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MEDCO wins tax dispute

The Maryland Economic Development Corp.’s statutory tax exemption includes recordation taxes, the state’s highest court held Tuesday.

The Court of Appeals’ 6-1 decision resolves a four-year dispute with Montgomery County over some $30,000 in recordation taxes arising out of the refinancing of a Rockville business incubator, the Shady Grove Innovation Center.

“MEDCO was created to help the state with economic development projects and was given some broad authority, including exemption from taxes,” said MEDCO Executive Director Robert C. Brennan. “This ruling upheld our statute and is consistent with the way that we thought we were constructed to do business.”

The statute creating MEDCO, found in the Economic Development Article, made it “exempt from any requirement to pay taxes or assessments in its properties or activities, or any revenue from its properties or activities.”

The county, however, claimed the right to impose recordation taxes was governed by a different statute, found in the Tax-Property Article.

Lower courts split on the issue, but the Court of Appeals found the legislature intended to exempt MEDCO from recordation taxes when it created the public corporation in 1984.

“The County’s interpretation would directly hinder MEDCO from achieving its purposes, by increasing the cost of development and thereby limiting the amount of resources MEDCO has to encourage economic development in the State,” Judge Sally D. Adkins wrote for the majority. Court of Appeals Chief Judge Robert M. Bell was the lone dissenter.

Neither Diane Festino Schmitt, MEDCO’s attorney at Ober|Kaler in Baltimore, nor Scott R. Foncannon, an associate Montgomery County attorney, responded to requests for comment Tuesday.

“The interesting thing is, the county subsidizes the incubator,” Brennan said. “Our actions were helping to save the county money. At the end of the day, someone in the county made the decision that we had to pay recordation taxes.”

MEDCO previously financed another business incubator in Rockville for which it did not have pay recordation taxes, Brennan said.

“The real irony of it is we do this for Montgomery County economic development initiatives,” he said.

Dueling statutes

MEDCO financed the Maryland Technology Development Center, now called the Shady Grove Innovation Center, by issuing bonds in 1998.

The property was refinanced in 2009. MEDCO borrowed about $3.3 million from PNC Bank, executing a deed of trust that required MEDCO to pay recording costs and fees as well as federal, state and county taxes.

When MEDCO filed the deed of trust in Montgomery County, however, it claimed an exemption for the $31,450 recordation tax.

The county transfer office denied the exemption. MEDCO paid the tax and filed for a refund.

After that was denied, MEDCO filed an appeal with the Maryland Tax Court, an administrative agency, which also ruled for the county.

The Tax Court said the state’s Tax-Property Article gave each county the right to choose whether to allow a recordation tax exemption.

The Montgomery County Circuit Court reversed that decision in December 2010, ruling for MEDCO. The county appealed to the Court of Special Appeals, which vacated the circuit court’s decision.

MEDCO then sought review by the Court of Appeals, which heard argument in February.

Montgomery County and MEDCO disagreed over which statute controlled the outcome of the case.

MEDCO said the Economic Development Article giving it tax-exempt status should be applied, while Montgomery County argued in favor of the Tax-Property Article pertaining generally to recordation taxes.

Each side also debated the meaning of words in the Economic Development Article, which allowed the tax exemptions for the corporation.

MEDCO said borrowing money and recording a deed of trust is an “activity,” which exempts it from paying a tax under the law. The county, however, argued that MEDCO was only exempt from direct taxes, or property taxes, and not excise taxes, which are imposed on the “performance of an act.”

The Court of Appeals said the law exempts MEDCO from direct taxes on properties as well as excise taxes on its activities.

Montgomery County also argued that recording a deed of trust cannot be considered an “activity” worthy of a tax exemption because it is not specifically mentioned in the state’s economic development law.

The Court of Appeals, however, disagreed.

“The deed of trust and its recording were part of the same transaction or activity necessary to carry out MEDCO’s express power to obtain financing from PNC,” Adkins wrote for the court. “Therefore, the recording of a deed of trust falls within the category of MEDCO’s activities to which MEDCO’s tax-exempt status … applies.”

Montgomery County also argued that MEDCO had waived any exemption it might have had by agreeing to pay the recordation tax as part of the contract with PNC. The Court of Appeals disagreed.

“MEDCO did not have a choice: if it did not agree to this requirement, then PNC would have refused to grant the loan,” Adkins wrote. “In this regard, it is no bar to the exemption that MEDCO was required to pay the recordation tax based on a contractual agreement.”



Maryland Economic Development Corporation v. Montgomery County, Maryland, No. 44, September Term 2012, Argued February 11, 2013, Decided April 9, 2013. Opinion by Adkins, J. Dissent by Bell, C.J.


Should MEDCO pay recordation taxes when filing a deed of trust with Montgomery County when economic development laws dictate that it should be exempt from “any requirement to pay taxes or assessments in its properties or activities, or any revenue from its properties or activities”?


The Court of Appeals said MEDCO does not have to pay recordation taxes because filing a deed of trust is an activity and is required to obtain a loan, which makes it exempt under economic development laws.


Diane Festino Schmitt of Ober|Kaler in Baltimore for petitioner; Scott R. Foncannon, associate Montgomery County attorney, for respondent.

RecordFax 13-0409-20 (27 pages).