Neild v. District of Columbia

• Decision Date: 15 January 1940
• Docket Number: No. 7213.,7213.
• Citation: 110 F.2d 246
• Parties: NEILD et al. v. DISTRICT OF COLUMBIA.
• Court: U.S. Court of Appeals — District of Columbia Circuit

110 F.2d 246 (1940)

NEILD et al. v. DISTRICT OF COLUMBIA.

No. 7213.

United States Court of Appeals for the District of Columbia.

Decided January 15, 1940.

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Alvin L. Newmyer and David G. Bress, both of Washington, D. C., for appellants.

Elwood H. Seal, Corp. Counsel, Vernon E. West, Principal Asst. Corp. Counsel, and Glenn Simmon, Asst. Corp. Counsel, all of Washington, D. C., for appellee.

Before GRONER, Chief Justice, and STEPHENS, MILLER, EDGERTON, and VINSON, Associate Justices.

MILLER, Associate Justice.

Congress enacted a revenue law for the District of Columbia, effective August 17, 1937, which imposed a gross receipts tax upon the privilege of engaging in business in the District during the fiscal year 1937-1938.¹ Appellants are a partnership which buys and sells perishable fruit and other produce. Their place of business is in the District and their affairs are directed and carried on from there. However, in the course of their business they purchase goods outside the District, which are then shipped to their place of business in the District, pending resale and delivery. A large percentage of their gross receipts is derived from sales made to customers outside the District by appellants' agents who work in the Virginia area adjacent thereto. Most of the goods thus sold are shipped from the District, but a small portion is diverted to Virginia buyers without ever being in the District.

The tax imposed in the present case was based upon gross receipts from business conducted in the manner described. Appellants paid the tax under protest and thereupon sued to recover the amount paid. The lower court sustained the validity of the tax. We granted a writ of error. The appeal was argued originally before a court of three members but, because of the importance of the questions herein involved, we set the case, upon our own motion, for reargument before a court of five members.

Appellants contend that the decision of the lower court was erroneous because (1) commerce between the District of Columbia and a state is interstate commerce within the meaning of the Constitution; (2) hence the tax in the present case was levied upon gross receipts from transactions carried on by them in interstate commerce; and (3) such tax constitutes a direct and unlawful burden thereon.² However, even assuming — and we do not decide the question — that the tax in the present case constitutes a burden upon interstate commerce,³ nevertheless, Congress had full power to impose it.⁴

Power to legislate for the District of Columbia is expressly delegated by the Constitution. Article I, Section 8, Clause 17, gives to Congress power "To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, * *." Italics supplied That delegation is sweeping and inclusive in character, to the end that Congress may legislate within the District for every proper purpose of government.⁵ Within the District of Columbia, there is no division of legislative powers such as exists between the federal and state governments.⁶ Instead there is a consolidation thereof,⁷ which includes within its breadth all proper powers of legislation.⁸ Subject only to those prohibitions of the Constitution which act directly or by implication⁹ upon the federal government,¹⁰ Congress possesses full and unlimited jurisdiction¹¹ to provide for the general welfare of citizens within the District of Columbia by any and every act of legislation which it may deem conducive to that end.¹² In fact, when it legislates for the District, Congress acts as a legislature of national character,¹³ exercising complete legislative control as contrasted with the limited power of a state legislature, on the one hand, and as contrasted with the limited sovereignty which Congress exercises within the boundaries of the states, on the other.¹⁴ As the commerce clause operates as a limitation solely upon the states,¹⁵ it constitutes no bar to the action of Congress in any event.¹⁶ If the dictum to the contrary in Potomac Electric Power Co. v. Hazen, 67 App.D.C. 161, 90 F.2d 406, certiorari denied, 302 U.S. 692, 58 S.Ct. 11, 82 L.Ed. 535, was intended to apply to the District of Columbia, we decline to follow it.

In support of their contention, appellants rely upon the language of cases in which it has been said that Congress may exercise within the District substantially the powers which the legislature of a state may exercise within that state;¹⁷ and that when so doing it acts "in like manner as the legislature of a State."¹⁸ This is true, but it does not follow that when Congress acts in such manner it acts subject to the limitations imposed by the Constitution upon the states. If it chooses thus to exercise a part, only, of its powers, it may resemble a state legislature in so doing, but, by so doing, it is not deprived of the rest of its powers. It may exercise, also, within the District, general legislative powers delegated to Congress by the Constitution; as for example the power granted by the commerce clause.¹⁹ When it acts by virtue of these general legislative powers it is free of the restraints which are imposed by the Constitution upon the states.²⁰

Appellants contend further that although Congress has power to impose a burden upon interstate commerce, if it does so, the burden imposed must be uniform throughout the nation; hence, that it has indulged in an improvident exercise of power in the present case, because the statute here in controversy imposes a burden upon the commerce of a limited area only. There are several answers to this contention. In the first place, as has been pointed out already, this statute is an exercise of the power of Congress to legislate for the District of Columbia and not an exercise of its power to regulate commerce. In the second place, even assuming that it was the purpose of Congress to regulate commerce between the District of Columbia and adjoining states, the statute in controversy would constitute a proper exercise of its power to do so. When Congress acts under the commerce clause it is not necessary that its enactments shall provide for uniform regulation of commerce throughout the nation.²¹ "Congress may choose the commodities and places to which its regulation shall apply. Congress may consider and weigh relative situations and needs."²² And the power of choice and localized action which is proper under the commerce clause is, obviously, even more appropriate when it acts also under the District of Columbia clause, in the exercise of its power of "exclusive legislation in all cases whatsoever." Congress had power, therefore, to impose the burden of taxation complained of in the present case, by virtue of either or both of these constitutional provisions.²³

Whether it may be wise for Congress to use, for the District, a method of taxation which would contravene — if they were applicable — the prohibitions imposed by the commerce clause upon the states, and thus to erect barriers which they are forbidden to erect, is indeed a serious question of public policy²⁴ but it is not one for the courts to decide. The end is a permissible one under the commerce clause as well as under the broad powers delegated by Article I, Section 8, Clause 17, and hence the means used are proper if Congress deems it wise to use them.²⁵

Appellants contend further that the Act violates the due process clause of the Fifth Amendment because — they argue — it is retroactive, arbitrary and confiscatory in its operation; for, while it purports to impose a tax upon the privilege of engaging in business in the District during the fiscal year 1937-1938, it makes the measure of the tax the gross receipts of the taxpayer from his business during the calendar year 1936.²⁶ Appellants point out that although their gross receipts for 1937-1938 might have been only a fraction of those for 1936, still, for the privilege of carrying on business during the later period, they were nevertheless required to pay a tax based on receipts during the earlier period; consequently, they contend that although the exaction purports to be a tax for the fiscal year 1937-1938, it is in fact a tax upon the business transactions of 1936; hence retroactive in its operation, not merely in time but in all its implications, and without any reasonable relation between the benefit of the privilege and the basis used for determining the tax.

So far as concerns the due process clause of the Fifth Amendment, generally, the Supreme Court has said: "That a federal statute passed under the taxing power may be so arbitrary and capricious as to cause it to fall before the due process of law clause of the Fifth Amendment is settled."²⁷ However, so far as concerns the specific application of the due process clause, which appellants seek to make in the present case, the Supreme Court has recently pointed out that "a tax is not necessarily unconstitutional because retroactive. * * * In each case it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation."²⁸ In this connection it is important to note that we are not called upon to decide whether, if the Act here involved had been so phrased as to tax, directly, gross receipts of business transactions carried on during 1936, it would have been objectionable. Such a statute might, perhaps, properly be characterized as so retroactive and arbitrary as to be confiscatory, within the meaning of such decisions as Nichols v. Coolidge,²⁹ Untermyer v. Anderson,³⁰ and Blodgett v. Holden.³¹ But "it has long been established that an Act of Congress which on its face purports to be an exercise of the taxing...