Banner v. U.S.

• Decision Date: 04 November 2005
• Docket Number: No. 04-5190.,04-5190.
• Citation: 428 F.3d 303
• Parties: James M. BANNER, Jr., et al., Appellants v. UNITED STATES of America, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

428 F.3d 303

James M. BANNER, Jr., et al., Appellants v. UNITED STATES of America, et al., Appellees.

No. 04-5190.

United States Court of Appeals, District of Columbia Circuit.

Argued April 4, 2005.

Decided November 4, 2005.

Appeal from the United States District Court for the District of Columbia (No. 03cv01587).

John W. Nields, Jr. and Walter Smith argued the cause for appellants. With them on the briefs were Gary S. Thompson and Carolyn Lamm.

Joseph A. Rieser, Jr. and Joseph R. Price were on the brief for amici curiae District of Columbia Affairs Section of the District of Columbia Bar, et al., in support of appellants.

Michael S. Raab, Attorney, U.S. Department of Justice, argued the cause for federal appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Mark B. Stern, Attorney.

Jerry W. Kilgore, Attorney General, Attorney General's Office of the Commonwealth of Virginia, William E. Thro, State Solicitor General, and Maureen Riley Matsen Deputy State Solicitor General, were on the brief of appellee Commonwealth of Virginia.

J. Joseph Curran, Jr., Attorney General, Attorney General's Office of the State of Maryland, and Michael D. Berman, Deputy Chief of Litigation, were on the brief for appellee State of Maryland.

Before: Chief Justice ROBERTS, Circuit Justice,¹ and ROGERS, Circuit Judge, and EDWARDS, Senior Circuit Judge.²

Opinion for the Court filed PER CURIAM.

PER CURIAM.

The local government of the District of Columbia is prohibited by Congress from imposing a "commuter tax" — from taxing the personal income of those who work in the District but reside elsewhere. Appellants brought suit in the district court challenging the restriction as unconstitutional. They argue that the restriction (1) favors Congress's constituents in the states and discriminates against the unrepresented residents of the District, in violation of the equal protection component of the Fifth Amendment, and (2) contravenes the Constitution's requirement that "all Duties, Imposts and Excises shall be uniform throughout the United States." U.S. Const. art. I, § 8, cl. 1. The district court rejected both arguments and dismissed the complaint. We affirm.

I.

The Constitution gives Congress exclusive legislative authority in all matters pertaining to the District of Columbia. U.S. Const. art. I, § 8, cl. 17. Congress has employed this power in various ways since the District was first incorporated in 1802. See Adams v. Clinton, 90 F.Supp.2d 35, 47 n. 19 (D.D.C.) (three-judge court), aff'd, 531 U.S. 941, 121 S.Ct. 336, 148 L.Ed.2d 270 (2000). The District initially contained three separate governments for Georgetown, Washington, and Alexandria. Id.³ In the 1870s, Congress unified the District government under a three-person commission appointed by the President — a system that prevailed until 1967, when it was replaced with a commissioner and council, also presidentially appointed. See Reorganization Plan No. 3 of 1967, 81 Stat. 948. In 1973, Congress enacted the present form of government, known as "home rule," under which a mayor and council elected by residents of the District exercise certain executive and legislative powers delegated by Congress. See District of Columbia Self-Government and Governmental Reorganization ("Home Rule") Act, Pub.L. No. 93-198, 87 Stat. 774 (1973).

Since 1973, Congress has remained closely involved in the management of the District's finances. In addition to requiring enactment of annual appropriations acts for District government expenditures, the Home Rule Act also provides for an annual federal payment by Congress to the District in compensation for "the unusual role of the District as the Nation's Capital." § 501(a); see also Comm'n on Budget and Fin. Priorities of the District of Columbia, Financing the Nation's Capital, at 1-10 to -12 (1990). This payment amounted to approximately $660 million per year by the mid-1990s. See Banner v. United States, 303 F.Supp.2d 1, 5 (D.D.C.2004). In 1997, Congress repealed the system of federal payments and began directly subsidizing certain District operations, including Medicaid, the local courts, and the prison system. See National Capital Revitalization and Self-Government Improvement Act of 1997, Pub.L. No. 105-33, 111 Stat. 712.

At issue in this case is one of the terms of the 1973 "home rule" delegation. The Home Rule Act prohibits the District Council from imposing "any tax on the whole or any portion of the personal income, either directly or at the source thereof, of any individual not a resident of the District." § 602(a)(5); see D.C. Official Code § 1-206.02(a)(5) (2001). The provision prevents the District government from taxing the personal income of those who work in the District, but reside outside it.

Plaintiffs are several District residents, the Mayor, the Council of the District of Columbia and its members, and the District of Columbia itself. Together these individuals and entities filed suit against the United States challenging the commuter tax restriction as unconstitutional. They assert that the restriction discriminates against District residents in favor of residents from neighboring states, depriving the District of $30 billion annually in taxable non-resident income (or about $1.4 billion in annual tax revenue at present District tax rates). Compl. ¶¶ 6, 7.⁴ As a result, they contend, the District's fiscal system labors under a "structural imbalance" — a revenue shortfall of between $470 million and $1.1 billion annually that would persist "even if the District's services were managed efficiently." Id. ¶ 3 (quoting General Accounting Office, District of Columbia: Structural Imbalance and Management Issues 8 (2003)). Plaintiffs claim that this imbalance forces District residents to bear a higher local tax burden than they otherwise would. Id. ¶ 7.

The State of Maryland and the Commonwealth of Virginia intervened in the district court and, along with the federal defendants, moved to dismiss the complaint. The district court granted the motion, concluding that "the Constitution and binding Supreme Court and Circuit precedent establish Congress' plenary power over the District and its residents and their unique status within our constitutional framework," and that the court "lack[ed] the power to grant the remedy that plaintiffs seek." Banner, 303 F.Supp.2d at 26. Plaintiffs now bring this appeal. We review de novo the district court's decision to dismiss the complaint. See Barr v. Clinton, 370 F.3d 1196, 1201 (D.C.Cir.2004).

II.

We begin with equal protection.⁵ Congress has delegated to the District the authority to tax the personal income of District residents; it has withheld such authority to tax non-residents who work in the District. Appellants argue that this restriction violates the equal protection component of the Fifth Amendment's Due Process Clause. See Bolling v. Sharpe, 347 U.S. 497, 498-99, 74 S.Ct. 693, 98 L.Ed. 884 (1954).

The first issue in equal protection analysis is whether the distinction drawn by Congress demands heightened scrutiny. See Hedgepeth v. Wash. Metro. Area Transit Auth., 386 F.3d 1148, 1153 (D.C.Cir.2004). Strict scrutiny — the most demanding variety — is warranted if the restriction "jeopardizes exercise of a fundamental right or categorizes on the basis of an inherently suspect characteristic." Nordlinger v. Hahn, 505 U.S. 1, 10, 112 S.Ct. 2326, 120 L.Ed.2d 1 (1992). A less exacting, but still heightened, standard applies to classifications based on sex. See United States v. Virginia, 518 U.S. 515, 532, 116 S.Ct. 2264, 135 L.Ed.2d 735 (1996). Otherwise, equal protection "requires only that the classification rationally further a legitimate state interest." Hahn, 505 U.S. at 10, 112 S.Ct. 2326.

Appellants' most obvious avenue to heightened scrutiny is blocked. They do not, and could not, argue that District residents form a "suspect class" for equal protection purposes. We have squarely held otherwise. See Calloway v. District of Columbia, 216 F.3d 1, 7 (D.C.Cir.2000) ("a panel of this court may not now depart from the en banc court's conclusion that D.C. residents do not comprise a suspect class for equal protection purposes"); United States v. Cohen, 733 F.2d 128, 136 n. 12 (D.C.Cir.1984) (en banc) (rejecting argument that "distinctive legislative treatment of the District is `particularly suspect' and thus requires more than a rational basis to support it").

Instead, appellants argue that heightened scrutiny is required whenever a legislature imposes a tax that favors its constituents at the expense of persons who are not represented in the legislature. Br. at 20. They derive this principle from a line of Supreme Court decisions invalidating state tax laws that treat non-residents less favorably than residents. See Williams v. Vermont, 472 U.S. 14, 105 S.Ct. 2465, 86 L.Ed.2d 11 (1985); Metro. Life Ins. Co. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985); Austin v. New Hampshire, 420 U.S. 656, 95 S.Ct. 1191, 43 L.Ed.2d 530 (1975); Wheeling Steel Corp. v. Glander, 337 U.S. 562, 69 S.Ct. 1291, 93 L.Ed. 1544 (1949). None of these cases, however, applied strict scrutiny. In Williams and Metropolitan Life — the most recent of appellants' cases — the Court applied only rational basis review. See 472 U.S. at 22-23, 105 S.Ct. 2465, 470 U.S. at 875, 105 S.Ct. 1676. Wheeling Steel did not apply any particular level of scrutiny, likely because it was decided before the elaboration of equal protection categories of review. The tax statute in Austin was invalidated only under the Privileges and Immunities Clause of Article IV. See U.S. Const., art. IV, § 2; Austin, 420 U.S. at 668, 95 S.Ct. 1191. That decision therefore neither prescribes heightened scrutiny for equal protection purposes nor applies to Congress when it legislates for the District. See Neild v. District of Columbia, 110 F.2d 246, 249 n. 3 (...