Opinion ID: 2202769
Heading Depth: 2
Heading Rank: 2

Heading: The Gross Receipts Tax and WMATA's Immunity

Text: WMATA argues that its tax-exempt status under the WMATA Compact [8] entitles it to a rate discount equal to its proportionate share of the District of Columbia gross receipts tax paid by PEPCO. The Commission properly rejected this argument. Title III, § 78 of the Compact, D.C.Code § 1-2431 (1981), provides in pertinent part: [T]he Authority [WMATA] . . . shall not be required to pay taxes or assessments upon any of the property acquired by it or under its jurisdiction, control, possession or supervision or upon its activities in the operation and maintenance of any transit facilities or upon any revenues therefrom, and the property and income derived therefrom shall be exempt from all federal, State, District of Columbia, municipal and local taxation. This exemption shall include, without limitation, all motor vehicle license fees, sales taxes and motor fuel taxes. Under D.C.Code § 47-2501 (1981), [9] PEPCO must pay an excise tax on the privilege of furnishing franchised public utility services in the District. Chesapeake & Potomac Telephone Co. v. District of Columbia, 117 U.S.App.D.C. 21, 25, 325 F.2d 217, 221 (1963). WMATA contends that the legal incidence of this tax falls in part upon it, since the economic burden of tax is borne by PEPCO's retail customers. We do not agree. In United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982), the Supreme Court considered the immunity of the federal government from state taxation [10] in a case involving a gross receipts tax imposed by New Mexico on the sale of goods and services in that state. The United States challenged the payment of that tax by three contractors doing business with the federal government, arguing that the burden of the tax really fell on the United States because it would be paid out of the contractors' earnings under their government contracts. In holding unanimously that the federal government's immunity did not extend to the contractors, the Court declared: [I]mmunity may not be conferred simply because the tax has an effect on the United States, or even because the Federal Government shoulders the entire economic burden of the levy. . . . [T]ax 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. Id. at 734-735, 102 S.Ct. at 1382-1383. In the present case, the gross receipts tax increases the rate paid by WMATA in the same proportion as it increases the rates of PEPCO's other customers. It is ultimately the customers, not PEPCO, whose money pays the tax. This shift of the economic burden, however, does not mean that the legal incidence of the tax falls on the customers. United States v. New Mexico, supra ; Gurley v. Rhoden, 421 U.S. 200, 204-205, 95 S.Ct. 1605, 1608-1609, 44 L.Ed.2d 110 (1975); United States v. Maryland, 471 F.Supp. 1030 (D.Md. 1979). Compare D.C.Code §§ 47-2002, 47-2003 (1981) with D.C.Code § 47-2501 (1981) (the former providing for the recovery of the sales tax directly from the purchaser). Rather, as the Commission concluded, PEPCO bears the incidence of the tax, and, through its cost-of-service rates, passes the economic burden of the tax along to its retail customers. Order No. 7716 at 119. Following the rationale of United States v. New Mexico, supra , we hold that WMATA's immunity from taxation is not infringed because a component of its electric rate serves to reimburse PEPCO for the gross receipts tax it must pay to the District. The tax is merely one of the many costs which PEPCO must bear in order to provide electric service to its customers. The legal incidence of the tax remains at all times on PEPCO, just as it remained on the contractors in United States v. New Mexico . WMATA does not pay the tax at all, but merely reimburses PEPCO for its payment of the tax. WMATA's immunity remains inviolate.