was assessed on the value of real and personal property each year. However, unlike property taxes, failure to pay the tax did not create a lien on the property that was taxed. In the end, this caused the court to conclude that the tax was an excise tax and not a property tax.

Thus, the court ruled in favor of Fountain Club and held that New Carrollton exceeded its authority when it attempted to impose an excise tax.

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


October 25, 2018




Levin, Edward J.


Real Estate