Please ensure Javascript is enabled for purposes of website accessibility

Appellate court upholds dismissal of class action over ‘piggyback tax’

An intermediate appellate court has upheld the dismissal of a $38 million lawsuit filed by a class of Maryland taxpayers who sued the state comptroller after the U.S. Supreme Court struck down the state’s “piggyback tax.”

The Court of Special Appeals found, in an opinion filed last week, that the taxpayers must exhaust administrative remedies with the Maryland Tax Court first and should have filed suit in the tax court instead of the circuit court.

“For our purposes, it is evident that the General Assembly intended to remove the adjudication of refund appeals from the jurisdiction of the circuit court and maintain exclusivity of those issues within the Tax Court,” wrote Judge Lynne A. Battaglia, sitting by special assignment, for the unanimous three-judge panel.

The plaintiffs claimed the state wrongly changed the law to lower the amount of interest it would owe people who became entitled to tax refunds after the Supreme Court, in May 2015, found unconstitutional a state law barring Marylanders from deducting from city or county taxes any income tax they paid to other states on money earned there.

“We really always thought this was a case that should be resolved by the Court of Appeals,” said Andrew D. Levy, of Brown Goldstein Levy LLP in Baltimore, one of the plaintiffs’ lawyers, on Wednesday, confirming his client would be petitioning for review with the state’s highest court.

“We’re obviously disappointed and we would’ve liked to have prevailed in the Court of Special Appeals,” Levy said.

Following the high court’s decision in Maryland Comptroller v. Wynne, lawmakers changed the law by lowering the amount of interest the state would pay on tax refunds from 13 percent to 3.25 percent and applied it retroactively to people who requested tax refunds before 2014. The plaintiffs’ lawsuit, filed in November 2015, alleged the amended law violates the takings and due process clauses of the U.S. Constitution.

But Baltimore City Circuit Judge Yvette M. Bryant dismissed the lawsuit in January 2018, holding the plaintiffs had to exhaust administrative remedies first and should have filed suit in Maryland Tax Court instead of the circuit court. Bryant ruled the lawsuit did not satisfy requirements for a class action even if the case could have been heard in circuit court.

Levy argued that the case is appropriate for class-action status because, as Bryant acknowledged, many of the claims would not be viable individually because of the amounts at issue.

“It’s neither practical nor feasible for thousands of these claims to have been brought in tax court,” Levy said Wednesday. “If the Court of Special Appeals is right that these claims had to be exhausted in the tax court, literally thousands of Maryland taxpayers would be left without a remedy.”

Judges Kevin F. Arthur and Douglas R.M. Nazarian were also on the panel.

A spokesman for Comptroller Peter Franchot did not respond to a request for comment Wednesday.

The case is Michael J. Holzheid, et al. v. Comptroller of the Treasury of Maryland, et al., No. 2374, September Term, 2017.


To purchase a reprint of this article, contact reprints@thedailyrecord.com.