District of Columbia v. Davis

• Decision Date: 05 January 1967
• Docket Number: No. 20010.,20010.
• Citation: 125 US App. DC 311,371 F.2d 964
• Parties: DISTRICT OF COLUMBIA, Petitioner, v. Paul S. DAVIS, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

125 US App. DC 311, 371 F.2d 964 (1967)

DISTRICT OF COLUMBIA, Petitioner, v. Paul S. DAVIS, Respondent.

No. 20010.

United States Court of Appeals District of Columbia Circuit.

Argued November 10, 1966.

Decided January 5, 1967.

Mr. Henry E. Wixon, Asst. Corp. Counsel for District of Columbia, with whom Mr. Milton D. Korman, Principal Asst. Corp. Counsel, was on the brief, for petitioner. Messrs. Charles T. Duncan, Corp. Counsel, and Ronald L. Lenkin, Asst. Corp. Counsel at the time the brief was filed, also entered appearances for petitioner.

Mr. Paul S. Davis, Washington, D. C., appellee pro se.

Before DANAHER, Circuit Judge, EDWARDS,^* Circuit Judge of the United States Court of Appeals for the Sixth Circuit, and TAMM, Circuit Judge.

I.

TAMM, Circuit Judge:

This is a proceeding to review a decision of the District of Columbia Tax Court presenting questions relating to the interpretation of the District of Columbia Income and Franchise Tax Act of 1947, as amended, 61 Stat. 328, as it applies to a taxpayer who was domiciled and earned income in another jurisdiction for part of the taxable year prior to becoming domiciled in the District of Columbia for the remainder of the taxable year. The tax year in question is 1963. Respondent was a domiciliary of Detroit, Michigan until April 1, 1963, at which time he moved to the District of Columbia. For the rest of 1963 and since that time he has been a domiciliary of the District. Respondent filed with the District an individual income tax return for the period from April 1, to December 31, 1963, reporting therein adjusted gross income for that nine-month period of $17,178.04, from which he took certain deductions prorated for the nine-month period reflected on his return. Respondent earned $5,142.42 for the three months of 1963 during which he was domiciled in Detroit. He paid to the State of Michigan an intangible personal property tax of $26.71 for this period and an income tax to the City of Detroit of $45.41, for a total of $72.12. Respondent did not include any of the income earned by him prior to April 1, 1963 in his District of Columbia return for 1963, nor did he claim any credit for the taxes he paid in Michigan during the three-month period. Respondent computed his tax to the District for the nine-month period at $467.12 which he duly paid.

Subsequently the District Finance Office assessed a deficiency in respondent's tax, finding that he should have computed his District tax on the basis of his income for the entire year, rather than for only the nine-month period. The new assessment resulted in a revised tax of $664.42 (before credits), making a deficiency in tax of $197.30. The Finance Office then allowed a credit of $72.12 for the Michigan and Detroit taxes (which credit respondent had not previously claimed), making a net deficiency of $125.18, which respondent thereafter paid under protest (together with interest).

Respondent subsequently filed a petition with the District of Columbia Tax Court, seeking a refund of the deficiency assessed. The Tax Court reversed the determination of the Finance Office and ordered a refund (with interest) to respondent. The District of Columbia has petitioned this court to reverse the determination of the Tax Court. We affirm that decision, although on a somewhat different ground than that adopted by the Tax Court.

Before both the Tax Court and us, respondent has argued that as a matter of statutory construction, the District of Columbia Income and Franchise Tax Act of 1947, as amended, does not tax income received by a taxpayer prior to his residence in the District. Alternatively, respondent has argued that if the Act is interpreted to tax this income, that portion upon which the District relies is unconstitutional since it taxes income beyond the jurisdiction of the District of Columbia and is, consequently, in violation of the Due Process Clause of the Fifth Amendment to the United States Constitution.

The Tax Court rejected respondent's statutory interpretation argument, finding that the Act in question, literally interpreted, imposed a tax upon respondent's entire income for the taxable year 1963. However, the Tax Court held that to the extent the statute included as taxable the income earned by respondent prior to the time he became a resident and domiciliary of the District, it violated the Fifth Amendment.

II.

As is clear from the decision of the Tax Court, respondent has placed in issue in this case a question of grave constitutional significance. The Tax Court considered and decided the constitutional question, while at the same time refusing to hold the tax invalid as a matter of statutory construction. We believe that the sage words of Mr. Justice Holmes in United States v. Jin Fuey Moy, 241 U.S. 394, 401, 36 S.Ct. 658, 659, 60 L.Ed. 1061 (1916) have relevance for the resolution of the problem which we are confronted with in this case. He stated there that

"a statute must be construed, if fairly possible, so as to avoid not only the conclusion that it is unconstitutional, but also grave doubts upon that score."

See also General Motors Corp. v. District of Columbia, 380 U.S. 553, 85 S.Ct. 1156, 14 L.Ed.2d 68 (1965) where the Supreme Court recently construed other sections of the same Act as is involved here so as to avoid the necessity of reaching constitutional questions. Moreover, it is a cardinal principle of statutory construction that if there are two possible interpretations of a statute, one which would raise a question of constitutionality, and another which would not, then the construction which fairly avoids the constitutional question must be adopted. International Ass'n of Machinists v. Street, 367 U.S. 740, 749, 81 S.Ct. 1784, 6 L.Ed. 2d 1141 (1961).

Applying these general principles to this particular case, we believe, contrary to the Tax Court, that as a matter of statutory construction the income tax law involved here does not tax income received by a taxpayer prior to his becoming a "resident" of the District. While the Tax Court's determination of the constitutional question has much to recommend itself as both a logical and legal matter, we believe that the statute admits more readily of an interpretation that it was not intended to reach the income here in question, and we thus place our decision upon the nonconstitutional grounds.

III.

Respondent has set forth his statutory construction argument in a clear and succinct manner in his brief, and rather than attempt to paraphrase his excellent exposition, it is set forth here in its entirety:¹

"There is no specific provision in the District of Columbia Income and Franchise Tax Act of 1947 (D.C.Code, §§ 47-1551 et seq.) authorizing the taxation of income earned or received by individuals prior to their residence in the District. The tax law provides that a person domiciled in the District on the last day of the year shall be considered a resident of the District (Section 4(s) of Title I; Code Sec. 47-1551c(s)). There is no dispute as to the respondent having been both a resident and domiciliary within the District at all times since April 1, 1963. However, Section 4(s) of Title I (Sec. 47-1551c(s) of the Code) does not purport to tax income earned prior to domicile or residence in the District.

"The section actually imposing the tax states that there is levied for each year `upon the taxable income of every resident\' a tax at specified rates (Section 3 Of Title VI; Code Sec. 47-1567b; emphasis supplied). The phrase `taxable income\' is defined to mean the `entire net income of every resident, in excess of the personal exemptions and credits for dependents\' (Section 1 of Title VI; Code Sec. 47-1567). This language necessarily implies that the income must be taxable. It will be noted that the tax is not by its terms imposed on income for the `entire\' or `whole\' year, but merely for the `taxable year.\' It is therefore necessary to analyze the Act to consider the meaning of `taxable year.\'

"The tax law expressly recognizes that the status of a taxpayer may change during the taxable year, and in those situations the law provides an apportionment of the personal exemptions and credit for dependents (Section 2 of Title VI, Code Sec. 47-1567a). Subsections (d) and (e) of the Section specifically provide for proration of exemptions and credits for dependents and for changes in marital status, or with respect to persons dying before the end of the year, respectively. Subsection (f) of the same section makes a more general provision covering the case of a return `made for a fractional part of a taxable year.\' The phrase `taxable year\' is specifically defined elsewhere in the law to include a `return made for a fractional part of a calendar or fiscal year\' (Section 4(k) of Title I; Code Sec. 47-1551c(k); emphasis supplied).

"Subsection (f) of Section 2 of Title VI (Code Sec. 47-1567a) would appear to be clearly applicable to respondent\'s situation, and in filing the return for the last nine months of 1963, claim was made for personal exemption only as to ¾ of the full amount, or $750 (J.A. 13). Subsections (d) and (e) cover changes in marital status, and the death of the taxpayer, respectively. Subsection (f) is broader in its language and not limited to the special situations covered by Subsections (d) and (e). Hence it appears clearly to cover such a situation as respondent\'s, so as to authorize the filing of a return for a fractional part of a year.

"Since a return is authorized for a `fractional part\' of a year, that part of a year becomes the `taxable year\' within the meaning of Section 3 of Title VI (Code Sec. 47-1567b). So construed, the phrase `taxable income\' in the same section reaches only the income received from the `resident\' after he becomes such. Similarly, the phrase `taxable year\' in the credit provision (Section 5(a) of Title VI; Code Sec. 47-1567) is properly interpreted to be the `fractional

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