Opinion ID: 2360363
Heading Depth: 1
Heading Rank: 2

Heading: The Status of the Law Applicable in the District of Columbia

Text: Congress enacted the District of Columbia Revenue Act of 1947 which, inter alia, imposed an income tax on D.C. residents and resident estates and trusts and a franchise tax upon every corporation and unincorporated business for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District.... District of Columbia Income and Franchise Tax Act of 1947, Pub.L. No. 80-195, ch. 258, 61 Stat. 328, 349 (codified at D.C.Code § 47-1810.01(a)(2) (2001)) (hereinafter Tax Act of 1947). It specifically provided that for the purposes of this article . . . the words `taxable income' mean ... that portion of the entire net income of every nonresident which is subject to tax under title VIII of this article [Tax on Unincorporated Businesses]. 61 Stat. at 643. Congress initially set the tax rate at 5.0% per annum and raised it several times. 61 Stat. at 346. In addition, Congress established that the UB Tax would be payable by the person or persons, jointly and severally, conducting the unincorporated business. The taxes ... may be assessed in the name of the unincorporated business or in the name or names of the person or persons liable for the payment of such taxes, or both. 61 Stat. at 346 (codified at D.C.Code § 47-1808.05 (2001)).
In 1973, Congress enacted the District of Columbia Self-Government and Governmental Reorganization Act. Pub.L. No. 93-198, 87 Stat. 774 (1973) (codified at D.C.Code § 1-201.01 et seq. ) (hereinafter Home Rule Act). The purpose of this legislation was to allow Congress to maintain its legislative power over the District of Columbia, as provided by the U.S. Constitution, but allow residents to elect local officials while creating a tripartite form of government with limited legislative powers. § 102(a), 87 Stat. at 777 (codified at D.C.Code § 1-201.02 (2001)). With respect to the Council's taxation powers, Congress mandated that SEC. 602. (a) The Council shall have no authority to pass any act contrary to the provisions of this Act except as specifically provided in this Act, or to  ... (5) impose any tax on the whole or any portion of the personal income, either directly or at the source thereof, of any individual not a resident of the District.... § 602(a)(5), 87 Stat. at 813 (codified at D.C.Code § 1-206.02(a)(5) (2001)). In addition, the Home Rule Act provided: (b) No law or regulation which is in force on the effective date of Title IV of this Act [January 2, 1975] shall be deemed amended or repealed by this Act except to the extent specifically provided herein or to the extent that such law or regulation is inconsistent with this Act, but any such law or regulation may be amended or repealed by act or resolution as authorized in this Act, or by Act of Congress.... § 717(b), 87 Stat. at 820 (codified at D.C.Code § 1-207.61 (2001)). Further, the Home Rule Act stated: Sec. 761. To the extent that any provisions of this Act are inconsistent with the provisions of any other laws the provisions of this Act shall prevail and shall be deemed to supersede the provisions of such laws. § 761, 87 Stat. at 836 (codified at D.C.Code § 1-207.61 (2001)).
On September 3, 1974, Congress enacted legislation that provided that the Council was authorized to change the rate of the taxes imposed under  (1) the District of Columbia Income and Franchise Tax Act of 1947. Act of Sept. 3, 1974, Pub.L. No. 93-407, § 471(1), 88 Stat. 1036, 1064. This legislation further stated that SEC. 501. Notwithstanding any other provision of law, or any rule of law, nothing in this Act shall be construed as limiting the authority of the Council of the District of Columbia to enact any act, resolution or regulation, after January 2, 1975, pursuant to the District of Columbia Self-Government and Governmental Reorganization Act with respect to any matter covered by this Act. § 501, 88 Stat. at 1066. This legislation was passed after the enactment of the Home Rule Act but before the elected Mayor and Council took office. Thus, the Council referred to in the legislation was the nine-member Council appointed by the President of the United States. See Reorganization Plan No. 3 of 1967, 32 Fed.Reg. 11669 (Aug. 11, 1967), reprinted in 1 D.C.Code at 125 (2001), and in 81 Stat. 948 (1967). Reorganization Plan No. 3 gave the appointed Council authority to determine the amount of net income subject to tax under the Tax Act of 1947; withhold tax; and establish rules and regulations to enforce the Tax Act of 1947. Id. The Home Rule Act did not abolish the Council's right to perform these functions. See § 404(a), 87 Stat. at 787 (all functions granted to or imposed upon, or vested in or transferred to the District of Columbia Council, as established by Reorganization Plan Numbered 3 of 1967, shall be carried out by the Council in accordance with the provisions of this Act). Thus the authority of the appointed Council to change the rate of tax imposed under the Tax Act of 1947 was transferred by the Home Rule Act to the new elected Council.
Title 47, D.C.Code Enactment Act of 1996 became effective on April 9, 1997. D.C. Law 11-254, 44 D.C.Reg. 1264 (1997). This legislation served as a purely technical measure to enact Title 47 of the District of Columbia Code (Taxation and Fiscal Affairs) ... [and] includes strictly technical amendments to Title 47, such as clarifying erroneous cross references, [and] correcting grammatical errors. REPORT OF THE COMMITTEE OF THE WHOLE, COUNCIL OF THE DISTRICT OF COLUMBIA ON BILL 11-865, THE TITLE 47, D.C.CODE ENACTMENT ACT OF 1996, at 1 (1996) (hereinafter Committee Report). A review of the changes made to D.C.Code §§ 47-1808.1 through 47-1808.7, the code sections pertaining to the UB Tax, indicate that there were no substantive changes made  only grammatical changes. COMMITTEE REPORT at 37-38.
This court has previously held that the UB Tax is a tax levied upon personal income. Bishop v. District of Columbia, 401 A.2d 955, 961 (D.C.1979), reinstated en banc, 411 A.2d 997, cert. denied, 446 U.S. 966, 100 S.Ct. 2943, 64 L.Ed.2d 825 (1980). [1] This court concluded that the Council's imposition of a tax on nonresident, unincorporated professionals and personal services businesses violated the Home Rule Act because the tax burdens the taxpayer personally. Bishop, 401 A.2d at 961. However, the court expressly declined to extend this holding to the taxation of nonresident professionals who operate an unincorporated business. Id. In District of Columbia v. Califano, 647 A.2d 761, 765 (D.C.1994), this court held that the New York unincorporated business tax is an individual income tax. The Califano court concluded that the New York tax operates the same way [as the UB Tax], relying on Bishop, supra, 401 A.2d at 961 n. 18. 647 A.2d at 763. Neighboring jurisdictions have taken the view that the UB Tax is an income tax and not a franchise tax, based on this court's decisions in Bishop and Califano. See Roach v. Comptroller of the Treasury, 327 Md. 438, 610 A.2d 754, 759 (1992); Mathy v. Commonwealth, 253 Va. 356, 483 S.E.2d 802, 805 (1997). [2]