Bishop v. District of Columbia

• Decision Date: 12 February 1980
• Docket Number: No. 12920.,No. 12872.,No. 12871.,No. 12921.,12871.,12872.,12920.,12921.
• Citation: 411 A.2d 997
• Parties: Richard 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.
• Court: D.C. Court of Appeals

411 A.2d 997

Richard 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.

No. 12871.

No. 12872.

No. 12920.

No. 12921.

District of Columbia Court of Appeals.

Argued En Banc October 15, 1979.

Decided February 12, 1980.

As Modified February 14, 1980.

Philip L. Kellogg, Washington, D. C., with whom James L. Lyons and Bradley G. McDonald, Washington, D. C., for Axel-Felix H. Kleiboemer.

Judith W. Rogers, Corp. Counsel, Washington, D. C., with whom Richard W. Barton, Deputy Corp. Counsel, Robert E. McCally, David P. Sutton, Richard L. Aguglia and James C. McKay, Jr., Asst. Corp. Counsel, Washington, D. C., were on the brief, for the District of Columbia.

John M. Bixler, Washington, D. C., with whom Ronald D. Aucutt, Washington, D. C., was on the brief, for Richard A. Bishop.

Before NEWMAN, Chief Judge, and KELLY, KERN, GALLAGHER, NEBEKER, HARRIS, MACK, FERREN and PRYOR, Associate Judges, and PAIR, Associate Judge, Retired.

KELLY, Associate Judge:

The arguments advanced by the government in the en banc rehearing of this case do not persuade this court to disturb the division's holding in Bishop v. District of Columbia, D.C.App., 401 A.2d 955 (1979), that Section 605 of the Revenue Act of 1975¹ was an impermissible exercise of the District of Columbia Council's authority under § 602(a)(5) of the Home Rule Act.²

Section 605 of the Revenue Act of 1975 repealed the professional exemption to D.C. Code 1973, § 47-1574 (the unincorporated business tax provision) and thereby imposed a tax on nonresident unincorporated professionals and personal service businesses. The division concluded that this repeal circumvented the intention of Congress, as stated in the Home Rule Act, that: "The Council shall have no authority . . . to (5) impose any tax on the whole or any portion of the personal income . . . of any individual not a resident of the District . . . ." D.C.Code 1978 Supp., § 1-147(a)(5). The division thus held that the resulting tax on unincorporated professionals was not a franchise or gross receipts tax but, rather a tax levied upon the personal income of "individuals who are professionals and are not protected by the corporate veil . . . ." Supra at 961.

We here underscore the division opinion's holding with several instructive comments from the legislative history of the Home Rule Act that were drawn to our attention on rehearing en banc; we also emphasize the limits of that holding.

During the Senate hearings on the Home Rule Act, in response to the query whether "the [Senate] Committee [on the District of Columbia] has eliminated anything in regard to a commuter tax," the Committee Chairman, Senator Thomas Eagleton, responded, "Yes. There is a specific prohibition as to the imposition of a commuter tax, a reciprocal income tax, or any other tax on nonresidents of the District of Columbia." 117 Cong.Rec. 42498 (1971) (emphasis added).

Senator Charles Mathias elucidated the rationale for enacting the prohibition found in § 602(a)(5) of the Act: "The increased Federal payment [to the District] also compensates for the Congress' refusal to permit the District to levy taxes on the income of nonresidents." Id. at 42502.

Senator Eagleton clearly distinguished the permissible franchise tax from the impermissible commuter tax in the October 12, 1971, debates on S. 2652:

For example . . . of utmost significance . . . the present mayorcommissioner and council have jurisdiction over taxes — to wit, the real property tax. They can raise it or lower it. As to all other taxes, including franchise taxes, sales taxes, local taxes, that jurisdiction is in Congress. We transfer the jurisdiction of taxation to the elected city council and to the elected mayor — holding back, as I said before, the commuter tax. [117 Cong.Rec., supra at 35747; (emphasis added).]

The remarks of Representative Breckenridge of Kentucky, are particularly revealing on the question of congressional intent: "I am concerned about the phrase, `personal income tax.' I take it what we are driving at here is precluding any tax which is based on a percentage of income regardless of whether it is technically considered personal income . . . ." Congressman Gude of Maryland (the House of Representatives proponent of the amendment enacted as § 602(a)(5)) answered: "The thrust of this amendment, the interpretation would be that that would be included under this amendment. That was the intent when the amendment was offered in the Senate." Background and Legislative History of H.R. 9056, H.R. 9682 and Related Bills Culminating in The District of Columbia Self-Government and Governmental Reorganization Act, ch. II (Dec. 31, 1974) 1126. H.R. Rep. No. 83-92, 92d Cong., 1st Sess. (1971).

The government cites Palmore v. United States, 411 U.S. 389, 395, 93 S.Ct. 1670, 1675, 36 L.Ed.2d 342 (1973) for the proposition that we must presume Congress "legislated with care" when it enacted § 602(a), arguing that "had [Congress] intended to prohibit the Home Rule Government from taking the action in question, it would have said so expressly, and not left the matter to mere implication." District of Columbia Petition for Rehearing En Banc at 7. We agree, and reiterate our conclusion that Congress expressly and specifically withheld the District of Columbia Council's authority to impose a tax on the income of nonresidents. By enacting § 605 of the Revenue Act of 1975, which repealed the professional exemption contained in § 47-1574, the Council circumvented this express congressional prohibition. Section 605 is therefore invalid.

The government also contends that the division opinion "places other existing and proposed taxing measures of the District Government under a cloud." District of Columbia Petition for Rehearing En Banc at 2. This contention betrays a misunderstanding of our judicial role. We did not, and as a nonlegislative body could not, intend to instruct the District of Columbia Council as to the relative propriety of alternative schemes for raising tax revenues. We are limited to deciding the case before us. The division's discussion of a gross receipts tax, Bishop v. District of Columbia, supra at 966 et seq., was employed as an illustrative device, to contrast the features of a gross receipts tax with those of a net income tax. This discussion, therefore, should not be read to either prescribe or proscribe the District of Columbia Council's adoption or continued imposition of a gross receipts tax, or of any taxing measure other than the one before the division at that time.

The division opinion, vacated June 11, 1979, is hereby reinstated and, with this elaboration, constitutes the en banc opinion of the court.

So ordered.

MACK, Associate Judge, dissenting:

I agree with the majority that the District of Columbia cannot levy a tax upon the personal income of nonresidents. The majority apparently agrees with me that the District of Columbia can levy a tax upon nonresident professionals who operate an unincorporated business in the city. Having agreed to this extent, we disagree. In my opinion the majority's rationale evidences a common, and understandable, failing of those of us whose lives have been shaped in this federal city; in its preoccupation with what the City Council cannot do, it has lost sight of what the Council did, and what Congress, which has not been reluctant to say what the Council can or cannot do, has chosen not to countermand.

The prohibition of § 602(a)(5) of the Home Rule Act¹ is clear enough; Congress proscribed the imposition of "any tax on the whole or any portion of the personal income, either directly or at the source . . . of any individual not a resident of the District." D.C.Code 1978 Supp., § 1-147(a)(5). But this provision, and its legislative history, relied upon by both sides in this litigation, address but one aspect of the total picture. We must look to the challenged action of the Council — here the amendment to Title VIII of the 1947 Revenue Act, a provision specifically addressed to "Tax on Unincorporated Businesses." Pub.L. No. 80-195, 61 Stat. 345 (codified at D.C.Code 1973, § 47-1574). As the division opinion adopted by the majority en banc points out (Bishop v. District of Columbia, D.C.App., 401 A.2d 955, 957 (1979)), the purpose of this title 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.' " Id. at 957, quoting 16 DCRR § 307 p. 122.

What the City Council did in enacting § 605 of the Revenue Act of 1975,² was to delete the last sentence from this business tax provision which had heretofore exempted certain professional and personal services entities from its coverage.³ The issue here cannot be assessed without resort to a closer look at the scheme of the taxing statute in question, which for close to thirty years has been applied to residents and nonresidents alike.

1. The provisions of Title VIII of the 1947 Act are explored in an early decision of this jurisdiction, District of Columbia v. Pickford, 86 U.S.App.D.C. 17, 179 F.2d 271 (1949). The rationale of that decision is instructive both as to the purpose of our unincorporated business tax and its character as a franchise tax despite its levy on net income. In holding that a nonresident owner of a hotel, who leased the hotel to another, was not engaged in an unincorporated business, the court said:

Title VIII of the statute levies the tax for the privileges both of carrying on business and of receiving income from sources within the District. But the levy is upon the net income of an unincorporated business only. The privilege of receiving...