Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-07055/USCOURTS-caDC-98-07055-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

---

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 7, 1999 Decided April 2, 1999

No. 98-7055

International Bank for Reconstruction and Development,

Appellee

v.

District of Columbia,

Appellant

Appeal from the United States District Court

for the District of Columbia

(97cv01158)

Donna M. Murasky, Assistant Corporation Counsel, argued the cause for appellant. With her on the briefs were

John M. Ferren, Corporation Counsel, Charles L. Reischel,

Deputy Corporation Counsel, and Lutz Alexander Prager,

Assistant Deputy Corporation Counsel.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 1 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Albert G. Lauber, Jr. argued the cause for appellee. With

him on the brief was Lloyd H. Mayer.

Lester Nurick, F. David Lake, Jr., and Erik H. Corwin

were on the brief for amici curiae The Inter-American Development Bank, et al.

Before: Silberman, Sentelle, and Randolph, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: The property, income, operations

and transactions of the International Bank for Reconstruction

and Development, commonly known as the World Bank, are

immune from federal, state and local taxation. The question

in this appeal is whether a private contractor, retained by the

Bank to provide food services to individuals on the Bank's

premises, has derivative immunity from District of Columbia

taxes on the contractor's sales of food and beverages.

I

The World Bank is an international, inter-governmental

organization, with headquarters in Washington, D.C. Created by Articles of Agreement drawn up at a conference held in

Bretton Woods, New Hampshire in 1944, the Bank is corporate in form, with all of its capital stock owned by its member

governments. See Herbert Harvey, Inc. v. NLRB, 424 F.2d

770, 773 n.20 (D.C. Cir. 1969). The United States accepted

the Articles in the Bretton Woods Agreements Act of 1945, 22

U.S.C. ss 286-286m. The Bank is empowered to provide

financial assistance for the development of member countries,

to promote private foreign investment, to stimulate the balanced growth of international trade, and "[t]o conduct its

operations with due regard to the effect of international

investment on business conditions in the territories of members." Articles of Agreement (as amended Feb. 16, 1989),

Art. I. One of the treaty's provisions (Article VII, s 9(a)),

which has "full force and effect" throughout the United

States, see 22 U.S.C. s 286h, confers tax immunity on the

Bank in the following terms:

The Bank, its assets, property, income and its operations

and transactions authorized by this Agreement, shall be

immune from all taxation and from all customs duties.

The Bank shall also be immune from liability for the

collection or payment of any tax or duty.

Nearly forty years ago the Bank began providing food

services for its employees and guests in its D.C. headquarters. Since 1970 it has engaged an outside contractor for this

purpose. Initially, the contractor received a fixed percentage

of food-service revenues and the Bank provided a substantial

subsidy--which by the mid-1980s amounted to $1.3 million

per year. In 1989, the Bank phased out the subsidy, renegotiated the agreement with its contractor--then the Marriott

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 2 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Corporation--and replaced the old management-fee contract

with a "modified profit and loss" contract. Under the new

arrangement, the contractor continued to receive a percentage of revenues and the Bank continued to provide equipment, space, and utilities, but the burden of any financial loss

now fell on the contractor.

The District of Columbia imposes a tax on the retail sale of

food and beverages. The vendor is responsible for paying the

tax to the District, but "reimbursement for the tax imposed

upon the vendor shall be collected by the vendor" from the

purchasers of the food and drink. D.C. Code ss 47-

2002(3)(A), 47-2003(a). (The District's compensating-use tax

on retail sales of food and beverages is inapplicable when the

sales tax is "properly collected." s 47-2202(3)(A).) Until the

1990's, the District had not sought to collect sales or use taxes

on food-service transactions at the Bank. Matters changed

when, in 1991--shortly after the Bank's contract renegotiation--Marriott twice requested letter rulings from the District's Department of Finance and Revenue regarding the tax

status of its food-service operations at the Bank and at the

International Monetary Fund. The District responded that

cafeteria and vending sales by outside contractors on the

premises of international organizations were subject to local

sales taxes when the sales were made to employees of the

organizations rather than to the organizations themselves.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 3 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Marriott's contract lapsed in 1992 and the Bank entered

into a new arrangement with Gardner Merchant Food Services, Inc. This contract slightly modified the profit-and-loss

arrangement the Bank had with Marriott: Gardner Merchant

was to "be allowed profits not to exceed 2% of revenue";

anything in excess of 2% went to the Bank1; Gardner Merchant was entitled to general and administrative costs not to

exceed 3% of revenue, but it was to be responsible for

"pay[ing] out all expenses" and it assumed the risk of "any

resultant losses." The contract set forth Gardner Merchant's

independent status: "Contractor will, in all its dealings, make

it clear that it is an independent contractor to the Bank, and

the Contractor and its employees are neither agents, representatives, nor employees of the Bank." Gardner Merchant

was to maintain its own records and hold the Bank harmless

for any losses arising out of its services.

A provision in the contract purported to extend to Gardner

Merchant the Bank's immunity from the collection and payment of taxes:

The Bank is exempt from payment of sales, use and

excise taxes and shall provide Contractor with tax exemption certification as may be required from time to

time. The Bank, and the Contractor acting on the

Bank's behalf, are also exempt from collecting such taxes

from staff and other user's [sic] of the Bank's food

services.

Relying on this provision, Gardner Merchant neither collected

nor paid any District of Columbia sales or use taxes in

performing its food-service contract.

In March 1996, the District's Department of Finance and

Revenue conducted a general audit of Gardner Merchant's

records and discovered a tax deficiency. For the tax years

1994 and 1995, the District sought to recover from Gardner

Merchant back taxes of $351,396.73, penalties of $158,128.55

__________

1 The record does not disclose whether the Bank actually received

any profits for the years covered by the Gardner Merchant contract.

and interest of $179,212.33, for a total of $688,737.61. On

May 22, 1997, the Bank paid to the District approximately

$680,000.00 to satisfy Gardner Merchant's deficiency and, on

the same day, filed suit to recover that amount from the

District.2 On cross-motions for summary judgment, the district court ruled in the Bank's favor.

The district court held that Gardner Merchant's operation

of the food-service program fell within the scope of the

"operations and transactions" for which the Bank enjoys tax

immunity. See International Bank for Reconstruction &

Dev. v. District of Columbia, 996 F.Supp. 31, 35 (D.D.C.

1998). The Bank's president is empowered to conduct "the

ordinary business of the Bank." Id. at 34 (citing Article V,

s 5(b) of the Bank's Articles of Agreement). Although the

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 4 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Articles do not expressly state that providing on-site food

services is part of the Bank's "ordinary business," the district

court thought it must be: because the Bank's president has

responsibility over the "organization, appointment and dismissal of the [Bank's] officers and staff," Article V, s 5(b),

"[i]t would make no sense to give the President responsibility

for the 'organization ... of the officers and staff,' but deny

him the authority to provide for the daily food needs of that

staff." 996 F.Supp. at 35.

The court observed that the food program would enjoy tax

immunity if the Bank itself had operated it. Id. The District, while not disputing this, takes issue with the conclusion

the court then drew: if the District imposed a tax on the

Bank's food program simply because the Bank chose to

engage an outside contractor rather than run the program

itself, this would constitute an impermissible intrusion into

the Bank's decision-making processes. Id. In the court's

view, such interference would contravene the statutory independence of the World Bank and other international organizations, see Articles of Agreement, Article V, s 5(c); 22 U.S.C.

s 288, an independence this court recognized in Atkinson v.

__________

2 The District makes nothing of the point that although the Bank

paid the taxes and is suing to recoup its payment, the Bank itself

incurred no liability under District law.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 5 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Inter-American Dev. Bank, 156 F.3d 1335, 1337 (D.C. Cir.

1998), holding that an international organization was not

subject to a garnishment proceeding. See also Mendaro v.

World Bank, 717 F.2d 610, 615 (D.C. Cir. 1983); Broadbent v.

OAS, 628 F.2d 27, 34 (D.C. Cir. 1980).

The district court seemed to believe, perhaps as an alternative ground of decision, that it would be inequitable for D.C.

to collect taxes from Gardner Merchant retroactively for the

years 1994 and 1995. See International Bank, 996 F.Supp. at

38-39. According to the court, "[t]he District has by its

inaction over the last thirty years led the Bank to reasonably

believe that its tax immunity would preclude the imposition of

tax liability on third party operators of the Bank cafeteria."

Id. at 38. In the court's view, the District produced no

credible evidence that either Gardner Merchant or the Bank

itself had been on notice of the District's intention to impose

such taxes for the years 1994 and 1995.

II

Like the Constitution and federal statutes, treaties made

under the authority of the United States are the "supreme

Law of the Land." U.S. Const. art. VI. Whether the World

Bank's tax immunity extends to Gardner Merchant's retail

sales operations therefore depends on the terms of the treaty--on the terms, that is, of the Articles of Agreement.

As to Article VII, s 9(a), quoted earlier, we can put to one

side the Bank's tax immunity regarding its "assets, property

and income." The District is not seeking to impose taxes on

those items. We also can disregard the Bank's immunity

from liability "for the collection or payment of any tax or

duty." The liability for the collection and payment of the

District's taxes, to the extent any exists, is Gardner Merchant's alone. Thus, if Gardner Merchant shares the Bank's

tax immunity, this can only be on the basis that the District

has imposed its sales and use taxes on the Bank's "operations

and transactions authorized by" the Agreement.

The District and the Bank quarrel about whether a cafeteria in the Bank's D.C. office building constitutes an "operation" of the Bank. For its part, the District points to Article

IV entitled "Operations." This provision lays out in considerable detail the Bank's authority to make loans and borrow

funds, to set terms and conditions on its loans, to relax the

schedule of payments, to guarantee loans, to set aside a

special reserve and so forth. Nothing in Article IV appears

to contemplate treating a cafeteria as an "operation." On the

other hand, the Bank and the district court stress the authority given the Bank's president to "conduct, under the direction

of the Executive Directors, the ordinary business of the

Bank." Art. V, s 5(b). The Bank's president decided to

provide in-house food and beverage service at the Bank's

headquarters. Food service therefore must be considered

part of the Bank's "ordinary business." If "ordinary business" constitutes an "operation" for which the Bank is imUSCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 6 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

mune from taxation, then the District cannot impose its taxes.

We think framing the dispute this way misses an essential

question. The treaty provides that the "Bank, ... and its

operations and transactions authorized by this Agreement,

shall be immune from all taxation and from all customs

duties. The Bank shall also be immune from liability for the

collection or payment of any tax or duty." Art. VII, s 9(a)

(emphasis added). We may assume that having a cafeteria on

its premises is within the Bank's authority under the Articles.

We may also assume that the Bank, through its officers, may

decide to provide this service in any way it sees fit. But the

question remains--is the provision of food services an "operation" of the Bank? The answer depends not so much on how

essential the Bank believes the activity to be, but on the

arrangements the Bank has made to carry it out. Take for

instance janitorial services. The Bank needs to have its

offices cleaned and maintained. Every business does. Suppose the Bank hires an outside contractor to perform these

services. Although the Bank itself is immune from the

National Labor Relations Act, its cleaning contractor may not

be, and we so held in Herbert Harvey, Inc. v. NLRB, 424

F.2d at 779. To take an example closer to home, the operations of the federal courts cannot be taxed by a state. But if

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 7 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

an outside contractor runs a cafeteria in the courthouse, state

sales taxes may be imposed, and are.

Here, the district court found, and the Bank concedes, that

Gardner Merchant is "a separate and independent entity."

International Bank, 996 F.Supp. at 34. It is responsible in

every respect for food preparation and sales, and it bears any

losses that arise from those sales.3 It hires its own employees and maintains its own records. It has its own commercial

objectives, including making a profit from its contract with

the Bank. If the sales tax applied, the Bank would neither

collect nor incur liability for paying any District of Columbia

tax when a Bank employee or guest purchased food from

Gardner Merchant. The Bank stands wholly outside these

transactions. The legal incidence of the tax would not fall on

the Bank. Gardner Merchant would be responsible for remitting the tax to the District and Gardner Merchant would

collect the sales tax from its customers. Whether the customers would entirely bear the corresponding reduction in wealth

is a question of economics, depending on another law--that of

supply and demand. See Armen A. Alchian & William R.

Allen, Exchange & Production: Competition, Coordination &

Control 67-68 (3d ed. 1983).

As against this, the Bank stresses the general rule that

agreements among nations should be construed more liberally

than private agreements. See Brief for Appellee at 24 (citing

Eastern Airlines, Inc. v. Floyd, 499 U.S. 530, 535 (1991);

United States v. Stuart, 489 U.S. 353, 368 (1989)). From this

it concludes that the tax immunity provision should be understood to include third-party transactions such as those involved here. We do not think the conclusion follows. We

may not read international treaties so broadly as to create

unintended benefits or to reach parties not within the scope

of a treaty's language. See Maximov v. United States, 373

U.S. 49, 55-56 (1963). "Operations" and "transactions" may

have a broad sweep, but the terms are qualified by the

__________

3 Although the Gardner Merchant contract contains much detail

about the nature of the food program and allows the Bank to

monitor closely for compliance, these contractual provisions do not

affect our view that the contractor is independent of the Bank.

pronoun "its," which refers to the Bank. The immunity

provision cannot be read to include within its scope activities

conducted by any other entity. Transactions conducted by

independent contractors are not mentioned in Article VII,

s 9, and we have seen no evidence that the Articles of

Agreement were meant to shield private entities from tax

liability arising from their contracts with the World Bank. In

this regard we view it as significant that the United States, as

a signatory to the Articles of Agreement, has not seen fit to

support the Bank's claim that Article VII would immunize its

private contractors from the District's sales tax.4 We view as

not significant the statements offered by the Bank--one from

an official at the European Bank for Reconstruction and

Development and another from an administrative services

manager at the Asian Development Bank--attesting that the

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 8 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

governments of the United Kingdom and the Philippines do

not tax cafeteria sales at those two banks. The statements

contain no detail, and so we do not know whether, for

instance, the Asian Development Bank uses an outside contractor, whether there is a tax on food purchases in the

Philippines, whether the authorities in London or Manila are

refraining on the basis of a legal conclusion regarding the

applicable treaties, or whether the treaties are comparable to

the Articles of Agreement.5

__________

4 In May 1997, the U.S. State Department informed the District

by letter of the government's view that imposing the disputed taxes

retroactively would be "inequitable and inconsistent with" Article

VII, s 9. The idea appeared to be that the Bank had been lulled

into believing that its contractor had tax immunity and so had

agreed to hold Gardner Merchant harmless from tax liability. The

letter concluded that it was "without prejudice to the views of the

United States Government with respect to the question of whether

the prospective collection of sales tax by a World Bank contractor

from Bank staff and guests who do not enjoy personal sales-tax

privileges is permissible under the Articles of Agreement." Although the United States filed an amicus brief in the district court

taking the same position, it has not presented its views to this court.

5 We also place no weight on the statement of the New York

Department of Taxation and Finance that if the World Bank had an

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 9 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

The Bank also invokes Carson v. Roane-Anderson Co., 342

U.S. 232 (1952). The state of Tennessee had collected sales

and use taxes from independent contractors performing services for the Atomic Energy Commission at Oak Ridge. The

Court allowed the contractors to recover the amounts paid,

holding that their contracts entitled them to enjoy the benefits of the Commission's tax immunity under the Atomic

Energy Act of 1946.6 (Congress "overruled" the decision one

year later, eliminating the tax immunity. See United States

v. Boyd, 378 U.S. 39, 40 (1964).) The Bank argues that since

the services of the independent contractors in Carson fell

within the statutory term "activities," Gardner Merchant's

operation of the food service program falls within the treaty's

phrase "operations and transactions."

We do not find Carson dispositive. For one thing, Carson

involved different language: "activities" are not "operations

and transactions authorized by [the World Bank's] Agreement." To the Supreme Court, the "meaning of 'activities' as

applied either to an individual or to a government agency may

be broad enough to include what is done through independent

contractors as well as through agents." Id. at 236. The case

thus turned on whether Congress meant the term to have

that broader meaning. On this score, the Court relied on

other provisions of the statute using "activities" in its broader

sense and on the fact that Congress expressly authorized the

Commission to use private contractors in managing its affairs:

"Certainly where the pattern of conduct visualized by the Act

is the use of independent contractors or agents from the field

of private enterprise, the inference is strong that 'activities'

means all authorized methods of performing the governmental function." Id. No such "strong" inference is present

__________

independent contractor operate a cafeteria for it within the headquarters of the United Nations, food sales would be subject to New

York state and local sales tax.

6 Section 9(b) of the Act then provided that "[t]he Commission,

and the property, activities, and income of the Commission, are

hereby expressly exempted from taxation in any manner or form by

any State.... " Carson, 342 U.S. at 233.

here. Indeed we see no basis for any inference, strong or

weak, that the Bank's operations include the activities of

private contractors. Nothing in the Articles of Agreement

indicates that the signatories contemplated having the Bank

retain independent contractors to perform its lending operations.7

As against this, the Bank maintains that because it would

be immune from the District's sales tax if it had run the food

program itself, the same immunity attaches when it engages

an independent contractor to perform the service. See Brief

for Appellee at 26. Otherwise, the argument continues, local

taxes would interfere with the Bank's "internal functions" and

affect its decisions about how best to serve its workforce. Id.

The argument has a familiar ring, and there was a time when

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 10 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

it might have carried the day. Chief Justice Marshall said in

McCulloch v. Maryland, that "the power to tax involves the

power to destroy." 17 U.S. (4 Wheat.) 316, 431 (1819).

Taking this "seductive clich"8 to heart, the Supreme Court

early in this century began conferring immunity from state

taxes on so-called "instrumentalities" of the federal government, that is, on private contractors performing work for the

government. This derivative tax immunity rested partly on

the notion that if the federal government had undertaken the

activity itself, the state could not have taxed it, and partly on

the basis that tax immunity for private entities was needed to

protect the United States from state interference. Many of

the cases handed down in this era are discussed in James v.

Dravo Contracting Co., 302 U.S. 134 (1937), and in Thomas

Reed Powell, The Waning of Intergovernmental Tax Immu-

__________

7 The Bank attempts to broaden the reach of Carson by arguing

that its outcome did not depend upon the Atomic Energy Act's

express provision for the use of independent contractors. We

disagree with such a reading. The Carson Court rested its decision

precisely on that ground. As the Court interpreted the Act,

Congress anticipated that the Commission would perform its functions through independent contractors. See id. at 236.

8 Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 489 (1939)

(Frankfurter, J., concurring).

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 11 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

nities, 58 Harv. L. Rev. 633 (1945). In upholding a state tax

on the gross receipts of a federal contractor, James v. Dravo

Contracting Co. marked a turning point in the Court's approach: henceforth, application of non-discriminatory state

taxes on government instrumentalities, with only a remote

influence on governmental functions, would be sustained. 302

U.S. at 150.

The Supreme Court's modern jurisprudence on the tax

immunities of government "instrumentalities" is instructive

for several reasons. It seems to us doubtful that the Articles

of Agreement were intended to confer on the World Bank a

wider immunity from state and local taxes than that enjoyed

by the federal government.9 Under the terms of the Bretton

Woods agreement, all concerned knew that the World Bank's

headquarters would be located in the United States. Article

V, s 9, provided that the "principal office of the Bank shall be

located in the territory of the member holding the greatest

number of shares," and that member was the United States.

See Articles of Agreement, Schedule A. In the mid-1940's,

when Article VII, s 9, was drafted and accepted, those naturally interested in the analogous subject of federal immunity

from state taxation would have discovered the line of Supreme Court decisions, such as James and Helvering v.

Mountain Producers Corp., 303 U.S. 376 (1938), refusing to

maintain the tax immunity of private contractors performing

work for the United States. They would have known as well

that the United States had taken the position that any

"attempt to distinguish between the varying types of taxes

imposed on private persons, according as they interfere with

the sovereign, is to perpetuate a rule which has proved to be

unsatisfactory and inconsistent." Brief for the United States

as Amicus Curiae, at p. 44, in James v. Dravo Contracting

Co.

__________

9 The tax immunity of international organizations is based on a

principle analogous to the one upon which Chief Justice Marshall

relied in McCulloch--to protect against the destructive power of

state interference. See, e.g., Broadbent, 628 F.2d at 34 ("[I]nternational organizations must be free to perform their functions and ...

no member state may take action to hinder the organization.")

With all of this in mind, we return to the Bank's argument

that Gardner Merchant should be free of the District's sales

tax because the Bank would not have been subject to the tax

if it had operated the cafeteria itself. If, instead of the World

Bank, the United States had made this argument on behalf of

one of its contractors, the Supreme Court would have rejected it--"tax immunity is appropriate in only one circumstance:

when the levy falls on the United States itself, or on an

agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate

entities, at least insofar as the activity being taxed is concerned." United States v. New Mexico, 455 U.S. 720, 735

(1982); see also Arizona Dep't of Revenue v. Blaze Constr.

Co., No. 97-1536, 1999 WL 100899 (U.S. Mar. 2, 1999). We

can think of no reason--certainly none stemming from the

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 12 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

principles governing the construction of international treaties--why similar logic should not apply to the interpretation

of the Bank's Articles of Agreement. The District of Columbia's sales and use taxes are not imposed upon the Bank, but

upon Gardner Merchant and its customers. Gardner Merchant is by no stretch an instrumentality of the Bank. Nor is

Gardner Merchant "so closely connected to the [Bank] that

the two cannot realistically be viewed as separate entities."10

Although the Bank exercises close control over the terms of

the contract and Gardner Merchant's performance under it,

that does not transform Gardner Merchant into an instrumentality of the Bank. As we mentioned, Gardner Merchant is

pursuing private ends for its own benefit. See New Mexico,

455 U.S. at 739-40; Boyd, 378 U.S. at 48. Imposing the tax

on Gardner Merchant will not impermissibly intrude on the

Bank's freedom from local government control. On the contrary, imposing the tax will merely require the Bank to take

an additional factor into account when it negotiates its foodservice contract. Cf. Boyd, 378 U.S. at 48. It will exert "a

remote, if any, influence upon the exercise of the functions of

[the Bank]." James v. Dravo Contracting Co., 302 U.S. at

150 (internal quotation omitted). On the other hand, to hold

__________

10. The Bank does not contend that the District's sales and use

taxes are discriminatory.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 13 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

that the Bank's tax immunity extends to Gardner Merchant's

food-service transactions would create an ever-expanding tax

immunity without any limiting principle. Must Gardner Merchant pay sales and use taxes on purchases it makes pursuant

to its contract with the World Bank? Should the company be

free from District income taxes? Should the company's employees? These and many other similar questions continually

perplexed the Supreme Court after it ventured onto the

slippery slope of derivative tax immunity. See, e.g., Cotton

Petroleum Corp. v. New Mexico, 490 U.S. 163, 173-75, 187

(1989); South Carolina v. Baker, 485 U.S. 505, 520 (1988).

We decline the Bank's invitation to set out on the same

precipitous course.

III

The Bank has an alternative position: even if the District

of Columbia has the power to impose the disputed taxes on

Gardner Merchant, it would be inequitable under the Articles

of Agreement for the District to impose them retroactively.

The Bank does not contend that the District is equitably

estopped from collecting the taxes because of its prior policy

of refraining from collecting them. See Brief for Appellee at

36 n.9; see also Automobile Club v. Commissioner, 353 U.S.

180, 183 (1957). Rather, the Bank adopts the position of the

United States in the district court that the retroactive imposition of the District sales tax would be inequitable under the

terms of the Bank's treaty. The idea is that in relying in

good faith on its interpretation of the Articles, and the

District's prior practice, the Bank entered into the foodservice contract promising tax immunity to its contractor;

hence, retroactive taxation constitutes taxation of the Bank

itself, in violation of Article VII, s 9. The district court

seemed to agree, but it also appeared to base its holding at

least in part on principles of equitable estoppel: the court

noted that D.C. had refrained from imposing the tax on Bank

food-service operators for thirty years, and that the Bank had

no notice when the District changed course in the early 1990s.

See 996 F.Supp. at 38-39.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 14 of 15
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

We neither endorse nor reject the view of the United

States, as set forth by the Bank. The district court rendered

its decision on summary judgment. It is not clear whether

the factual predicate for the Bank's argument exists. Given

the procedural posture of the case, the District was entitled to

all justifiable inferences. See Anderson v. Liberty Lobby,

Inc., 477 U.S. 242, 248-50 (1986). The district court observed

that the District had cited "only two instances in thirty years

where it claims to have informed an international organization

that it would collect sales and use taxes for cafeteria sales

recorded by a contractor." 996 F.Supp. at 39. Although the

District may not have produced any evidence that the Bank

was aware of the two letters it sent to Marriott, there is a

genuine issue of material fact whether the Bank knew of the

District's policy with regard to imposing the tax in such cases.

A February 1994 letter to the State Department from an

attorney in the Bank's legal department stated that the

attorney was aware as early as December 1993 of the District's "new position that the World Bank, and the catering

firms that act on its behalf, should begin collecting sales tax

from staff who purchase meals in the Bank's employee cafeterias." From this letter, one might reasonably infer that the

Bank knew of the District's decision to impose the taxes

before 1994. This tends to undercut the Bank's equitable

claim. The Bank complains that the letter should not have

been included in the record; the District counters that the

Bank cited the letter in its brief and therefore should be

deemed to have waived any procedural objection to it. This

is but one of several issues we must leave to the district court.

* * *

We therefore hold that Gardner Merchant, in performing

its food service contract at the World Bank's headquarters,

did not share the Bank's immunity from the District's sales

and use taxes. The order granting summary judgment is

reversed and the case is remanded for further proceedings on

the Bank's equitable argument.

So 

ordered.

USCA Case #98-7055 Document #427030 Filed: 04/02/1999 Page 15 of 15