Could Maryland give owner-occupied homes a property tax break without violating the Constitution's equal protection guarantee?

Plain-English summary

A Maryland delegate asked the Attorney General, in early 1989, whether House Bill 1162, a proposed amendment to Article 15 of the Maryland Declaration of Rights, would violate the federal Equal Protection Clause. The amendment would have let the General Assembly enact property tax credits limited to owner-occupied residential property, specifically to soften the effect of assessment increases on homeowners' tax bills, something the existing tax credit statute could not do because Article 15's uniformity requirement stood in the way. The Attorney General concluded the amendment was constitutional: government tax classifications only need a rational basis, not a compelling justification, and singling out owner-occupied homes for a tax break was an easy case under that forgiving standard.

Currency note

This opinion was issued in March 1989 and analyzed a then-pending constitutional amendment, House Bill 1162, against the equal protection standard as the Maryland Court of Appeals and U.S. Supreme Court had articulated it up to that point. Whether the amendment was ultimately ratified, how it was implemented, and how property tax credit law in Maryland has developed since 1989 are not addressed by this opinion. This page is a historical record of how the Attorney General analyzed one proposed constitutional amendment's validity in 1989. It describes what the opinion concluded then and is not a statement of current Maryland property tax law. Verify current law directly before relying on anything here.

Common questions

Did Maryland's Attorney General think a homeowner tax break for owner-occupied houses only would be unconstitutional? No. The opinion concluded that House Bill 1162's proposed constitutional amendment, which would have let the legislature create tax credits limited to owner-occupied residential property, did not violate the Equal Protection Clause.

Why did Maryland need a constitutional amendment just to give homeowners a tax credit? Because the opinion explained that an existing residential tax credit statute, then codified at §9-105 of the Tax-Property Article, ran into Article 15 of the Maryland Declaration of Rights, a uniformity requirement that an earlier 1987 Attorney General opinion had already found made that statute unconstitutional; House Bill 1162 was meant to amend Article 15 itself to clear the way.

What legal standard did the opinion apply to decide whether the tax classification was constitutional? The opinion applied rational basis review, the deferential standard courts use for ordinary tax and economic classifications, under which a classification is upheld unless it is "utterly arbitrary" and any conceivable justification for it will do.

Background and statutory framework

Article 15 of the Maryland Declaration of Rights contains a uniformity requirement for property taxation. The opinion explained that this requirement had already been found, in an earlier 1987 Attorney General opinion, to make the residential property tax credit then codified at §9-105 of the Tax-Property Article unconstitutional. House Bill 1162 proposed to amend Article 15 itself so the General Assembly could enact property tax credits for owner-occupied residential property, aimed at limiting the effect of assessment increases on homeowners' tax bills.

The opinion framed the question as whether authorizing a tax break for owner-occupied homes, but not other property, would violate the federal Equal Protection Clause. Citing the Maryland Court of Appeals' description of the "widest discretion" legislatures have in classifying property for taxation, and the U.S. Supreme Court's parallel holding that a state tax classification is not arbitrary if it rests on "a reasonable distinction or difference in State policy," the opinion concluded that ordinary tax classifications need only a rational basis, not evidence of an actual justification, since "any imaginable factual basis" will do. The opinion noted the office had already recognized, in a 1977 opinion, that a classification distinguishing owner-occupied residential property from other property was constitutionally permissible, and pointed to an Alabama Supreme Court decision upholding a lower tax rate for owner-occupied homes on the reasoning that the distinction could rest on either differing government-service costs or a policy choice to ease the tax burden on homeowners. On that basis, the opinion concluded that House Bill 1162's proposed amendment did not violate the Equal Protection Clause.

Citations and references

Statutes:

• Article 15 of the Maryland Declaration of Rights, the property tax uniformity requirement that House Bill 1162 proposed to amend
• House Bill 1162, the proposed constitutional amendment authorizing owner-occupied residential property tax credits
• §9-105 of the Tax-Property Article, the existing residential tax credit statute an earlier opinion had found unconstitutional under Article 15

Cases:

• Allied American Co. v. Comm'r, 219 Md. 607, 623, 150 A.2d 421 (1959), the Maryland Court of Appeals decision describing the legislature's "widest discretion" in tax classifications
• Kahn v. Shevin, 416 U.S. 351, 355 (1974), and Allied Stores v. Bowers, 358 U.S. 522, 528 (1959), U.S. Supreme Court decisions holding a state tax classification is not arbitrary if founded on a reasonable distinction in state policy
• Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359 (1973), cited alongside those cases on the same point
• Villa Nova v. Comptroller, 256 Md. 381, 391-92, 260 A.2d 307 (1970), and Lane Corp. v. Comptroller, 228 Md. 90, 97, 178 A.2d 904 (1962), additional Maryland Court of Appeals decisions on tax classification
• Nordheimer v. Montgomery County, 307 Md. 85, 102, 512 A.2d 379 (1986), the Court of Appeals decision applying rational basis review to tax classifications and holding "any imaginable factual basis" will sustain one
• Howell v. Malone, 388 So. 2d 908, 914 (Ala. 1980), the Alabama Supreme Court decision upholding a lower tax rate for owner-occupied residential property
• Associated Industries v. State Tax Commission, 722 S.W.2d 916, 918 (Mo.), cited alongside Howell v. Malone

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1989/Volume74_1989.pdf (this opinion appears at printed pages 99-101 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Constitutional Law - Equal Protection - Taxation - Amendment To Maryland Declaration Of Rights Authorizing Residential Property Tax Credit Is Constitutional

March 1, 1989

The Honorable James W. Campbell
House of Delegates

You have requested our opinion concerning the constitutionality of House Bill 1162, a proposed constitutional amendment that is intended to authorize certain residential property tax credits. Specifically, you ask whether this bill violates the Equal Protection Clause of the Fourteenth Amendment, which provides that "[n]o State shall ... deny to any person within its jurisdiction the equal protection of the law."

For the reasons stated below, we conclude that House Bill 1162 is constitutional.

I

Background

House Bill 1162 proposes an amendment to the uniformity requirement in Article 15 of the Maryland Declaration of Rights. If enacted and ratified, the amendment would authorize the General Assembly to "enact legislation that provides for property tax credits for owner-occupied residential property, in order to limit the effect of increases in assessments that would result in increases in the value of the property." This constitutional amendment would overcome the problem that renders unconstitutional the tax credit now codified in §9- 105 of the Tax-Property Article. See 72 Opinions of the Attorney General 350 (1987).

II

Analysis

House Bill 1162 authorizes the General Assembly to create a classification for property tax credits. That is, it authorizes more favorable tax treatment for "owner-occupied residential property" than for other property subject to property tax. Thus, the bill presents an equal protection question.

However, the General Assembly has wide latitude to fashion tax classifications. As the Court of Appeals has observed:

The constitutional need for equal protection does not shackle the legislature. It has the widest discretion in classifying those who are to be regulated and taxed. Only if the grouping is without any reasonable basis, and so entirely arbitrary, is it forbidden.... If any state of facts reasonably can be conceived that would sustain a classification, the existence of that state of facts as a basis for the passage of the law must be assumed.

Allied American Co. v. Comm'r, 219 Md. 607, 623, 150 A.2d 421 (1959). The Supreme Court has been equally emphatic: "A State tax law is not arbitrary although it 'discriminate[s] in favor of a certain class ... if the discrimination is founded upon a reasonable distinction or difference in State policy,' not in conflict with the Federal Constitution." Kahn v. Shevin, 416 U.S. 351, 355 (1974) (quoting Allied Stores v. Bowers, 358 U.S. 522, 528 (1959)). See also, e.g., Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359 (1973); Villa Nova v. Comptroller, 256 Md. 381, 391-92, 260 A.2d 307 (1970); Lane Corp. v. Comptroller, 228 Md. 90, 97, 178 A.2d 904 (1962).

As the Court of Appeals summarized: "[A]s long as the classifications made in imposing the tax are not utterly arbitrary, the tax statute meets the rational basis test for equal protection purposes. Moreover, there need not be evidence justifying the classifications; any 'imaginable factual basis' will do." Nordheimer v. Montgomery County, 307 Md. 85, 102, 512 A.2d 379 (1986).

We have no doubt that a classification distinguishing "owner- occupied residential property" from other property is constitutionally permissible. This office concluded as much in the opinion first pointing out that a residential property tax credit poses a problem under the uniformity requirement of Article 15. See 62 Opinions of the Attorney General 54, 67 (1977). As the Alabama Supreme Court observed in upholding a provision taxing "single-family owner-occupied residential property" at a lower rate than other residential property:

The taxing scheme in question places a greater tax burden on those who are using their residential property for income-producing purposes. This is rational. The discrimination can be justified on the basis that the government is either providing more governmental services, on the one hand, or on the other hand, is interested in relieving the tax burden on specified property owners to further some social or economic policy.

Howell v. Malone, 388 So. 2d 908, 914 (Ala. 1980). See also, e.g., Associated Industries v. State Tax Commission, 722 S.W.2d 916, 918 (Mo.), appeal dismissed 107 S. Ct. 3254 (1987).

III

Conclusion

In summary, it is our opinion that the amendment to Article 15 of the Maryland Declaration of Rights proposed in House Bill 1162 does not violate the Equal Protection Clause of the Fourteenth Amendment.

J. Joseph Curran, Jr.
Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice