Resolution

For Maryland Property Tax Billing sites, the solution is to utilize the Recalculate payments on adjustments checkbox when creating a bill adjustment. This will recalculate or waive any previously Applied Discount or Paid Interest, therefore not pull into the Refund. See the following: How to Recalculate Payments on Adjustments with Tax Bills.

Development is currently researching Discounts pulling into the Refund Amount.
If the Applied Discount is still not recalculating or waiving, see the following: Maryland Tax Bills Historical Recalc does not recalculate applied Discount.

Consider the following workarounds:

After all Adjustments have been applied to the bill, reverse and reapply the Payment that was responsible for the Applied Discount. See the following: Master Article - Reverse Payments.
Create the Bill Refund Processing record as normal, but modify the the refund amount prior to Output-Rel the refund. See the following: Manually Update a Refund Amount

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