63 A.2d 759 | Md. | 1949
Lead Opinion
This case involves the construction and application of the recordation tax codified as Sec. 220 of Art. 81 of the Code. This tax was first established by the general taxation act of 1937, Special Session, Chapter 11. Sec. 213 of that act read in part: "A tax is hereby imposed upon every instrument of writing recorded or offered for record with the Clerks of the Circuit Courts of the respective counties, or with the Clerk of the Superior Court of Baltimore City, on and after June 1, 1937, to *182 and including September 30, 1939, including * * * mortgages (except purchase money mortgages), * * * deeds of trust, and any and all other instruments of writing, so recorded or offered for record, which create liens or incumbrances on real or personal property". There was a proviso that the tax should not apply to assignments of mortgages, purchase money mortgages, absolute or partial releases, or orders of satisfaction. The tax was at the rate of 10¢ for each $100.00 or fractional part thereof of the principal amount of the debt secured, in the case of instruments securing a debt or reserving title as security for a debt.
By Chapter 277 of the Acts of 1939, Sec. 213 was repealed and re-enacted. This act was not limited in time, as was the Act of 1937, and for the first time there were inserted the exceptions which are the basis of the contentions in the case before us. These exceptions are those found in the Code (1947 Supp.), Art. 81, § 220, Sub-sections (h) and (k). These sub-sections are as follows:
"(h) No tax shall be required for the recordation of any instrument securing a debt that merely confirms, corrects, modifies or supplements an instrument previously recorded, or conveys or pledges property in addition to, or in substitution for the property originally conveyed or pledged, if such supplemental instrument does not increase the amount of the debt secured by the instrument previously recorded.
"(k) If the total amount of the debt which may become secured by any instrument securing a debt shall not have been incurred at the time such instrument is offered for record, the tax shall be computed solely on the principal amount of the debt then incurred and secured by such instrument. Before any additional debt is incurred which is to be secured by an instrument previously recorded, the debtor shall file with the Clerks of the Courts with which such instrument has been recorded a duly verified statement showing the amount of such additional debt and shall pay the tax with respect thereto upon, but only upon, the amount of such additional debt *183 so secured which has been incurred after May 31, 1937, and with respect to which such tax shall not theretofore have been paid, less the principal amount of any debt then outstanding and secured by such instrument which is to be paid or refunded out of the proceeds of such additional debt."
At the time this tax was first imposed there was on record a mortgage indenture, dated February 1, 1926, between the Philadelphia Electric Power Company and the Susquehanna Power Company, appellees here, to the Fidelity Trust Company of Philadelphia to secure $60,000,000.00 of first mortgage gold 5 1/2% interest bonds of the Philadelphia Electric Power Company. The proceeds of the sale of these bonds were to be used to construct a dam across the Susquehanna River and a hydroelectric plant at Conowingo, Maryland. Pursuant to the terms of this indenture, the Companies issued and sold $36,000,000.00 worth of bonds. $2,000,000.00 in addition were issued, but retained by the Trustee, and not offered for sale to the public. The mortgage was duly recorded in Cecil County, Maryland, but as its date was prior to the passage of the recordation tax statutes, no tax was imposed for its recording.
According to the stipulation of facts filed in the case, on June 18, 1946, the Philadelphia Electric Power Company entered into a purchase agreement to sell $30,000,000.00 of its first mortgage bonds bearing interest at 2 5/8%, and on July 1, 1946, these $30,000,000.00 worth of bonds were executed by the Power Company, authenticated by Fidelity-Philadelphia Trust Company, Trustee, and were delivered by the Company to the purchasers. Also on July 1, 1946, the Power Company deposited with the Fidelity-Philadelphia Trust Company $32,183,807.50, this sum being sufficient for the redemption of all the outstanding 5 1/2% bonds issued under the mortgage of February 1, 1926, with accrued interest to August 1, 1946, and a premium of 5 1/2% of the principal amount which was $29,731,000.00. On the same date, and subsequently, the Power Company gave notice of the *184 redemption on August 1, 1946, of all of these 5 1/2% bonds and nearly all of the holders of these bonds presented them for redemption. On March 24, 1948, there remained only $60,000 principal amount of said bonds unredeemed.
On June 26, 1948, a supplemental indenture was entered into between Philadelphia Electric Power Company, Susquehanna Power Company, and Fidelity-Philadelphia Trust Company, successor to Fidelity Trust Company. This instrument was dated as of July 1, 1946, and was offered for recording in the office of the Clerk of the Circuit Court for Cecil County. This supplemental indenture authorized the issuance of the $30,000,000.00 worth of 2 5/8% bonds above mentioned, and, under its terms, the proceeds of the sale of these bonds were to be used, so far as required, to redeem and pay off the bonds outstanding under the mortgage of February 1, 1926. This original mortgage provided that the amount of bonds to be issued thereunder was to be limited to 75% of the cost of the initial project. The supplemental indenture states that the actual cost of this project was $49,047,699.85. The Clerk of the Circuit Court for Cecil County refused to accept the supplemental indenture for recording until a recordation tax was paid under Sec. 220 of Art. 81. It appearing that 86.42% of all the properties subject to the lien of the mortgage of February 1, 1926 and the supplemental indenture of July 1, 1946 were situated within the State of Maryland, the recordation tax was calculated on 86.42% of the $30,000,000.00 securities to be issued under the latter, and amounted to $25,926.00. This amount the Company paid under protest, and subsequently filed with the clerk a claim for refund. This was denied, and on March 20, 1947, the appellees filed a claim for refund of said tax with the State Tax Commission. This refund was allowed in the amount of $25,693.63. The difference is the tax on the proceeds of 86.42% of the additional debt ($269,000), amounting to $232.47, which the appellees admit was due. An appeal was taken by the Attorney-General *185 on behalf of the State and by the Comptroller of the Treasury of the State of Maryland to the Baltimore City Court. The action of the State Tax Commission was affirmed, and the Attorney-General and the Comptroller appealed to this court.
The recordation tax statute has been before this court several times, but the question now before us is only indirectly touched upon in any of the cases. In the case of Pittman v. HousingAuthority,
We have here no constitutional immunity claimed by a Federal corporation, such as existed in the Home Owners' Loan case. The question is the construction of the act itself, and whether the appellees are exempt under its terms. In the consideration of this question, there must be borne in mind the principle already referred to, that every exemption must be strictly construed. As Chief Judge McSherry said in the case of Sindall v. BaltimoreCity,
The appellees contend, however, that the indenture of July 1, 1946 is, in reality a supplemental indenture in all respects because it operates merely to confirm the equitable lien of the original indenture on after-acquired property. They show that the bonds issued under the latter agreement are secured by the lien of the original indenture, and that the latter has never been released of record. From these facts they conclude that the supplemental indenture did not create a new lien, and that the $30,000,000.00 of bonds issued under it were secured by the original indenture.
There is a provision in the New York tax law, similar to that in Section 220, sub-section (h), but no such exemption for refunding operations as is found in sub-section (k). The New York cases, construing the statute of that State, recognize the difference between situations where the old mortgage debt is extinguished and a new *188
debt created, and situations where the debt is the same, although there is a new interest rate and a new date of payment. In the first class of cases the new instrument is held not to be a supplemental indenture within the meaning of the New York recordation statute and the tax is imposed. People ex rel.Jewelers' Bldg. Corporation v. State Tax Commission,
The second class of cases is illustrated by New York State Gas Electric Corp. v. Gilchrist,
The Michigan courts also adopts the rule that, if the new mortgage creates a new or substituted lien, the tax is payable.Steel Tube Co. of America v. State Tax Commission,
The Maryland statute, as we have shown, has been construed by the Supreme Court as imposing a tax on the mortgage graded according to the amount of the loan. Pittman v. Home Owners'Loan, supra. The debt, therefore, is the important factor. In the case before us the debt is the same, at least to the extent of the unpaid bonds outstanding under the mortgage of February 1, 1926. The creditors are not the same, but the trustee representing them is. The old mortgage is not extinguished, and its lien is preserved. The words at the end of Sec. 220 (sub-section (k)), in our opinion, contemplate an exemption from the tax for any debt by an original mortgage which is to be refunded. While there is no refunding provision in the New York law, it is probable, under the decisions already quoted, that such an instrument as that of July 1, 1946 would be exempt from taxation in that state. We do not have to construe the New York statute, but we cannot see how the appellees can be compelled to pay the recordation tax in the face of our statutory provision. Refunding cannot be accomplished through the same instrument which creates the original *190 debt without some additional agreement, and to suppose that the legislature intended to exempt only such refunding as can be done through the original mortgage alone is to convict it of enacting an absurdity. If the refunding is accomplished without the need of the original mortgage, then the new instrument is not supplemental, but original, and the tax must be paid. But if the lien of the old instrument is retained, only the evidence of the same debt is changed, if the new instrument cannot operate without the retention of the old, then we think the last is supplemental to the first within the meaning of our statute, and is exempted from the tax.
For the reasons stated the order of the lower court will be affirmed.
Order affirmed, with costs.
Dissenting Opinion
I cannot agree with the conclusion of the court in this case that the instrument offered for record "merely * * * modifies or supplements an instrument previously recorded". The previous instrument contained a clause limiting the amount of bonds that could be issued thereunder to 75% of the initial cost of the project. It is conceded that this cost was less than $50,000,000, so that the limit is about $37,000,000 of bonds. The company issued and sold to the public $36,000,000 of bonds, and issued $2,000,000 more, which were retained by the trustee. It is perfectly clear on the record, indeed conceded in argument, that no new or additional bonds could be issued under the original instrument. It follows that the present instrument creates a new debt and is indispensable to the creation of such debt. The retention of the lien of the first instrument can only be regarded as further security for the new debt created. The new instrument is not supplemental but original; certainly notmerely supplemental.
Nor can I find an exemption in the language of section 220(k). That section does not purport to cover all *191 refunding operations. It is limited, in the first instance, to cases where "the total amount of the debt which may become secured by any instrument securing a debt shall not have been incurred at the time such instrument is offered for record". As pointed out above, all of the bonds authorized by the first instrument were issued, so that no additional debt could be incurred under that instrument. The section contemplates that where additional bonds are issued under an "open-ended" instrument, the debtor shall file "a duly verified statement showing the amount of such additional debt," not a new instrument. In computing the tax on "such additional debt" credit is allowed for bonds previously issued, on which the tax was calculated and paid, which are "paid or refunded out of the proceeds of such additional debt". This is the only reference to refunding in the whole statute, and it seems to be clearly limited to a case where additional bonds are issued under one original instrument. I find no room for construction in the language quoted. It is not for this court to say that it is absurd for the legislature to limit the exemption to such refunding as can be done through an original mortgage alone. Indeed as I read the cases cited, that is precisely the distinction drawn by the New York Courts. I think the order of the lower court should be reversed. *192