Bishop v. District of Columbia, 12871.

Decision Date20 April 1979
Docket NumberNo. 12920.,No. 12872.,No. 12921.,No. 12871.,12871.,12872.,12920.,12921.
Citation401 A.2d 955
PartiesRichard A. BISHOP, Appellant, v. DISTRICT OF COLUMBIA, Appellee. DISTRICT OF COLUMBIA, Appellant, v. Richard A. BISHOP, Appellee. Axel-Felix H. KLEIBOEMER, Appellant, v. DISTRICT OF COLUMBIA, Appellee. DISTRICT OF COLUMBIA, Appellant, v. Axel-Felix H. KLEIBOEMER, Appellee.
CourtD.C. Court of Appeals

John M. Bixler, Washington, D.C., with whom Ronald D. Aucutt, Washington, D.C., was on the briefs and supplemental memorandum of Richard A. Bishop.

Philip L. Kellogg, Washington, D.C., with whom James L. Lyons and Bradley G. Mc-Donald, Washington, D.C., were on the briefs and supplemental memorandum of Axel-Felix Kleiboemer.

Louis P. Robbins, Acting Corp. Counsel, Washington, D.C., with whom John R. Risher, Jr., Corp. Counsel, Washington, D.C., at the time the briefs were filed and the case was argued, Robert E. McCally, Deputy Corp. Counsel, Henry E. Wixon and Richard

L. Aguglia, Asst. Corp. Counsel, Washington, D.C., were on the briefs and supplemental memorandum for the District of Columbia.

Roger C. Ohlrich, Edward M. Luria and Gregory Burr Macaulay, Washington, D.C., filed a brief on behalf of the Bar Association amicus curiae.

Before KELLY and GALLAGHER, Associate Judges, and PAIR, Associate Judge, Retired.

KELLY, Associate Judge:

On June 24, 1975, the District of Columbia Council (hereinafter the Council), pursuant to the District of Columbia Self-Government and Governmental Reorganization Act (hereinafter the Home Rule Act),1 adopted the Revenue Act of 1975 (subsequently enacted as D.C. Law No. 1-23).

The Act was signed by the Mayor and sent to both Houses of Congress for a 30-day review in accordance with § 602(c)(1) of the Home Rule Act.2 It was not disapproved by a concurrent resolution and consequently became effective October 21, 1975.

The focus of the instant case is the validity of § 605 of the Revenue Act, codified at D.C. Code 1973, § 47 15743 (hereinafter the tax, the professional tax, or the unincorporated business tax), which repealed an existing "professional exemption," thereby allowing the District of Columbia to impose an unincorporated business tax upon unin-corporated professionals and personal service businesses.4 Appellant Bishop, a Virginia resident practicing law in the District of Columbia, and appellant Kleiboemer,5 a Maryland resident also practicing in the District of Columbia, paid the District's unincorporated business tax for their respective 1975 calendar years, pursuant to § 47-1574. Appellants subsequently claimed a refund, and following denial of their claims at the administrative level, filed petitions for refunds in the Tax Division of the Superior Court, where their petitions were consolidated for trial.

On October 18, 1977, the trial court denied appellants' requests for refunds and dismissed their petitions with prejudice. It thereafter, sua sponte, ordered a rehearing on the provisions of the Act setting the effective dates of imposition of the tax. In a supplemental opinion dated October 27, 1977, the trial court held that imposition of the tax on members of the same class according to their respective tax years, calendar or fiscal, discriminated against the calendar year taxpayers in favor of the fiscal year taxpayers. Accordingly, the court fixed the time for the start of tax liability for all members of the class as of December 1, 1975 — the earliest date on which the tax would apply to all taxpayers using the latest (December through November) fiscal year — and ordered the appropriate refunds to the class of affected taxpayers.

Appellants Bishop and Kleiboemer appealed the trial court's order of October 18; the District of Columbia cross-appealed the October 27 supplemental order.6 Appellants contend on appeal that the professional tax (1) is an unauthorized exercise of the legislative powers of the Council under the

Home Rule Act; (2) is in violation of several provisions of the United States Constitution; and (3) does not comply with the notice requirements of the Home Rule Act and City Council Resolution 1-1-2. Appellee argues that the trial court improperly held that the effective date provisions of the Act discriminate against calendar year taxpayers in favor of fiscal year taxpayers. For the reasons which follow, we reverse.

Appellants' initial challenge to § 47-1574 is that it is an ultra vires measure, enacted by the Council in violation of its delegated powers. Thus, the central issue is whether that section violates the limitation imposed on the legislative authority of the Council by § 602(a)(5) of the Home Rule Act (codified at D.C. Code 1978 Supp., § 1-147(a)(5)), which provides in pertinent part:

The Council shall have no authority . . . to

* * * * * *

(5) impose 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. . . .

The question is whether § 47-1574 imposes a tax on the personal income of nonresidents or whether the tax is levied on something other than income (e. g., the privilege of doing business in the District). If the former is the case, the law is an impermissible exercise of the Council's legislative authority in the area of taxation and must be declared invalid.

The District of Columbia Revenue Act of 1947, Pub.L. No. 80-195, 61 Stat. 328, enacted by Congress on July 16, 1947, imposed, inter alia, a tax on incorporated and unincorporated businesses for the privilege of carrying on a trade or business within the District and of receiving income from sources within the District. D.C. Code 1973, §§ 47-1571a, -1574b. The purpose of the unincorporated business tax was to

impose a tax upon all business income which would be subject to the corporation franchise tax, if incorporated, regardless of whether the business is carried on by an individual, by a partnership, or by some other unincorporated entity. [Section 8-1(b) of the Regulations of the Government of the District of Columbia, promulgated August 28, 1947 (Title 16, DCRR Part 307, p. 122).]

In defining the term "unincorporated business," however, Congress excluded a trade or business

which by law, customs or ethics cannot be incorporated . . . or any trade or business in which more than 80 per centum of the gross income is derived from the personal services actually rendered by the individual or members of the partnership or other entity in the conducting or carrying on of any trade or business and in which capital is not a material income producing factor. [See D.C. Code 1973, § 47-1574.]

When the Professional Corporation Act (P.L. No. 92-180, 85 Stat. 576 (1971)) was enacted, the D.C. Income and Franchise Act was amended to maintain the exemption for unincorporated professional associations. The legislative history indicates the following concerns underlying preservation of the exemption at that time:

[r]epresentatives of the Bar Association, for example, stated they have opposed previous attempts to repeal this exemption on essentially two grounds. Both the States of Maryland and Virginia grant a credit to their residents for income taxes paid to another jurisdiction on income generated in that jurisdiction. The District unincorporated business tax does not qualify for this credit since it is a franchise tax rather than an income tax. Accordingly, the professional who resides in Maryland or Virginia and conducts his practice in the District would, if his present tax exemption were removed, be subject to double tax on the net income for his practice. [H.R. Rep. No. 92-508, 92d Cong., 1st Sess. (1971) at 4 (emphasis supplied).]

Section 605 of the Revenue Act of 1975 repealed this professional exemption (by deleting the second sentence of § 47-1574),7 thereby allowing the District of Columbia for the first time to impose the unincorporated business tax upon unincorporated professionals and personal service businesses, which, by their nature, do not require a physical nexus with the District in order to do business in the District. Therefore, the tax on the income of unincorporated businesses suddenly burdened the personal income of thousands of previously untaxed individuals who do not reside in the District. The issue is does this tax, in light of its incidents and effects, circumvent the stated intention of Congress.

Although the legislative history of § 602(a)(5) of the Home Rule Act (codified at D.C. Code 1978 Supp., § 1147(a)(5)), is slight, we do know that by adopting the provision, Congress intended to prevent the District from enacting a commuter tax. Staff of the Senate Comm. on the District of Columbia, 93rd Cong., 1st Sess., Legislative History of the District of Columbia Self-Government and Governmental Reorganization Act 1469 70 (Comm. Print 1974).8 A commuter tax, loosely defined, is a levy by a jurisdiction upon individuals who do not live in that jurisdiction but work there on a daily basis.9 Although the levy could, conceptually, attach to any basis, Congress specifically provided in the act that the District of Columbia could enact no tax which levied upon personal income of nonresidents. In terms of art,10 Congress' proscription meant that no commuter tax could be levied on net income.

The general definition of commuter tax presented above is, by necessity, overbroad. Indeed, it is the breadth of such a tax which presents us with problems here. Were the commuter tax a simple, discernible fiscal tool, we could simply look to the incidents of the tax and determine if they were on all fours with the tax presented here. Since such an endeavor is not possible, we must accept at their literal meaning the words Congress chose to use in prohibiting the commuter tax, namely, a "tax . . . on personal income" of nonresidents. In doing so, we can come to no conclusion other than that the...

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