An April 24 opinion issued by the Maryland Tax Court can be viewed by many taxpayers as a welcome affirmation of the argument that when statutory language is clear and unambiguous, the Comptroller has no freedom to impose contrary interpretations.
This development is good news for individuals and companies structuring their financial activity to comport with the plain language of the law, but who have occasionally been challenged by revenue department attempts to apply an alternative meaning and deprive them of specific benefits, credits or deductions.
At Rosenberg Martin Greenberg, our Maryland tax attorneys routinely assist clients in deciphering statutory language to minimize tax exposure and take full advantage of benefits incorporated in relevant legislation.
Ruling emphasizes importance of straightforward statutory interpretation
As is the case in numerous other states, Maryland has legislatively exempted insurance companies from having to pay corporate income taxes, largely because they are usually required to pay other types of taxes pursuant to statute. The controlling definition of “insurance company” is taken from Maryland insurance law for purposes of determining exemption status.
In the recently decided case of National Indemnity Co. v. Comptroller of the Treasury, the company at issue met the relevant definition, as it was clearly “in the business of writing insurance contracts.” Further, insurance companies in Maryland typically pay taxes on renewal and new gross direct premiums attributable to the state that have been written in the prior calendar year, which provides justification for the asserted exemption from corporate income tax.
However, the Comptroller of the Treasury argued that if an insurance company engaged in the practice of investing money in the manner of a commercial banking entity, as was the case with National Indemnity, it should be found to have forfeited the corporate income tax exemption. The Comptroller contended that even if the company appeared to fit the statutory language that defines “insurance company,” it was doing things other than what an insurance company generally does.
Plain language wins the day
The Maryland Tax Court disagreed with the Comptroller's assertions, siding with National Indemnity in its belief that the plain statutory language must govern. The Court observed that the straightforward legislative language, as well as the Comptroller's own published guidance and regulations, specifically exempted insurance companies from corporate income taxes. This ruling underscored the proposition that unambiguous statutory language must always prevail, even if the result is unfavorable to the taxing authority.
Experienced Maryland tax assistance
Though the National Indemnity opinion was brief in nature, it could have a significant impact on a wide range of taxpayers across the region. Maryland law affords prevailing parties in civil litigation the ability to recover reasonable attorney fees and other costs if it is found that the other party defended or maintained an action without justification or in bad faith. Therefore, when a taxpayer is being confronted by a revenue authority attempting to subvert the plain, unambiguous language of a statute, it may be worth exploring whether or not litigation expenses can be recovered.