Opinion ID: 1970312
Heading Depth: 2
Heading Rank: 1

Heading: Is the New York U.B.T. an individual income tax?

Text: Both of the District's arguments seek to counter appellees' heavy reliance on Bishop v. District of Columbia, 401 A.2d 955 (D.C. 1979), aff'd en banc, 411 A.2d 997, cert. denied, 446 U.S. 966, 100 S.Ct. 2943, 64 L.Ed.2d 825 (1980). Appellees acknowledged at oral argument that their success depends on the applicability of Bishop to this case, but they maintain that Bishop resolves this appeal in their favor. The District responds that Bishop is inapposite because it focused on the District's power to tax and did not address the meaning of the term individual income tax. We agree that Bishop governs this case and that it supports appellees' position. Bishop involved a challenge to the District's own unincorporated business tax, D.C.Code § 47-1574 (1973), [2] after that tax was extended to apply to unincorporated professionals, including law firms. [3] Bishop, an attorney who worked in the District but lived in Virginia, challenged the tax as a violation of the Home Rule Act. [4] Specifically, Bishop argued that the District's U.B.T. violated D.C.Code § 1-233(a)(5), part of the Home Rule Act, which bars the District of Columbia from imposing a tax on ... the personal income of nonresidents. The court identified the issue presented as whether § 47-1574 imposes a tax on the personal income of nonresidents, in which case it would violate the Home Rule Act, or whether the tax is levied on something other than income, in which case it would be valid. Bishop, supra, 401 A.2d at 956. For guidance on this issue, the court in Bishop examined cases from other jurisdictions. It noted that decisions from Maryland and Virginia were in conflict about whether an unincorporated business tax was an income tax. Maryland case law [5] held that such a tax was not an income tax; Virginia case law [6] held that it was. After also considering New York case law, the court ultimately adopted the view of New York and Virginia, id. at 960, [7] and characterized the District's U.B.T. as an income tax. In addition, as we shall discuss hereafter, the court ruled that the District of Columbia U.B.T. was a personal income tax. We begin with the District's contention that the New York U.B.T. is not an individual income tax. Its argument is twofold. First, the District asserts that the New York law taxes partnership income, not individual income. Second, the District maintains that individual income tax is a term of art and that the New York U.B.T. does not fall within the narrow meaning of that term. We are not persuaded. D.C.Code § 47-1801.4(4) defines individual as including all natural persons (other than fiduciaries) whether married or unmarried. Because a partnership is not a natural person, says the District, the New York tax cannot be an individual income tax, even though it is concededly an income tax. [8] The District states this argument thus in its brief: In order to receive credit under [section 47-1806.4(a)], the District resident must have paid (and been required to pay) a foreign income tax on an individual return. A New York City partnership tax paid by Dewey Ballantine does not qualify as the Califanos' individual income tax, or the McFaddens', or the Laughlins'. [Emphasis in original.] This argument overlooks the fact that the New York U.B.T. is an income tax assessed on the individuals who comprise the partnership. In Bishop we observed that the District of Columbia U.B.T. was an income tax levied upon personal income .... To the extent that we deal with individuals who are professionals and are not protected by the corporate veil, we must find that the tax burdens the taxpayer personally. 401 A.2d at 961 (emphasis added). The opinion explained in a footnote that [s]ince the tax is on unincorporated businesses, [it] is therefore in reality a tax on the associates or partners who run the business.... Id. at 961 n. 18 (citation omitted; emphasis added). Because the New York U.B.T. operates the same way, we hold that it, like the District of Columbia U.B.T., is an income tax on the appellees as individuals and, in the language of Bishop, burdens them personally. This holds true even though appellees filed no individual income tax returns in New York when they (through Dewey Ballantine) paid the New York U.B.T., for nothing in our statute suggests that a taxpayer must file an individual tax return in another jurisdiction in order to claim a tax credit. The District also asserts that the phrase individual income tax in the D.C.Code § 47-1806.4(a) is a term of art, not a generic label which can be slapped on any tax or (even) any income tax. Therefore, says the District, even if the New York U.B.T. is deemed to be a tax on individuals, it still is not an individual income tax because that is a term of art that does not include the New York U.B.T. According to the District, Bishop has no relevance because it says nothing about the statutory phrase individual income tax and because it concerns the Home Rule Act, not the tax code. As the District states in its brief: There is a wide chasm between the language of the congressional prohibition on taxing the whole or any portion of the personal income, either directly or at the source thereof  and a routine tax provision that grants a credit only for an individual income tax that is required to be paid by a District resident. The Home Rule Act language was intentionally broad to prevent the District from skirting the congressional prohibition on a commuter tax. By contrast, [D.C.Code § 47-1806.4(a)] is an ordinary tax statute which uses tax terms of art. [Emphasis in original.] These arguments are misplaced. The suggestion that Bishop lacks the rigor imposed by tax terms of art is simply wrong; the Bishop opinion itself employed those tools. At one point, for example, the opinion states,  In terms of art, Congress' proscription [in the Home Rule Act] meant that no commuter tax could be levied on net income. Bishop, supra, 401 A.2d at 958 (footnote omitted; emphasis added). [9] In challenging appellees' reliance on Bishop, the District strives to distinguish between an individual income tax and an income tax levied upon personal income. Thus the District refrains from arguing that the New York U.B.T. is not an income tax; rather, the District emphasizes that the New York U.B.T. is not an  individual income tax and maintains that Bishop is inapposite because it does not analyze the term individual income tax; indeed, the words individual income tax appear nowhere in Bishop. But the assertion that individual income tax is a term of art with a narrow, specialized meaning is not supported by any authority. Indeed, the argument is undermined by the lack of any statutory definition of this supposed term of art. [10] Nor does the tax code consistently use the term individual income tax. For example, it states, The Mayor may require satisfactory proof of the payment of such income taxes to another jurisdiction. D.C.Code § 47-1806.4(a) (emphasis added). The District of Columbia's term of art argument, in our view, is unconvincing. Appellees argue that because the District has not distinguished the New York U.B.T. from the District of Columbia U.B.T., we should hold that the New York U.B.T. is an income tax imposed upon taxpayers individually just as the District's U.B.T. was held to be in Bishop. [11] Appellees conclude that they are entitled to the tax credit authorized by D.C.Code § 47-1806.4(a) because they meet the statutory criteria. We agree. Although Bishop did focus on the validity of the District's U.B.T. under the Home Rule Act, the court could not have reached that issue without first analyzing the nature of the District's U.B.T. Bishop did not say that the District's U.B.T. was an individual income tax, but it did hold that the District's U.B.T. burdens the taxpayer personally. Bishop, supra, 401 A.2d at 961. Moreover, D.C.Code § 47-1801.4(4) defines individual as including all natural persons (other than fiduciaries) whether married or unmarried, thus bridging any apparent gap between an individual income tax and an income tax falling on the personal income of an individual. We conclude that the term individual income tax cannot rationally denote anything other than an income tax paid by an individual. The New York U.B.T. at issue in this case was paid by these individual appellees. Thus we hold, guided by Bishop, that appellees meet the criteria for a tax credit set forth in D.C.Code § 47-1806.4(a).