# Appendix — Kelly v. Sprint Communications Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1994
- **Citation:** 513 U.S. 916

## Text

7 Supreme Court, U.S.
j FILED

No. 94- 931987 wa ism
OFFICE OF THE CLERK
In the Supreme Court of the United States

OcToBER TERM, 1994

SHARON Pratt KELLY, et al.
Petitioners,

Vv.

SPRINT COMMUNICATIONS COMPANY, et al,
Respondents.

Appendix to Petition for a Writ of Certiorari
to the District of Columbia Court of Appeals

VANESSA Ruiz,
Acting Corporation Counsel

CHARLES L. REISCHEL,
Deputy Corporation Counsel
Appellate Division

*EDWARD E. SCHWAB,
Assistant Corporation Counsel

Office of the Corporation Counsel
One Judiciary Square

Sixth Floor

441 Fourth Street, N.W.
Washington, D.C. 20001
Telephone: (202) 727-6252 ext. 3305

*Counsel of Record

TABLE OF CONTENTS

Page

Opinion of the District of Columbia Court of Appeals (March
ee tee ere De cute a eee eee ers la

Judgment of the District of Columbia Court of Appeals
UR I gs as ee Sie ie AR 28a

Memorandum Opinion and Order of the Superior Court of
the District of Columbia, granting summary judgment to
the District of Columbia and to the other defendants (Feb.
Oe aa oo ee ed Ts ee 30a

Opinion of the District of Columbia Court of Appeals in
Marion S. Barry, Jr. v. American Telephone and Telegraph
ek Ge ee I le eS Sec ee kee sae 52a

District of Columbia Statutes:
District Court of Columbia Code (1989 Supp.)

eee TS Baek a Aaa er Tla
ree vacck cy ay vais Ens wwe 74a
ha a tae ey g suas ema 76a
eo ae eee ie a rr ar Nr 76a

A; Sa Pom. Toe Cee. A, RT. ces 76a

la

Notice: This opinion is subject to formal revision before publication in
the Atlantic and Maryland Reporters. Users are requested to notify the
Clerk of the Court of any formal errors so that corrections may be made
before the bound volumes go to press.

District of Columbia Court of Appeals

No. 91-TX-846

Sprint Communications Company, CABLE & WIRELESS
Communications Inc., MerromepiA ComMUNICATIONS CoRPORATION
NEE CSI nee ITT, MerroCom nee TMC, ReatCox: Orrice
Communications, Inc. NEE ConteL, ALLNET Communication
Services, Inc., Mip-ATLantic TeLecom, Inc., Lonc Distance
ServICE OF WASHINGTON, INC., APPELLANTS,

V.

SHaron Pratr Ketiy, SHARON Morrow, & District or
Co._umBiA, APPELLEES.

No. 92-TX-252

Sprint Communications Company, CasLe & WIRELESS
Communications, Inc., MerTroMepiA COMMUNICATIONS
Corporation, Conte. Orrice Communications, Inc., ALLNET
CoMMUNICATION Services, INc., Lonc Distance SERVICE OF
Wasuincton, Inc., APPELLANTS,

V.

SHaron Pratr Ketty, SHARON Morrow, & District or
CoLumBiA, APPELLEES.

No. 92-TX-288
ALLNET Communication Services, Inc., APPELLANT,

V.

[285xxxxxx |]

2a

SHAnon Pratr Ke.ty, SHARON Morrow, & District or
CocumBiA, APPELLEES.

No. 92-TX-289
Canie & Wire.ess Communications, Inc., ApPELLANT,
Vv.

SHAnon Pratr Keitiy, SHARON Morrow, & Disrrict or
Co.tumBiA, APPELLEES.

No. 92-TX-338
Conte. Orrice Communications, INc., APPELLANT,
Vv.

SHARON Pratr Ke.ty, SHARON Morrow, & District or
CotumBiA, APPELLEES.

No. 92-TX-373

AMERICAN TELEPHONE & TeLeGRAPH Company, AT&T
CoMMUNICATIONS OF WASHINGTON,
D.C., APPELLANTS,

v.
District oF CoLumBiA, APPELLEE.
No. 92-TX-576
MetromepiA ComMunicaTions Corporation, APPELLANT,
Vv.

SHARON Pratr Ke.tty, SHARON Morrow, & District or
CoLumsBiA, APPELLEES.

No. 92-TX-577

[285yyyyyy]

ee ee, er ee

3a

Cas_e & WireLess Communications, Inc., APPELLANT,
Vv.

SHARON Pratr KELLY, SHARON Morrow, & District oF
Co.LumBiA, APPELLEES.

No. 92-TX-578
Ricuarp J. Rice, Inc., APPELLANT
Vv.

SHARON Pratr Ke._Ly, SHARON Morrow, & District oF
Co.LumBIA, APPELLEES.

Appeals from the Superior Court of the
District of Columbia

(Hon. John F. Doyle, Motions Judge)

(Argued October 20, 1993 Decided March 15, 1994)

Joseph A. Reiser and William Malone, with whom John M.
Wood, Mitchell F. Brecher, and Russell M. Blau, were on the
brief, for appellants.

Edward E. Schwab, Assistant Corporation Counsel, with
whom John Payton, Corporation Counsel, and Charles L.
Reischel, Deputy Corporation Counsel, were on the brief, for
appellees.

Before Rocers, Chief Judge, and Ferren and Farrel, Asso-
ciate Judges.

Per Curiam Opinion for the court.
Concurring opinion of Associate Judge FarRELL at 27.

Per Curiam: These seven consolidated appeals represent
the continuation of litigation by long-distance telephone com-
panies challenging the D.C. Gross Receipts Tax Amendment
Act of 1987 (the 1987 Act). See Barry v. American Tel. & Tel.

[285zzzzzz]

4a

Co., 563 A.2d 1069 (D.C. 1989). Appellants here’ contend that
the motions judge erred as a matter of law in granting sum-
mary judgment to the District of Columbia. Thus, we are
confronted with appellants’ contentions that the Council of
the District of Columbia lacked the authority to enact the
1987 Act under the Origination Clause of the United States
Constitution, and that the 1987 Act violates the Commerce
Clause of the Constitution because the limited exemption of
long-distance companies from the District's personal property
tax, and certain sales and use taxes, discriminates against
out-of-District of Columbia carriers. We hold that the Council
had the authority to enact the 1987 Act. We further hold,
consistent with recent decisions of the United States Su-
preme Court involving the internal consistency principle, that
the limited exemptions in the 1987 Act violate the Commerce
Clause. Accordingly, we reverse the grant of summary judg-
ment.”

The background of this tax litigation, which followed
AT&T's divestiture of its local operating companies in connec-
tion with the antitrust suit in United States v. American Tel.
& Tel. Co., 552 F. Supp. 131 (D.D.C. 1982), affd mem., 460
U.S. 1001 (1983), is set forth in Barry v. American Tel. & Tei.

1 A joint brief and reply brief were filed, only on behalf of
appellants Sprint Communications Co., Cable & Wireless,
Metromedia, MetroCom, RealCom, Mid-Altantic, ALLNET, AT&T,
and Long Distance Service of Washington, Inc. Except in Appeal
No. 92-TX-373, appellees are the Mayor, the Director of the
Department of Finance and Revenue, and the District of Columbia;
we refer to appellees as the District of Columbia, or the District.

2 In light of our disposition we do not reach appellants’
contention that the retroactivity provision of the 1987 Act violates
the Due Process Clause, and that the trial court (Judge Sullivan)
erred in dismissing their motions to amend their complaint, under
Super. Ct. Civ. R. 15, to show prepayment of the tax by Cable &
Wireless Communications, Inc.

| 285aaaaaaa]

5a

Co., supra, 563 A.2d at 1070-1073. For our purposes it suffices
to state that the Council of the District of Columbia enacted
the D.C. Gross Receipts Tax Amendment Act of 1987 in an
attempt to recapture revenues that it had to refund as a
result of the divesture of AT&T in January, 1984.* The 1987
Act required telecommunications companies previously ex-
empt from the gross receipts tax to pay a 6.7 percent tax on
gross receipts received from the sale of toll communications
services that originated from or terminated on telecommuni-
cations equipment located in the District of Columbia and
billed to a District telephone.‘ The 1987 Act also provided for

3 The District government estimated that as of 1986, the
exclusion of access charges from taxation as gross receipts under
D.C. Code § 47-2507 (Supp. 1986), see District of Columbia v.
Chesapeake & Potomac Tel. Co., 516 A.2d 181 (D.C. 1986) (gross
receipts from access charges are not from sale of public utility
commodities and services), resulted in a revenue loss of
approximately $23.6 million. See REPORT OF THE COUNCIL OF THE
DISTRICT OF COLUMBIA COMMITTEE ON FINANCE AND REVENUE ON
BILL 7-186, GROSS RECEIPTS TAX AMENDMENT ACT OF 1987, at 7
(June 29, 1987). Under the 1987 Act, the District anticipated
recovering about $20 million from the retroactive portion of the tax
and collecting approximately $18.5 million annually thereafter. Jd.
at 7-8.

4 D.C. Code § 47-2501 (b)(1) (Supp. 1989) provides, in part, that
all telecommunications companies were required to pay a 6.7
percent tax on the

monthly gross receipts from the sale of toll tele-
communication services that originate from or
terminate on telecommunication equipment located
in the District and for which a toll charge or peri-
odic charge is billed to an apparatus, telephone, or
account in the District, to a customer location in the
District, or to a person residing in the District,
without regard to where the bill for the service is
physically received.

The tax was self-executing; every month the companies had to file
an affidavit with the Mayor setting forth the amount of monthly
gross receipts on which payment of the tax was to be made. Id.
§ 47-2501 (b)(1)(A).

[285bbbbbbb]

6a

exemptions from the District’s personal property tax, and
certain sales and use taxes, whenever a company had prop-
erty in the District of Columbia that produced gross receipts
subject to the gross receipts tax.® It also provided for a credit
against the gross receipts tax for personal property taxes on
such property paid to the District of Columbia during the
period of retroactivity, July 1, 1986, through September 30,
1987.°

Following argument, the motions judge granted the
District’s motion for summary judgment, issuing a written
decision on February 18, 1992.’ See Cable & Wireless Commu-
nications, Inc. v. District of Columbia, Tax No. 4091-88 (D.C.
Super. Ct. Feb. 18, 1992) (Opinion of Judge Doyle). Appellants
now contend that the Gross Receipt Tax Amendment Act of
1987 is unconstitutional on three grounds: (1) it was enacted
by the Council of the District of Columbia in violation of the

5 See D.C. Code 8§ 47-1508 (a)(3)(B); -2005 (5); -2206 (1) (Supp.
1989). See infra note 18.

6 Gee D.C. Code §§ 47-2501 (b)(3)(B), (C); -2005(5); and -2206
(Supp. 1989). The 1987 Act was superceded by the D.C. Toll
Telecommunications Act of 1989. See D.C. Code §§ 47-3901 to 3921,
-2005 (5), -1508 (a)(3)(B), -2501 (Supp. 1990). The 1989 Act added
provisions crediting taxes paid to other jurisdictions on long
distance calls and facilitating the means of determining data
necessary for computing the tax. D.C. Code § 47-3907 (Repl. 1989).
The 1992 Omnibus Budget Support Act of 1992, 39 D.C. Reg. 4895,
D.C. Law 9-145, repealed the personal property tax exemption.

7 The District of Columbia filed a motion to dismiss the litigation
that was still subject to the remand and direction to vacate in Barry
v. American Tel. & Tel. Co., supra, 563 A.2d at 1070, because the
carriers had not complied with § 47-3307’s “pay first and litigate
later” rule. On June 6, 1991, Judge Sullivan granted the District's
motion to dismiss. The non-AT&T appellants appealed, but this
court postponed consideration of Judge Sullivan's order pending
consideration of the cross-motions for summary judgment filed
after AT&T's post-tax payment refund suit. Judge Sullivan
transferred the consolidated cases to Judge Doyle to consider the
cross-motions for summary judgment.

[285ecccccc]

7a

Origination Clause of the United States Constitution; (2) it
violates appellants’ right under the Commerce Clause to be
free of discriminatory burdens on out-of-state competitors;
and (3) it violated Due Process as a result of its retroactivity
provisions in light of the foreclosure to appellants under fed-
eral law of recovery of the tax from their customers." We
address only the first two contentions.* See Holland v.
Hannon, 456 A.2d 807, 814 (D.C. 1983) (standard of review of

grant of summary judgment).
Il.

Appellants contend that the 1987 Act was unconstitutional
because it violated the Origination Clause in two respects:
first, because the District of Columbia Self-Government and
Governmental Reorganization Act of 1973, D.C. Code 8§ 1-201
et seq. (Repl. 1992), originated in the Senate as S. 1435, 93d
Cong., 1st Sess (1973), the delegation of taxing authority to
the District government did not satisfy the requirement of
House of Representatives origination; and second, because
the Origination Clause has always been understood to apply
to District of Columbia taxes, the 1987 Act is invalid.

The motions judge correctly rejected these arguments. The
Origination Clause of the Constitution, art. I, § 7, cl. 1, pro-
vides that “{aJll bills for raising revenue shall originate in the
House of Representatives.” As Judge Doyle observed in his
opinion, the provision derived from the British tradition that
money bills must originate in the House of Commons, not the
House of Lords.” Further, the provision has never prevented

8 Two notices of appeal therefrom were filed, a joint appeal by
the non-AT&T appellants on March 6, 1992, and one by the AT&T
appellants on March 18, 1992.

9 We address the Origination Clause argument because of our
conclusion that the District of Columbia may yet remedy the
Commerce Clause defect in the 1987 Act.

10 Opinion of Judge Doyle, supra, at 9 n.7 (citing (actual cite now)

[285ddddddd]

8a

delegations of taxing authority to the District of Columbia or
to the territorial governments." Indeed, as the District of

3 THE NEW ENCYCLOPAEDIA BRITANNICA, MICROPAEDIA, House of
Commons, 43 (1981)).

11 Qpinion of Judge Doyle, supra, at 10. Thus, from its
beginnings, the city of Washington, a municipal corporation, was
given the “full power and authority to pass all by-laws and
ordinances,” and the power “to lay and collect taxes.” Act of May 3,
1802, Incorporating the City of \“ashington, ch. 53, 2 Stat. 195, 197;
see also Act of May 4, 1812, Amending the Charter of Washington,
ch. 75, 2 Stat. 721, 725; Act of July 1, 1812, relative to the Levy
Court of Washington County, ch. 117, 2 Stat. 771, 772. Later
reorganizations by Congress delegated authority to the District
government to enact tax measures. See Act of May 15, 1820,
Reorganization of the Government of the City of Washington, ch.
104, 3 Stat. 583, 586-588; Act of May 17, 1848, Reorganizing the
Government of the City of Washington, ch. 42, 9 Stat. 223-224; Act
of Feb. 21, 1871, To Provide a Government for the District of
Columbia, ch. 62, 16 Stat. 419, 422-25, 427.

See also Act of Mar. 26, 1804, ch. 38, 2 Stat. 283, 284 (splitting
Louisiana territory into two territories); Act of Apr. 20, 1836, ch.
54, 5 Stat. 10, 15 (establishing Wisconsin territory); Act of June 12,
1838, ch. 96, 5 Stat. 235, 237 (establishing Iowa territory); Act of
Aug. 12, 1848, ch. 177, 9 Stat. 323, 325 (establishing Oregon
territory); Act of Mar. 3, 1849, ch. 121, 9 Stat. 403, 405 (establishing
Minnesota territory); Act of Sept. 9, 1850, ch. 49, 9 Stat. 446, 449
(establishing New Mexico territory); Act of Sept. 9, 1850, ch. 51, 9
Stat. 453, 454 (establishing Utah territory); Act of Mar. 2, 1853, ch.
90, 10 Stat. 172, 175 (establishing Washington territory); Act of May
30, 1854, ch. 59, 10 Stat. 277, 279 (establishing Nebraska and
Kansas territories); Act of Feb. 28, 1861, ch. 59, 12 Stat. 172, 174
(establishing Colorado territory); Act of Mar. 2, 1961, ch. 83, 12
Stat. 209, 211 (establishing Nevada territory); Act of Mar. 2. 1861,
ch. 86, 12 Stat. 239, 241 (establishing Dakota territory); Act of Feb.
24, 1863, ch. 56, 12 Stat. 664, 665 (establishing Arizona territory
with same powers as New Mexico territory); Act of Mar. 3, 1863,
ch. 117, 12 Stat. 808, 810 (establishing Idaho territory); Act of May
26, 1864, ch. 95, 13 Stat. 85, 88 (establishing Montana territory); Act
of July 25, 1868, ch. 235, 15 Stat. 178, 180 {establishing Wyoming
territory); Act of May 2, 1890, ch. 182, 26 Stat. 81, 84 (establishing

[285eeeeeee }

9a

Columbia points out in its brief, the delegation of legislative
authority under the D.C. Self-Government act, see D.C. Code
§ 1-204, quoted infra, is virtually identical to that in the
District’s Organic Act of 1871, ch. 62, 16 Stat. 419, 423, and
substantially like the legislative powers of the territorial gov-
ernments. See supra note 11 and District of Columbia v. John
R. Thompson Co., 346 U.S. 100, 105 (1953) (analogizing the
delegation of legislative power under the Act of 1871 to sim-
ilar grants to territorial governments).

The significance of these delegations, as the District points
out, arises from the fact that such delegations to subordinate
governments of taxing power predated the Constitution, and
their continuance by the First Congress clearly demonstrates
that the Origination Clause applies only to tax measures to
finance the general government.” Thus, the purpose of the
Origination Clause, relating to the distribution of power
within Congress, was to give to the immediate representa-
tives of the people “the primary role in raising revenue” to

Oklahoma territory); 48 U.S.C. § 1574 (a) (1988) (establishing Virgin
Islands territory).

12 See Ordinance for the Governmeni of the Territory of the
United States north-west of the river Ohio, Art. IV (July 13, 1787)
(Northwest Territory), reprinted in Act of August 7, 1789, Ch. 8, 1
Stat. 50, 52 n.(a); Act of August 7, 1789, Ch. 8, 1 Stat. 50 (adapting
Northwest Ordinance to present Constitution, but making no
change in the power of the territorial government to tax). See
Marsh v. Chambers, 463 U.S. 788, 790 (1983); Burrows-Giles
Lithographic Co. v. Sarony, 111 U.S. 538, 57 (1884) (“[t]he
construction placed upon the Constitution by the [First Congress],
by the men who were contemporary with its formation, many of
whom were members of the convention which framed it, is of itself
entitled to very great weight”); Cohens v. Virginia, 19 (6 Wheat.)
264, 418 (1821) (“[g]reat weight has always been attached, and very
rightly attached, to contemporaneous exposition”); Martin v.
Hunter’s Lessee, 14 U.S. (1 Wheat.) 304, 352 (1816) (paying special
attention to contemporaneous interpretation of the Constitution).

[ 285fffftff]

is

10a

finance the general, federal government.” See United States
v. Munoz-Flores, 495 U.S. 285, 394-95 (1990) (citing THe Fen.
ERALIST No. 58). Consequently, we agree with the District that
the grant to citizens of the District of Columbia, who have no
voting representative in Congress, of the power to enact local
taxes is fully consistent with the Founding Fathers’ intention
that there would be self-government for citizens of the seat
of government. See THe Feperauist No. 43, at 282 (James
Madison) (Paul L. Ford ed., 1898).

The D.C. Self-Government Act provides that:

Except as provided in §§ 1-206, 1-233, 47-313, the
legislative power of the District shall extend to all
rightful subjects of legislation within the District
consistent with the Constitution of the United
States and the provisions of this Act subject to all
the restrictions and limitations imposed upon the

13 The District of Columbia suggests that this was done so as to
avoid a chief grievance that led to the American Revolution:
taxation without representation. See W. BENTON, 1787: DRAFTING
OF THE U.S. CONSTITUTION, 741, 781 (1986). This purpose is
outlined in THE FEDERALIST No. 58, at 386-87 (Alexander
Hamilton) (Paul L. Ford ed., 1898):

The House of Representatives cannot only refuse,
but they alone can propose, the supplies requisite
for the support of government. They, in a word,
hold the purse — that powerful instrument by
which we behold, in the history of the British Con-
stitution, an infant and humble representation of
the people gradually enlarging the sphere of its ac-
tivity and importance, and finally reducing, as far
as it seems to have wished, all the overgrown pre-
rogatives of the other branches of the government.
This power of the purse may, in fact, be regarded
as the most complete and effectual weapon with
which any constitution can arm the immediate rep-
resentatives of the people, for obtaining a redress
of every grievance, and for carrying into effect
every just and salutary measure.

[285ggeeeeg |

|

lla

states by the 10th section of the 1st article of the
Constitution of the United States.

D.C. Code § 1-204 (Repl. 1992). The chairman of the Senate
District Committee, who was also the manager of the bill in
the Senate, explained that by this legislation it was intended,
with exceptions for taxation of federal property and enact-
ment of an income tax on nonresidents, that the elected
Mayor and Council of the District of Columbia “can decide in
what way and how much to tax their citizens, can enact local
ordinances into law, and can begin to shape their own destiny
as should be the right of all American citizens.” 119 Cong. Rec.
22947 (1973) (Senator Eagleton)."

We reject appellants’ argument that because the D.C. Self-
Government Act provides the source of the local

14 As Judge Doyle pointed out in his opinion at 9, this court has
rejected a restrictive view of the delegation of legislative authority
under the Self-Government Act while preventing any intrusion by
the Mayor and Council into specifically forbidden areas. Compare
District of Columbia v. Greater Washington Labor Council, 442 A.2d
110, 115 (D.C. 1982) (“transfer by Congress of certain public
employment services from United States Department of Labor to
the District government, in the absence of a concurrent transfer of
private employment work{ers’] compensation . . . does not reflect a
congressional intent to prohibit the local government from
legislating with respect to private workjers’] compensation”;
former involved federal statute not applicable exclusively to the
District of Columbia while latter did), cert. denied, 460 U.S. 1016
(1983), and McIntosh v. Washington, 395 A.2d 744, 753 (D.C. 1978)
(delegated authority extends to all rightful subjects of legislation),
with Bishop v. District of Columbia, 411 A.2d 997, 998 (D.C. 1980)
(en banc) (repeal of professional exemption to the unincorporated
business tax and imposition of a tax on nonresident unincorporated
professionals and personal service business “was impermissible
exercise of the District of Columbia Council’s authority under § 602
(a) of the [Self-Government] Act,” which included express
prohibition of “imposition of any tax on the whole or any portion of
personal income . . . of any individual not a resident of the District,”
D.C. Code § 1-147 (a)(5) (Supp. 1978)), cert. denied, 446 U.S. 966
(1980).

{285hhhhhhh])

12a

government's taxing authority, that law had to originate in
the House of. Representatives. The term “revenue bill,” for
Origination Clause purposes, refers only to bills that “levy
taxes in the strict sense of the word, and are not bills for
other purposes which may incidentally create revenue.”
United States v. Munoz-Flores, supra, 495 U.S. at 397 (quoting
Twin City Bank v. Nebeker, 167 U.S. 196, 202 (1897)) (citing 1
J. Story, COMMENTARIES ON THE ConstiTuTION § 880, pp. 610-11
(3d ed. 1858)). Consequently, “a statute that creates a partic-
ular government program and that raises revenues to sup-
port that program, as opposed to a statute that raises reve-
nue to support Government generally, is not a ‘Bil[{l] for
raising Revenue’ within the meaning of the Origination
Clause.” Jd. at 398. In Twin City Bank v. Nebeker, supra, 167
U.S. at 202-03, the Supreme Court determined that the test
for whether a particular bill is a revenue bill rests upon the
bill’s “main purpose.” See United States v. Wilson, 901 F.2d
1000, 1004 (11th Cir. 1990) (“where the purpose of an act is ‘to
raise revenue to be applied in meeting the expenses or obli-
gations of the government,’ the act is a revenue measure
subject to the origination clause. Where the main purpose of
the act is other than raising revenue, it is not subject to
challenge under the origination clause”) (quoting United
States v. King, 891 F.2d 780, 781 (10th Cir. 1989)).

The D.C. Self-Government Act is not a “revenue bill”
within the meaning of the Origination Clause. Generating rev-
enue for the United States government and its operations
was clearly not its “main purpose.” Rather, the principal pur-
pose of the Self-Government Act was to provide a measure cf
self-government for the citizens of the District of Columbia
by creating a representative form of local government. See S.
Rep. No. 93-219, 93d Cong., 1st Sess. 1 (1973) (“[t]he purpose
of [the Self-Government Act] is to enact a District of Colum-
bia Charter Act and thereby restore to the citizens of the
District of Columbia some measure of self-government”);
D.C. Code 1-201 (a) (Repl. 1992) (“the intent of Congress is to
delegate certain legislative powers to the government of the

l3a

District of Columbia, . . . and, to the greatest extent possible,
consistent with the constitutional mandate, relieve Congress
of the burden of legislating upon essentially local District
matters”). Revenues derived from a tax enacted by the Mayor
and D.C. Council pursuant to the authority delegated under
the Self-Government Act are not generally available for de-
fraying the expenses and obligations of the United States
government in connection with its national responsibilities
and activities, but are for use by the government of the Dis-
trict of Columbia in support of the activities of the local gov-
ernment.” See D.C. Code § 47-301 (a)(1) (Repl. 1990). Any
support of national activities is purely “incidental.” See United
States v. Munoz-Flores, supra, 495 U.S. at 399.'* Since the
principal purpose of the Self-Government Act was not to raise
revenues for the general government, it could not have been
enacted in violation of the Origination Clause. Jd.

Nor does the 1987 Act, a bill for raising revenue for the
District of Columbia, violate the Origination Clause because
it did not originate in the House. A contrary holding would

15 Generally, in states that have such provisions in their state
constitutions, laws delegating authority to local government units
to levy and collect taxes for local purposes are not considered bills
for “raising revenue” within the meaning of the Origination Clause.
See F.G. Madara, Annotation, Application of Constitutional
Requirement That Bills for Raising Revenue Originate in Lower
House, 4 A.L.R.2d 973, 984-86 (1949) (citing Rankin v. Henderson, 7
S.W. 174 (1888)).

16 Appellants rely on the statement in Skinner v. Mid-America
Pipeline Co., 490 U.S. 212, 221 (1989), that “the Origination Clause
... implies nothing about the scope of Congress’ power to delegate
discretionary authority under its taxing power once a tar bill has
been properly enacted” (emphasis added). But Skinner, which merely
applied the familiar standard for congressional delegation of
authority to an administrative agency, has nothing to say about the
authority of Congress, consistent with the Constitution, to delegate
broad governmental authority — including the power to tax for
local purposes — to territorial and other subordinate entities such
as the District of Columbia government.

l4a

ignore the purpose of the Origination Clause, described above,
and the history of delegations of taxing authority to the ter-
ritorial and local District of Columbia governments. In Mil-
liard v. Roberts, 202 U.S. 429 (1906), the Supreme Court held
that an act of Congress originating in the Senate that taxed
District of Columbia land to carry out public improvements in
the District was not a “revenue bill” within the meaning of the
Origination Clause, but rather the “means to the purposes
provided by the act.” /d. at 437. The act at issue in Milliard
was clearly a District of Columbia tax to which appellants
presumably would argue the Origination Clause applies; but
the Supreme Court held otherwise. Like the statute in Mil-
liard, the taxing authority delegated to the District of Colum-
bia is merely the means by which the District government is
to carry out its self-governing, not a means to raise revenues
for the United States. The Origination Clause simply does not
apply to tax measures enacted pursuant to a delegation by
Congress of taxing powers to the District or similar govern-
ments to carry out their local government functions.

Appellants maintain in their Reply Brief that whether the
1987 Act violates the Origination Clause “may come down to
exactly what taxing authority the Congress intended to dele-
gate to the D.C. Council.” They posit that Congress did not
intend to give the District of Columbia “carte blanche” taxing
authority under D.C. Code § 1-204, and that the general lan-
guage of § 1-204 does not apply to a matter, in this case taxing
authority, specifically dealt with in another part of the same
statute. Appellants suggest that Congress made known its
true intent regarding taxing authority by specifically granting
authority over existing real and personal property taxes
(§ 47-501), and changes in the rates of taxes previously en-
acted by Congress (§ 47-504) in other provisions of the Self-
Government Act, now codified in Title 47 (Taxation and Fiscal
Affairs). We disagree.

First, because § 1-204 was enacted in connection with a
fundamental reorganization of the District government and is

[285kkkkkkk]

l5a

a broad delegation of legislative authority occurring after the
enactment of § 47-501 and § 47-504. the general language of
the Self-Government Act controls the language of legislation
that preceded it. The limitations on the District government's
taxing authority under the Self-Government Act are ex-
pressly stated in the Self-Government Act. See 1 D.C. Code
at 226-27 (Repl. 1991) (§ 602 of the Self-Government Act,
codified as D.C. Code § i-233); of. McIntosh v. Washington,
supra note 14, 395 A.2d at 754 (if Congress had intended to
limit the broad grant of legislative authority under the Self-
Government Act, it would have so stated in the statute or
legislative history). The provisions of § 47-501 and § 47-504
were simply modified by the codifiers following the enact-
ment of the Self-Government Act, to refer to the new, elected
Council of the District of Columbia. See D.C. Code 8§ 47-501
(codifier’s notation “Change in government”); -504 (same). On
their face, § 47-501 and § 47-504 do not preclude any other
taxation by the District of Columbia.

Second, volume 11 of the D.C. Code (Repl. 1990) lists the
provisions of the D.C. Self-Government Act codified in Title
47 of the D.C. Code. A review of those provisions indicates
that they pertain to the District's budget process, the general
fund, the issuance of general obligation bonds and revenue
bonds, borrowing, and audits by the General Accounting Of-
fice. These provisions place no limitation on the District's
taxing authority under the Self-Government Act. In addition,
§ 47-501 and § 47-504, mentioned specifically by appellants,
chronologically preceded enactment of the Self-Government

17 Thus, appellants’ reliance on Fourco Glass Co. v. Transmirra
Prod. Corp., 353 U.S. 222, 228-29 (1957), is misplaced because in
that case, unlike the fundamental governmental restructuring and
broad delegation of authority under the Self-Government Act, the
Court's conclusion about the statute regarding venue for patent
infringement claims rested on the absence of a substantive change
in the statute at issue and of an alteration to the scope and purpose
of the enactment of the statute. 353 U.S. at 225, 227.

{285111111}

l6a

Ac’ and therefore cannot be read as having any effect on the
delegation of legislative authority under D.C. Code § 1-204.

Third, to adopt appellants’ argument would contradict the
statutory scheme of the Self-Government Act, premised in
part on the requirement that the District government present
a balanced budget to Congress, supported by necessary rev-
enue measures. See 1 D.C. Code § 442 (a)(1) at 202-203 (Repl.
1991), codified as D.C. Code § 47-301 (a}(1)).

Therefore, appellants’ challenges to the delegation of tax-
ing authority by the Self-Government Act and to the 1987 Act
itself as violative of the Origination Clause must fail.

Iil.

Appellants’ primary contention, however, is that the 1987
Act, by combining the gross receipts tax with exemptions and
credits against personal property and certain sales and use
taxes only when the latter are paid to the District of Colum-
bia, impermissibly discriminates against long-distance tele-
phone carriers not based in the District of Columbia, in viola-
tion of the Commerce Clause of the United States
Constitution. Under the 1987 Act, a long-distance carrier is
exempt from the District of Columbia's personal property
tax, and certain sales and use taxes, to the extent that the
carrier's property in the District of Columbia is used to pro-
duce gross receipts subject to the 1987 Act. When, by con-

18 The 1987 Act provides exemptions for the following personal
property tax, and sales and use taxes, from the gross receipts tax
imposed:

The personal property of any telecommunications
company ... used or consumed in furnishing a ser-
vice if the receipts from furnishing the service are
subject to a gross receipts tax in force in the Dis-
trict... . D.C. Code § 47-1508 (a)(3)(B) (Supp.
1989);

Sales of property purchased by a telecommunica-
tion company .. . for use or consumption in

{285mmmmmmm]

17a

trast, carriers (such as appellants) located outside of the Dis-
trict of Columbia use property to produce revenues subject to
the 1987 Act, they receive no offset against the gross receipts
tax for personal property, sales, and uses taxes paid to their
home jurisdiction.”

Appellants contend that the exemptions and credits in the
1987 Act place long distance telephone companies located out-
side the District at a substantial commercial disadvantage. In
their view the tax scheme in the 1987 Act is unconstitutional
because “the Commerce Clause prohibits a State from impos-
ing a heavier tax burden on out-of-state businesses that coin-
pete in an interstate market than it imposes on its own resi-
dents who also engage in commerce among States.” American
Trucking Ass’ns v. Scheiner, 483 U.S. 266, 282 (1987). We are
compelled to agree.

The Commerce Clause, art. I, § 8, cl. 3, authorizes Con-
gress to “regulate Commerce . . . among the several States.”
Although it is silent about regulation of interstate commerce
by States in the absence of Congressional legislation, the Su-
preme Court hes read the Clause as a limit on state power.
See, e.g., Boston Stock Exchange v. State Tax Comm'n, 429 U.S.
318, 328 (1977). To ensure “an area of free trade among the

furnishing a service or commodity if the receipts
from furnishing the service or commodity are sub-
ject to a gross receipt tax or mileage tax in force in
the District . . . . D.C. Code § 47-2005 (5) (Supp.
1989);

Sales upon which taxes are properly collected
under the [District of Columbia Gross Sales Tax
provisions] . . . . D.C. Code § 47-2206 (1) (Supp.
1989).

19 Similarly, to the extent that a long distance carrier located in
the District of Columbia uses its property located here to produce
revenues outside of the District of Columbia (hence not subject to
the District’s gross receipts tax), it receives no exemption from
other District of Columbia taxes.

{285nnnnnnn]

18a

several states,” the Supreme Court has held that “[n]o State,
consistent with the Commerce Clause, may ‘impose a tax
which discriminates against interstate commerce . . . by pro-
viding a direct commercial advantage to local business.” Jd.
at 329 (citations omitted). When a state tax is challenged as
constituting a violation of the Commerce Clause, the test
employed by the Supreme Court is whether the tax: (1) ap-
plies to an activity with a substantial nexus to the taxing
state; (2) is fairly apportioned; (3) discriminates against inter-
state commerce; and (4) is fairly related to services or bene-
tits provided by the states. Complete Auto Transit, Inc. v.
Brady, 430 U.S. 274, 279 (1977); see Quill Corp. v. North Da-
kota, 112 S. Ct. 1904, 1912 (1992); Goldberg v. Sweet, 488 U.S.
252, 259-60 (1989). Only the third prong is at issue in this
case.”

Under the anti-discrimination component of the Complete
Auto, supra, test, a tax discriminates against interstate com-
merce if it is “facially discriminatory, has a discriminatory
intent, or has the effect of unduly burdening interstate com-
merce.” Amerada Hess Corp. v. Director, Div. of Taxation, 490
U.S. 66, 75 (1989). Appellants contend that the taxing and
exemption provisions of the 1987 Act, in combination, facially
discriminate against carriers located outside the District
which generate revenues here, contrary to the requirement
of “internal consistency” as applied in Armco, Inc. v. Hardesty,
467 U.S. 638 (1984), and Tyler Pipe Indus., Inc. v. Washington
Dep’t of Revenue, 483 U.S. 232 (1987).

The internal consistency principle was originally applied by
the Supreme Court in fair apportionment cases under the
Commerce Clause.” “The first . . . component of fairness in

20 Appellants do not challenge the 1987 Act under the first,
second, and fourth prongs of the Complete Auto Transit, Inc. v.
Brady, supra, test. See Goldberg v. Sweet, supra, 488 U.S. at 267-268
(holding that Illinois excise tax satisfied the Complete Auto test).

21 Apportionment analysis requires that once a certain set of
activities is determined to constitute a “unitary business,” a state

[2850000000]

19a

an apportionment formula is what might be called internal
consistency — that is, the formula must be such that, if
applied by every jurisdiction, it would result in no more than
all of the unitary business income being taxed.” Container
Corp., supra note 21, 463 U.S. at 169. In Armco, however, the
Court for the first time extended the principle to a case in-
volving a claim of facial discrimination against interstate com-
merce. The Court invalidated a West Virginia gross receipts
tax which “[o]n its face . . . appear[ed] to” tax a transaction
or incident “more heavily when it crosses state lines than
when it occurs entirely within the state.” 467 U.S. at 642.
Specifically, West Virginia's gross receipts tax exempted
from its reach receipts from the sale of products manufac-
tured in the State but not otherwise. The State argued that
exempting resident manufacturers was necessary to com-
pensate for the fact that they were subject to a manufacturing
tax West Virginia also imposed, which was inapplicable to
out-of-state manufacturers. In rejecting this argument, the
Court carried over to the facial discrimination context the
test of Container Corp., supra note 21, that a tax “‘must be
such that, if applied by every jurisdiction,’ there would be no
impermissible interference with free trade.” Jd. at 644.2 The
forbidden discrimination in Armco was revealed by the fact
that “[i]f Ohio [where Armco was located] or any of the other
48 States imposes a like tax on its manufacturers — which
they have every right to do — then Armco and others from
out of State will pay both a manufacturing tax and a wholesale

must fairly apportion the income of the business within and outside
of the state. Container Corp. of Am. v. Franchise Tax Bd., 463 U.S.
159, 169 (1983).

22 As the Court explained in a later decision, “To be internally
consistent, a tax must be structured so that if every State were to
impose an identical tax, no multiple taxation would result. Thus, the
internal consistency test focuses on the text of the challenged
statute and hypothesizes a situation where other States have
passed an identical statute.” Goldberg v. Sweet, supra, 488 U.S. at
261.

[285ppppppp]

20a

tax while sellers resident in West Virginia will pay only the
manufacturing tax.” Jd. It was irrelevant to the Court
whether another state in fact “imposes a manufacturing tax
that results in a total burden higher than that imposed on
Armco’s competitors in West Virginia,” id., for otherwise “the
validity of the taxes imposed on each taxpayer would depend
on the [tax schemes of the] particular other States in which
it operated.” Jd. at 645 (footnote omitted).

The District’s 1987 Act, unlike the tax in Armco, does not
exempt local carriers from the gross receipts tax, but the
distinction is immaterial as the Supreme Court soon made
clear in Tyler Pipe. Originally the State of Washington had
imposed a business and occupation (or B & O) tax upon (inter
alia) wholesale sales within the State, but exempted from this
tax persons subject to other forms of the B & O tax such as
a manufacturing tax on products made within the State. An-
ticipating the Armco decision, the Supreme Court of Wash-
ington invalidated the tax on Commerce Clause grounds.” See
Tyler Pipe Indus., Inc., supra, 483 U.S. at 235-36. The State
then legislatively “turn[ed] the B & O tax exemption scheme
inside out” by “remov[ing] the wholesale tax exemption for
local manufacturers and replac[ing] it with an exemption from
the manufacturing tax for the portion of the manufacturers’
output that is subject to the wholesale tax.” Jd. at 236 (foot-
note omitted). This scheme resembles the District’s 1987 Act
which, while exempting no one from the gross receipts tax on
covered toll communications services, provides an exemption
from personal property (and other) taxes for District prop-
erty which generates long-distance receipts subject to the
gross-receipts tax.

The Supreme Court in Tyler Pipe struck down the State of
Washington's new tax exemption as well, finding it “the prac-
tical equivalent of the exemption” previously invalidated by

23 Indeed, the U.S,Supreme Court in Armco took note of the
Washington Supreme Court’s earlier decision “invalidating a
Washington tax scheme identical to that here.” 467 U.S. at 645 n.8.

[285qqqaqqqq])

2la

the state Supreme Court (and invalid by implication under
Armco). Id. at 241.

A person subject to Washington’s wholesale
tax for an item is not subject to the State’s manu-
facturing tax for the same item. This statutory
exemption for manufacturers that sell their prod-
ucts within the State has the same facially
discriminatory consequences as the West Virginia
exemption we invalidated in Armco.

Id. at 240. Again the Court applied the requirement of inter-
nal consistency, pointing out that Washington's

multiple activities exemption only operates to im-
pose a unified tax eliminating the risk of multiple
taxation when the acts of manufacturing and whole-
saling are both carried out within the State. The
exemption excludes similarly situated manufactur-
ers and wholesalers which conduct one of those
activities within Washington and the other activity
outside the State.

Id. at 246-47 (emphasis added).* The State’s exemption
scheme therefore discriminated against interstate commerce
in that “[t]he current B & O tax exposes manufacturing or
selling activity outside the State to a multiple burden from
which only the activity of manufacturing in-state and selling
in-state is exempt.” Jd. at 248; see also American Trucking
Ass’ns v. Scheiner, supra, 483 U.S. at 286-87 (under test of
internal consistency and “our consistent course of decisions in
recent years,” Court invalidates Pennsylvania lump-sum axle
tax, which “exert[ed] an inexorable hydraulic pressure on
interstate [truckers] to ply their trade within the State that
enacted the measure rather than ‘among the several States’”).

24 As Justice Scalia pointed out in dissent, Washington's
“exclusion . . . can only be deemed facially discriminatory if one
assumes that every State's taxing scheme is identical to
Washington's.” 483 U.S. at 254 n.1 (Scalia, J., dissenting).

(285rrrrrrr]

Applying Armco, Tyler Pipe, and Scheiner, we conclude
that the tax scheme in the 1987 Act cannot withstand a Com-
merce Clause challenge. The District of Columbia argues in
vain that the 1987 Act is not discriminatory because all carri-
ers with personal property in the District that produces rev-
enues subject to the gross receipts tax receive the same ex-
emptions. This argument is unavailing. The discriminatory
consequences of the 1987 Act arise from the circumstance
that, if the same limited exceptions existed in every state,
then out-of-state carriers would pay more than in-state carri-
ers whenever the former had property subject to their home
state’s personal property tax but used to produce out-of-state
revenues subject to another state’s gross receipts tax. The
fact that appellants have not shown that the taxing scheme in
other jurisdictions would, in fact, create a greater tax burden
for them than companies located in the District of Columbia
is irrelevant. See Armco, Inc. v. Hardesty, supra, 467 U.S. at
644; American Trucking Ass’ns v. Scheiner, supra, 483 U.S. at
285. Also irrelevant is the fact that appellants (except for one
carrier which only leases property in the District of Columbia)
have received exemptions from the District’s personal prop-
erty tax under the 1987 Act” and have not yet shown that,
nevertheless, they have been subjected to heavier taxation
because of the taxing schemes in other jurisdictions. See
Armco, Inc. v. Hardesty, supra, 467 U.S. at 644-45.” The

25. Judge Doyle found that “[aJll of the [appellants] except Long
Distance Services of Washington, Inc. (which leased capacity) have
taken the credit in substantial amounts regarding the taxes which
are the subject of the present suit for refund.” Opinion of Judge
Doyle, supra, at 18.

26 Although the District of Columbia argues that its gross
receipts tax has historically been considered as in lieu of an ad
valorem personal property tax, it does net maintain that the gross
receipts tax and limited exemptions under the 1987 Act are valid
“compensating taxes”; if it did, that argument would not survive
application of the internal consistency principle in any event. See
Armco, Inc. v. Hardesty, supra, 467 U.S. at 642-43, and Tyler Pipe
Indus., Inc., supra, 483 U.S. at 242-43.

[285sssssss]

23a

Commerce Clause discrimination arises because the 1987 Act
provides only a limited exemption, or credit, to the extent
that the company uses personal property in the District of
Columbia to produce those receipts. As appellants hypothe-
size:

A company which concentrated its property in one

State but provided services in many would pay a
| gross receipts tax on all of its receipts and a per-
| sonal property tax (and sales and use taxes) on all
but a small portion of its personal property. In con-
trast, a company which spread its property among
the several states in proportion to the revenues
derived therefrom — thereby becoming essentially
equivalent to a “home operator” in each state —
would pay a gross receipts tax but would not pay
personal property taxes or sales or use tax any-
where.

Under Tyler Pipe, supra, 483 U.S. at 242-43, 246-48, the Dis-
trict of Columbia may not enact a tax scheme whereby the
only company that can fully benefit from the available exemp-
tions is one that sells in the District of Columbia only what it
produces there, and does not afford the same benefits to a
company outside of the District that sells within it or indeed
to a District company that sells outside it. What is missing in
the 1987 Act is “a credit to any taxpayer upon proof that the
taxpayer has paid a tax in another State on the same [tax
base] which triggered the [gross receipts tax under the 1987
Act].” Goldberg v. Sweet, supra, 488 U.S. at 256; see Tyler Pipe
Indus., Inc., supra, 483 U.S. at 249.

By fully endorsing Justice Goldberg's dissenting opinion in
General Motors Corp. v. Washington, supra, 377 U.S. at 451-
62, the Supreme Court has apparently signaled in Tyler Pipe
its preference for a method of taxation that eliminates all
overlapping taxation, in favor of the “‘federal free market
trade unit.” General Motors Corp. v. Washington, supra, 377
U.S. at 461 (quoting H.P. Hood & Sons, Inc. v. Du Mond, 336

[285ttttttt]

eines

24a

U.S. 525, 588 (1949)).” On the other hand, the Court is not
unanimous about the validity of the restrictive internal con-
sistency principle of Armco and its progeny. Some members
of the Court have suggested reasons to reexamine the Court’s
extension of the principle at least to state tax schemes that
are not discriminatory on their face as in Armco.” In any
event, the shifting grond is particularly unfortunate for the

27 Justice Goldberg endorsed the statement of Justice Jackson in
H.P. Hood & Sons, Inc. v. Du Mond, supra, 336 U.S. at 538, that the
Commerce Clause was designed “to create a ‘federal free trade unit’
— a common national market among the States; and the
Constitution thereby precludes a state from defending a tax on
interstate sales on the ground that the State taxes intrastate sales
generally.” 377 U.S. at 461. Justice Goldberg went on to write that:

Nondiscrimination alone is no basis for burdening
the flow of interstate commerce. The Commerce
Clause “does not merely forbid a State to single out
interstate commerce for hostile action. A State is
also precluded from taking any action which may
fairly be deemed to have the effect of impeding the
free flow of trade between the States. It is im-
material that local commerce is subjected to a
similar encumbrance.” Freeman v. Hewit, 329 U.S.
249, 252 (1946). A State therefore should not be
enabled to put out-of-state producers and mer-
chants at a disadvantage by imposing a tax to
“equalize” their costs with those of local business-
men [or businesswomen] who would otherwise
suffer a competitive disadvantage because of the
State’s own taxation scheme. The disadvantage
stemming from the wholesale sales tax was created
by the State itself and therefore the fact that the
State simultaneously imposes the same tax on in-
terstate and intrastate transactions should not
obscure the fact that interstate commerce is being
burdened in order to protect the local market.

Id.

28 See Goldberg v. Sweet, supra, 488 U.S. at 270 (Justice
O'Connor, concurring in part and concurring in the judgment); id.
at 271 (Justice Scalia concurring in the judgment); Tyler Pipeline

[285uuuuuuu]

25a

District of Columbia, which enacted the 1987 Act in response
to an upheaval in the telecommunications industry at a time
when the internal consistency principle appeared limited to
apportionment cases and facially discriminatory tax schemes
such as those involved in Armco, so that the 1987 Act could
reasonably have been held not to discriminate unfairly
against interstate commerce. Moreover, this court is not in a
position, as was the Supreme Court of the State of Washing-
ton upon having its tax scheme overturned in Tyler Pipe
Indus., Inc., supra, to hold that the invalidation of the tax
would be prospective only;” the Supreme Court has repudi-
ated such civil prospectivity. See Harper v. Virginia Dep't of
Taxation, 113 S. Ct. 2510, 2517 (1993) (rejecting any view of
retroactivity based on a Chevron Oil analysis and holding that
“full retroactive effect in all cases still open on direct review
and as to all events, regardless of whether such events pre-
date or postdate our announcement of the rule”) (citing James
B. Bean Distilling Co. v. Georgia, 111 S. Ct. 1439, 2446 (1991)
(holding that no court may refuse to apply retroactively a
federal rule of law applied to the litigants)).

Consequently, in order to minimize the need to make re-
funds, see Dennis v. Higgins, 111 S. Ct. 865, 871 (1991) (citing

Indus., Inc., supra, 483 U.S. at 253 (Justice O'Coi. ‘or, concurring);
id. at 254 (Justice Scalia, with whom Chief Justice Rehnquist joins,
dissenting); American Trucking Ass’ns v. Scheiner, supra, 483 U.S
at 198 (Justice O'Connor, with whom Chief Justice Rehnquist and
Justice Powell join, dissenting); id. at 303 (Justice Scalia, with
whom Chief Justice Rehnquist joins, dissenting); Armco, Inc. v.
Hardesty, supra, 467 U.S. at 646 (Justice Rehnquist dissenting). See
also Walter Hellerstein, “Js ‘Internal Consistency’ Foolish?:
Reflections on an Emerging Commerce Clause Restraint on State
Taxation,” 87 MICH. L. REV. 138 (1988).

29 See National Can Corp. v. Department of Revenue, 749 P.2d
1286 (Wash. 1988) (en banc) (upon applying the three factors of
Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), held that state law did
not require refunds- and prospective application of Tyler Pipe
Indus., Inc., supra, was appropriate).

[285vvvvvvv}

26a

McKesson Corp. v. Division of Alcoholic Beverages, 496 U.S.
18, 31 (1990)), the Council of the District of Columbia would
have to enact legislation, consistent with Commerce Clause
principles, that, for example, would retroactively grant a
credit against the gross receipts tax imposed under the 1987
Act for any personal property taxes paid to other jurisdictions
on the same tax base, upon proof by the taxpayer of payment
of such taxes to another jurisdiction.” See Harper v. Virginia
Dep’t of Taxation, supra, 113 S. Ct. at 2519-20 (dictum). Al-
ternatively, the District government could collect the addi-
tional tax from appellants’ competitors, or it could do a com-
bination of both. See McKesson Corp. v. Division of Alcoholic
Beverages, supra, 496 U.S. at 40-41.

Accordingly, because the limited exemptions under the
1987 Act impermissibly discriminate against interstate com-
merce, the 1987 Act is unconstitutional under the Commerce
Clause, and we reverse the grant of summary judgment to the
District of Columbia. We do not enter judgment for appel-
lants, however, “because federal law does not necessarily en-
title them to a refund,” and the District of Columbia may
“create[] in hindsight a nondiscriminatory scheme.” Harper ».
Virginia Dep’t of Taxation, supra, 113 S. Ct. at 2519-20 (dic-
tum) (citing McKesson Corp. v. Division of Alcoholic Beverages
& Tobacco, supra, 496 U.S. at 40).

30 See Welch v. Henry, 305 U.S. 134, 147 (1938) (factors for
determining the validity of retroactive taxation). See also United
States v. Hemme, 476 U.S. 558, 567-71 (1986); United States v.
Darusmont, 449 U.S. 292 (1981).

[285wwwwwww]

27a

FARRELL, Associate Judge, concurring: I join the court's
opinion entirely and write only to express my view that the
internal consistency principle, as a test for identifying forbid-
den commerce clause discrimination outside the fair appor-
tionment context, should be reexamined. The reasons are
essentially those stated by Justice Scalia in part I of his dis-
sent in Tyler Pipe. See particularly 483 U.S. at 257-58. As
applied here, the internal consistency rule says in effect that,
for the District of Columbia constitutionally to adopt the
means it has for preventing double taxation of local telecom-
munications carriers, it must provide credits enabling carri-
ers in many instances to escape any local taxation based on
property located or business conducted in the District. Con-
sider, for example, the carrier having property here that is
used to generate telephone charges billable to an address
outside the District. Those receipts fall outside the District's
telecommunications tax on gross receipts; yet because an-
other state hypothetically might capture them under its sim-
ilar tax, the District must go further and exempt those re-
ceipts from the reach of its personal property or use taxes as
well — either that or it must eliminate the exemption reliev-
ing locals from paying double taxes (personal property and
gross receipts) based on a single transaction. I claim no ex-
pertise in commerce clause analysis, but this seems to me
unnecessarily formalistic' and hard to justify by any general-
ized fear of balkanization of our nation’s tax laws. Before the
District must refund the potentially millions of dollars at
stake here, it deserves a better explanation than Tyler Pipe
provides for the invalidity of its tax scheme.

1 The Court has said, after all, that there is nothing
unconstitutional about “fair encouragement of in-state business,”
Armco, Inc., 467 U.S. at 645, of which avoidance of double taxation
would seem a prime illustration.

[285xxxxxxx]

28a

District of Columbia Court of Appeals
No. 92-TX-846

Sprint COMMUNICATIONS COMPANY,

CaBLe & WIRELESS COMMUNICATIONS INC.,
METROMEDIA COMMUNICATIONS CORPORATION NEE
CSI nee ITT, MetroCom nee TMC, ReatCom Orrice
CoMMUNICATIONS, INC. NEE ConTEL, ALLNET
COMMUNICATION SERVICES, INC., Mip-ATLANTIC
TeLEcoM, INnc., LonG DisTaNce SERVICE OF
WASHINGTON, INC.,

Appellants,

v.

SHARON PratTr KELLY, SHARON Morrow, &
District or CoLumBia, et al,
Appellees.

Tax 4011-87

[REMAINING PORTION OF CAPTION OMITTED]

On Appeal from the Superior Court of the
District of Columbia Tax Division

Before: RoGers, Chief Judge, AND FERREN AND FARRELL,
Associate Judges.

JUDGMENT

These cases came on to be heard on the transcript of record,
the briefs filed, and were argued by counsel. On considera-
tion whereof, and for the reasons set forth in the opinion filed
this date, it is now hereby

29a

ORDERED and ADJUDGED by this Court, that the
judgments appealed from are reversed.

Per Curiam
For The Court:

/s/ By: William H. Ng
WILLiAM H. NG
Clerk

Datep: Marcu 15, 1994
Opinion Per Curiam.
Concurring opinion by Associate Judge Michael W. Farrell.

ac

30a

SUPERIOR COURT OF THE DISTRICT OF COLUMBIA
TAX DIVISION

Tax No. 4091-88

CABLE & WIRELFEss CoMMUNICATIONS, INc.
Petitioner

V.

District or CoLUMBIA
Respondent

Tax No. 4092-88

AMERICAN TELEPHONE & TELEGRAPH ComPANY,
AT&T Communications OF D. C., INc.
Petitioner

V.

District or CoLuMBIA
Respondent

Tax No. 4348-89

U. S. Sprint ComMuNICATIONS
Company LIMITED PARTNERSHIP
Petitioner

V.

District or CoLuMBIA
Respondent

Tax No. 4349-89

ITT ComMMUNICATIONS SERVICES, INc.
Petitioner

¥.

District or CoLuMBIA
Respondent

3la

Tax No. 4363-90

ConTEL Orrice COMMUNICATIONS, INC.
Petitioner

Ve

District oF COLUMBIA
Respondent

Tax No. 4650-90

CaBLeE & WIRELESS COMMUNICATIONS, INC.
Petitioner

V.

District oF COLUMBIA
Respondent

Tax No. 4693-9]

ALLNET COMMUNICATION SERVICE, INC.
Petitioner

V.

District oF COLUMBIA
Respondent

Tax No. 5000-91

LONG DISTANCE OF SERVICE WASHINGTON, INC.
Petitioner

V.

District OF COLUMBIA
Respondent

OPINION AND ORDER

Before the Court are cross motions for Summary Judg-
ment. The Petitioners are long distance telephone carriers

~

i

32a

asking for judgment declaring the Gross Receipt Tax
Amendment Act of 1987 and its accompanying emergency
act to be unconstitutional and otherwise invalid and for
refund of moneys collected thereunder by the District of
Columbia. The Respondent, the District of Columbia asks
for affirmance of the Acts and for judgment in its favor.

These cases are the most recent episode in the convoluted
tax litigation which has followed AT&T's divestiture of its
local operating companies in connection with the antitrust
suit United States v. American Telephone and Telegraph
Company, 552 F.Supp. 131 (D.C.D.C. 1982) aff’d memo 460
US 1001 (1983).

The present issues require a preliminary background
review. Prior to the 1984 divestiture a District of Columbia
subscriber paid the charge for a long distance call to the
Chesapeake and Potomac Telephone Company (C&P)
AT&T's wholly owned subsidiary which was the local
operating company in the District of Columbia. C & P in turn
paid the sum received to AT&T. AT&T computed the share
owed to C&P for the part it played in the operation and paid
each sum to C&P, a procedure called “the division of
revenues.’’ The District of Columbia then taxed C&P on that
amount under the gross receipt tax of 1939."

One variety of long distance call constituting a relatively
small part of the market, however was not taxed. This con-
cerned calls handled by non affiliated carriers such as Sprint
and MCI (called OCC’s). These companies paid a charge to
C&P for use of its local network in connecting a telephone
in the District with an OCC’s system. The “‘access charges”’
by a Tax Court decision? were held not to be within the

‘53 Stat. 1107 Ch. 1352, Title IV No. 2(a) codified in the 1986 Supp.
of the D.C. Code at 47-2501. For a description of the procedures followed
see footnote 2, Barry v. American Telephone & Telegraph Co., 563 A.2d
1069 (DC App. 1989).

* C&P Telephone Company v. District of Columbia, Docket No. 1756,
Opinion 1000, July 17, 1962 90 WLR No. 175, Aff'd in part Chesapeake
& Potomac Telephone Co., 117 US App.DC 21 (1963(C&P ITI).

33a

operative term of the gross receipts tax act of 1939 i.e.
‘‘. . . gross receipts for the sale of public utilities services
or commodities within the District of Columbia.’’ Following
the 1984 divestiture, the District of Columbia Court of Ap-
peals in District of Columbia v. Chesapeake and Potomac
Telephone Company, 516 A.2d 181 (D.C.App. 1986) (called
hereafter C&P. IV) not only reaffirmed the prior tax court
decision but also held that by virtue of the divestiture
AT&T's payments to C&P were now free of liability under
the 1939 Act. Accordingly the combination of the divestiture
and C&P (IV) deprived the District of Columbia of all the
funds which had been obtained under the Gross Receipts Tax
from AT&T and C&P’s division of revenues. The reaction
of the District of Columbia City Council was to pass the
“Gross Receipts Tax Amendment Act of 1987’’ with an
accompanying emergency act’. The new legislation extended
the coverage to gross receipts received from the sale of toll
communications services that originate from or terminate
on telecommunications equipment located in the District and
billed to a District telephone. There was no longer any
distinction between AT&T and the former OCC’s. Gross
receipts in respect of any of them were now taxable. The tax
was retroactive to July 1, 1986. The carriers promptly filed
suit either as plaintiff or intervenor asking for Preliminary
Injunction and Declaratory Judgment (Tax Docket 4011-87;
CA 10080-87). Since now there was no question of coverage
under the statute the thrust of the carriers attack was that
the Act is unconstitutional. The charges were canister-like.
The violations alleged were of the Commerce Clause, the Due
Process Clause, the Origination of Revenue Bills Clause, the
Congressional jurisdiction over the District of Columbia
Clause and the Supremacy Clause. Violations of the Home
Rule Act were likewise charged. On December 3, 1987, Judge
Iraline G. Barnes issued a preliminary injunction halting
attempts to collect the tax. Appeai was taken therefrom and
on October 6, 1988 the District of Columbia Court of Appeals
remanded directing the trial Court to file more detailed

*34 DC Reg. 6536 and 5068-5073; DC Code 47-250 1(a2A) (1988 Supp.’

ae

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findings of fact or in the alternative to rule on the merits.
The Judge preferred the latter course. After a final hearing
Judge Barnes found that the Act violated the Due Process
Clause in the imposition of a retroactive tax without ade-
quate notice. She further found that the Act violated the
Commerce Clause centrally because it was unapportioned and
subjected the taxpayer to double taxation. The Court was
not impressed by the argument that the City Council lacked
the authority to enact tax legislation. Judge Barnes’ Order
was dated November 14, 1988. It was appealed and on July
19, 1989 the D. C. Court of Appeals rendered its opinion. The
appellate court considered itself in something akin to a ‘catch
22" situation.‘ Since the plaintiffs had not paid the assess-
ed taxes they were not entitled to pursue the suit under the
District’s ‘“‘pay before suit’’ in tax cases statute® unless it
had been shown beyond debate that the claims of unconstitu-
tionality were valid. Since the Court did not find such to be
the case, jurisdiction over the subject matter was considered
lacking. The case was remanded with directions to vacate
the judgment. In 1989 the 1987 Tax Act was superceded by
the Toll Telecommunications Act of 1989, (D. C. Act 8-48:
D.C. Code Sections 47-3801 through 3821, 2005, 1508 and
2501). This Act inter alia added provisions crediting taxes
paid to other jurisdictions on long distance calls and
facilitating means of determining data necessary for com-
puting the tax. Measures of this kind had been found by
Judge Barnes as necessary but wanting in the 1987 tax. Late
in 1988, AT&T paid the tax and filed a new action for re-
fund. (Tax Docket 4092-88). Seven other carriers followed
course, (4091-88, 4348-89, 4349-89, 4363-89, 4650-89, 4693-91,
5000-91). In June of 1991, Judge Emmett Sullivan dismiss-
ed all of the previous litigation (Tax Docket 4011-87: CA
10080-87) which had been subject to the appellate remand
and direction to vacate. Appeal thereto was noted and the
District of Columbia Court of Appeals stetted its considera-

‘Barry v. American Tel.&Tel., supra.

* DC Code 47-3307, 3303.

35a

tion thereof pending determination of this second clutch of
cases. Such posture brings this Court to the pending cross
motions for Summary Judgment.

First of all the Court agrees with the parties after a review
of the entire record that there is no genuine issue of material
fact and that the case depends on resolution of questions of
law.

The attack upon the validity of the statute rests on nine
claims. These, however, may be found clustered around three
major contentions why the carriers should not be required
to pay the tax.

The first major contention is that the City Council lacked
authority under the Constitution and the Home Rule Act
to enact revenue legislation in general and the challenged
tax in particular. This is so, plaintiffs argue, because 1) Con-
gress under the Constitution has exclusive legislative
jurisdiction over the District and all bills for raising revenue
must originate in the House of Representatives; 2) that since
long distance calls are interstate the legislation is not ‘within
the district’’ as required by D.C.Code 1-233 (a)(3); 1-202; and
that the statute imposes a tax on the federal government
which is specifically prohibited by Article VI, Clause 2 of
the Constitution.

The second major claim is that the tax fails to apportion
gross revenues from interstate commerce between the several
jurisdictions and discriminates against out of state com-
petitors violating both the Commerce and the due process
clauses.

The third claim is that the retroactive features of the Act
violate the due process clause.

The arguments have been carefully crafted and earnestly
pressed but this Court is not persuaded by them.

I

The City Council with approval of the Mayor has the
authority to enact proper revenue legislation for the District

36a

of Columbia in general and had the authority to enact the
Gross Receipt Tax Amendment of 1987 and the Toll Telecom-
munications Act of 1989 in particular.

lt is manifest that by the Self Government Act of 1973, D.C.
Code 1-204 et seq. (called popularly and in this opinion, the
Home Rule Act). the delegation of powers was virtually
plenary. ‘The legislative power of the District shall extend
to all rightful subjects of legislation within the District
consistent with the Constitution of the United States and
the provisions of the Act subject to all the restrictions and
limitations imposed upon the States by the !Oth Section of
the first article of the Constitution of the United States."’
(D.C. Code 1-204).

The limitations on the powers were specifically set forth.
As far as the power to tax was concerned, the prohibited
areas were the commuter tax and functions or property of
the Federal Government (D.C. Code 1-233(A)(3) and (a).

Congressional oversight was provided by requiring the
legislation to be laid before the Congress for a period of thirty
(30) days prior to its effective date.

There was no question about the intent of Congress in
enacting the statute. In the course of debates Senator
Thomas Eagleton. chairman of the Senate District Commit-
tee and manager of the bill explained:

‘We will find in the bill the right of the City Council
and the Mavor to enact into law ordinances relating
to taxation, excluding at least two very important
things that they cannot act upon: The taxation, of
course, of any Federal property is prohibited by the
constitution, and we prohibit them from the imposi-
tion of an income tax on nonresidents of the District
of Columbia. But with those two exceptions, one con-
stitutional and one that we impose statutorily, the
City Council and an elected Mayors [sic], elected by
the three-quarters of a million people of the city, can
decide in what way and how much to tax their
citizens, can enact local ordinances into law, and can

37a

begin to shape their own destiny as should be the
right of all American citizens."

The D. C. Court of Appeals has endorsed the legislative
scheme by sharply preventing any attempt by the Council
to intrude into specifically forbidden areas Bishop v. District
of Columbia, 411 A.2d 997 en banc, cert.den. 446 U.S. 966
(1980) while endorsing the broad grant of power and refus-
ing to adopt any restrictive view of the delegation. District
of Columbia v. Greater Washington Labor Council, 442 A.2d
110, cert.den. 460 U.S. 1016.

The argument of the carriers in these premises is that
regardless of its intention the Congress was prohibited from
delegating the taxing power to the City Council by a com-
bination of the Constitution's Article 1, Section 8, Clause 17
which gives the Congress exclusive power to legislate over
the District of Columbia and Article I, Section 7, Clause I
which provides that revenue measures originate in the House
of Representatives. This latter measure followed the seven-
teenth century British tradition’ or perhaps one of even
earlier orgin that money bills must originate in the House
of Commons and not in the House of Lords or the Crown.

The levy of moneys for the crown without the grant of
parliament had been a matter of serious contest between the
Stuart Kings and the Parliament and was condemned by the
Bill of Rights of 1689. Toward the end of that century the
House of Commons rejected any attempt by the the House
of Lords to assume the power of initiating money bilis. The
complete means of enforcing this prerogative has always been
with the lower house itself simply by refusing to pass the
offending upper house bill.* No case has been cited suggesting

*119 Cong.Rec. 22947 (1973).

Commons, House of. Vol. 3. New Encyclopedia Britannica, Micropedia
p. 494.

‘For the House of Representatives see 99 Cong.Rec. 1897-98 (March
12. 1953) where the house voted to refuse and return a senate bill making
appropriation. For the House of Parliament see the much earlier incident
reported by Macaulay in History of England, Book |V, Chapter XIX. ‘The
[Footnote continued on next page}

38a

that the prerogative of the House of Commons or Represen-
tatives had the purpose of preventing the legislatures from
delegating local or parochial taxing powers to subordinate
institutions. The concept has never prevented such delega-
tions as far as the District’ or for the territories,'® where the
same considerations apply, are concerned. The lack of au-

|ootnote continued from the previous page]

land-tax was not imposed without a quarrel between the Houses. The Com-
mons appointed commissioners to make the assessment. These commis-
sioners were the principal gentlemen of every county, and were named
in the bill. The Lords:thought this arrangement inconsistent with the
dignity of the peerage. They therefore inserted a clause providing that
their estates should be valued by twenty of their own order. The Lower
House indignantly rejected this amendment, and demanded an instant
conference. After some delay, which increased the ill-humor of the Com-
mons, the conference took place. The bill was returned to the Peers with
a very concise and haughty intimation that they must not presume to
alter laws relating to money.”

* Congress, in incorporating the City of Washington in 1802, gave the
municipal corporation ‘full power and authority to pass all by-laws and
ordinances,” and the power *‘to lay and collect taxes."’ Act of May 3, 1802
Incorporating the City of Washington, Section 7, 2 Stat. 195. Ten years
later, Congress gave additional power to the city government, ‘‘to lay
taxes on particular wards, parts or sections of the city, for their particular
local improvements.’ Act of May 4, 1812 Amending the Charter of
Washington, Section 5, 2 Stat. 721. Shortly thereafter, Congress gave
authority to the Levy Court for Washington County for certain
enumerated purposes ‘‘and all other general county purposes, annually
|to] lay a tax on all the real and pesonal property in the said county."’
Act of July 1, 1812 Relative to Levy Court of Washington County, Sec-
tion 8, 2 Stat. 771. In later reorganizations of the city and county govern-
ments in the District of Columbia, Congress delegated authority to enact
tax measures. See Act of May 15, 1820 Reorganizing the Government of
the City of Washington, Sections 7, 8, 13, 2 Stat. 853 (reprinted D.C. Code
Section 1-70 (1981); Act of May 14, 1848 Reorganizing the Government
of the City of Washington, Sections 2, 3, 9, 11, 9 Stat. 233 (reprinted at
D.C. Code Section 1-70 (1981)); Act of March 3, 1863 to Define the Powers
and Duties of the Levy Court of Washington County, Sections 3, 4, 12
Stat. 799 (reprinted at D.C. Code Section 1-83 83 (1981)); Act of February
21, 1871 To Provide a Government for the District of Columbia, Sections
14, 18, 20, 21, 22, 23, 29, 37, 16 Stat. 419 (reprinted at D.C. Code Section
1-92 (1981)).

Territonal Organic Acts of: Louisiana, Section 4 (March 26, 1804,
2 Stat. 283, 284); Wisconsin Section 6 (April 12, 1863, 5 Stat. 10, 12-13,
fowa Section 6 (June 12 1838, 5 Stat. 235, 237); Oregon Section 6 (Aug.
14, 48, 9 Stat. 323, 324); Minnesota Section 6 (March 3, 1849, 9 Stat. 4-3.
|Footnote continued on next page]

39a

thority for the argument does not persuade this Court to
follow it.

The next argument is that the delegation of taxing power
is prevented by Article VI, Clause 2 which provides that a
state may not, consistent with the Supremacy Clause, lay
a tax directly on the United States and by Section 23(a)(3)
of the Home Rule Act which prohibits any act which con-
cerns the functions or property of the United States or which
is not restricted in its application exclusively in or to the
District. The argument arises generally out of statements
in the record that if the District passed a sales tax as have
many of the states enacting telecommunications laws it
would find that about half of the intended taxpayers were
exempt i.e. the Federal Government, the District Govern-
ment, Foreign Embassies and chanceries and a number of
charitable and educational foundations — hence the need for
a gross receipts tax. The carriers adroitly counter by charg-
ing that pass-through provisions in reality then mean that
the tax is sought to be imposed on the United States as pro-
hibited by the Constitution and the federal function provi-
sion of the Home Rule Act. The law however is that the
Constitution permits a State to tax the gross receipts of those
who do business with the United States, James v. Dravco
Contracting Co., 302 U.S. 134, 149, 160, (1937); Silas Mason
v. Washington Tax Commission, 302 U.S. 186, 190, 210,
(1937) even if the total reciepts of a contractor are from the
United States and the tax will be borne by the Government,

{Footnote continued from the previous page]

405); New Mexico Section 7 (Sept. 9, 1850, 9 Stat. 446, 449); Utah Section
6 (Sept. 9 1850, 9 Stat. 453, 454-55); Washington Section 6 (March 2, 1853,
10 Stat. 172, 175); Nebraska and Kansas Section 6 (May 30, 1854, 10 Stat.
277, 279); Colorado Section 6 (Feb. 28, 1861, 12 Stat. 172, 174); Nevada
Section 6 (March 2, 1861, 12 Stat. 209 211); Dakota Section 6 (March 2,
1861, 12 Stet. 239, 241); Arizona Section 2 (same powers as New Mexico
Territory) (Feb. 24, 1863, 12 Stat. 664, 665); Idaho Section 6 (March 3,
1863, 12 Stat. 808, 810); Montana Section 6 (May 26, 1864; Section 13
Stat. 85, 88); Wyoming Section 6 (July 25, 1868 Section 6 (May 26, 1864,
13 Stat. 85, 88); Wyoming Section 6 (July 25, 1868, 15 Stat. 178, 180);
Oklahoma Section 6 (May 2, 1890, 26 Stat. 81, 84); Virgin Islands, 48
U.S.C. Section 1574(a).

40a

United States, v. New Mexico, 455 U.S. 720, 735, 741, (1982).
See also, California State Board of Equalization v. Sierra
Summit, Inc., 490 U.S. 844, (1989).

Next comes the carriers’ claim that the tax legislation is
illegal because long distance calls are interstate and the
District of Columbia may not “‘enact any act . . . whichis
not restricted in its application exclusively in or to the
District,’’ D.C. Code 1-233 (a)(3); 1-202. This is too cramped
a reading of the Home Rule Act. The Act was intended to
delegate to the District the same character of legislative
power as that held by a state except where specifically pro-
hibited. And, the legislative history clearly indicates that
the ‘‘Congress intended in 1-233(a)(3) to withhold from local
officials the authority to affect decisions made by federal
officials in administrating federal laws that are national in
scope as opposed to laws that relate solely to the District
of Columbia’’ The District of Columbia v. Greater
Washington Labor Council, supra. at 116. The limitation of
legislation to District purposes cannot be held to prevent
the District from enacting the same kind of law as the II-
linois statute approved in Goldberg v. Sweet, Direct of II-
linois Revenue, et al., 488 U.S. 252 (Jan. 10, 1989).

II

The legislation presents no undue burden upon interstate
commerce and is not unconstitutional.

The second issue concerns the charges of the carriers that
the legislation violated the due process and commerce clauses
of the Constitution. The contention was persuasive to Judge
Iraline Barnes in Tax Docket 4011-87. The Judge now sitting
has the highest respect for his former colleague but notes
that two events, occurring well after Judge Barnes’ Opinion
and Order were docketed, have significantly altered affairs.
The first of these is the decision of the United States Supreme
Court in Goldberg v. Sweet, Director, Illinois Department
of Revenue, et. al., supra.; second, the enactment of the Toll
Telecomunications Act of 1989 adding two provisions which
Judge Barnes had found fatally wanting in the 1987 Act.

nO eT TT

4la

Goldberg affirmed the Illinois Excise Tax Act imposing a
tax on gross charges of interstate telecommunications which
originated or terrainated in the state and were charged to
an Illinois service address. The case was not simply an ad-
dition to the ‘‘tangled underbrush” "' of commerce clause
decisions. It was instead an opinion of sharp insight and
great clarity. The Court saw that prior decisions in the
telecommunications field had been based upon the percep-
tion that long distance systems operated through a complex
of wires and switchboards bearing a ready analogy for tax
purposes to railroad lines and bus routes, whereas modern
communication technology actually operated through a com-
plex of satellites, fiber optics, microwave radios, electronic
impulses and computerized networks having little if any rela-
tionship to older techniques’.

With this fresh perspective the Supreme Court measured
the Illinois statute by the four pronged test it had established
in Complete Auto Transit, Inc. v. Brady, 430 US 274 (1977).
Such a procedure is obviously the one to be followed here.

Under Complete Auto a state tax will withstand Commerce
Clause scrutiny if

. the tax is applied to an activity with a sub-
stantial nexus with the taxing state, is fairly appor-
tioned, does not discriminate against interstate
commerce and is fairly related to services provided
by the state.’

Since there is no question about the nexus of the District
of Columbia the initial measure is in respect of the second
prong, fair apportionment. Apportionment is determined by
examining whether a tax is internally and externally con-
sistent.'* This Court concludes that the D. C. Tax statutes

‘' Northwestern State Portland Cement v. Minnesota, 358 US 450, 457
(1987).

‘Goldberg 488 US 254, 255.
‘Complete Auto, 488 US 279.
‘Goldberg, 488 US 261.

42a

of 1987 and 1989 are internally consistent’ . . . for if every
state taxed only those interstate calls which only charged
to an in state service address only one state would tax each
interstate call’’.'®

‘The external consistency test asks whether the state has
taxed only that portion of the revenues from the interstate
activity which reasonably reflects the in state component
of the activity being taxed’’'®

Goldberg then notes that, ‘‘we doubt that states through
which the calls electronic signals merely pass have a suffi-
cient nexus to tax that call’’ and ‘‘we also doubt that ter-
mination of an interstate telephone call, by itself, provides
a substantial enough nexus for a state to tax a call.’’”’

The Court added, ‘‘We recognize that if the service address
and billing location of a taxpayer are in different States some
interstate telephone calls could be subject to multiple taxa-
tion. This limited possibility of multiple taxation, however,
is not sufficient to invalidate the Illinois statutory scheme.”
‘To the extent that other States’ telecommunications taxes
pose a risk of multiple taxation, the credit provision contain-
ed in the Tax Act operates to avoid actual multiple taxa-
tion.'*”’

To the present Court the combination of the Goldberg opi-
nion and the credit provision of the 1989 Act have destroyed
the charge that there is a failure fairly to apportion the tax.

The carriers claim that the Gross Receipts Tax does not
withstand scrutiny under the third prong of the Complete
Auto test. They argue that the Act is fatally discriminatory
because it allows for a credit and/or exemption from the
District’s personal property, sales and use taxes to the ex-
tent that property subject to such taxes is used to generate
the gross receipts which are subject to tax.

'’ Goldberg, 488 US 261.
‘© Goldberg, 488 US 261.
Goldberg, 488 US 263.
'*Goldberg, p. 264.

43a

The fault of the argument is that discrimination found to
be invidious under the Commerce Clause is that between
interstate and intrastate commerce. The third prong of Com-
plete Auto exists to ensure that a tax ‘‘does not discriminate
against interstate commerce.’’ Complete Auto Transit v.
Brady, supra. at 279. ‘Traditionally applied, the discrimina-
tion doctrine demands substantially equal treatment of
interstate and intrastate business under the tax laws of a
given state.”’ Shores: State Taxation of Gross Receipts and
the Negative Commerce Clause. 54 Missouri Law Review 555
(1989). The 1987 Act at issue does not discriminate at all
between intradistrict and interstate carriers. In fact, the Act
is only applicable to interstate carriers. The Act’s personal
property credit/exemption provision is available to any long
distance carrier, regardless of whether it is an intradistrict
or an out-of-state company, insofar as it owns property in
the District which is used to generate gross receipts.

Neither is the nature of the matter changed by referring
to the Manufacturing/Wholesaling Acts of West Virginia and
Washington treated in Armco, Inc. v. Hardesty, 467 U.S.
638 (1984) and Tyler Pipe Industries, Inc. v. Washington
State Department of Revenue, 483 U.S. 232 (1987). In these
cases, companies manufacturing and selling within state were
taxed at a lower rate than those companies manufacturing
instate and selling out-of-state or manufacturing out-of-state
and selling instate. The statutes involved were facially and
practically discriminatory statutes paralyzing interstate
commerce and favoring local transactions. The 1987 Gross
Receipts Act is facially neutral. Every long distance carrier
owning property in the District of Columbia is subject to
a personal property tax imposed by the District and every
long distance carrier is entitled to a credit/exemption to the
extent that his personal property is used to produce gross
receipts. Those companies who do not own property in the
District are not only unable to avail themselves of the per-
sonal property exemption/credit, but they are also free from
all personal property taxes in the District of Columbia. All
of the Petitioners except Long Distance Services of Wash-

44a

ington Inc. (which leased capacity) have taken the credit in
substantial amounts regarding the taxes which are the sub-
ject of the present suit for refund. ‘Such a result would not
arise from impermissible discrimination against interstate
commerce but from fair encouragement of in-state business.”
Armco, Inc. v. Hardesty, supra. at 645. This credit has been
preserved on the taxes against the telephone companies from
the original Gross Earnings Tax of 1902 through the Toll
Telecommunication Act of 1989.

Finally, the fourth and last prong of the Complete Auto
test is whether the tax is fairly related to services provided
by the taxing state. ‘“Beyond the threshold requirement, the
fourth prong of the Complete Auto Transit test imposes the
additional limitation that the measure of the tax must be
reasonably related to the extent of the contact, since it is
the activities or presence of the taxpayer in the State that
may properly be made to bear a ‘‘just share of State tax
burden.”’ Commonwealth Edison Co. v. Montana, 453 U.S.
609, 626 (1981) (quoting Western Live Stock v. Bureau of
Revenue, 303 U.S. 250, 254 (1939). The District of Colum-
bia provides many municipal services which are accessible
to the long distance companies. Telephone company employ-
ees drive to and from work on the District’s roads, the water
system is available for their use, and in the event of an
emergency, the District’s police and fire squadrons stand
ready to come to their aid. The carriers are able to avail
themselves of all the amenities that the nation’s capitol has
to offer and the gross receipts tax represents their “just
share’ of the tax burden.

III

The retroactive features of the tax statutes are constitu-
tionallv permissible and are valid. The feature complained
of by the companies in this respect is that the act at issue
was passed July 17, 1987 with its emergency act effective
that date and the permanent act effective October 1, 1987,
both retroactive to July 1, 1986.

Retroactivity in legislation often renders it constitutionally
suspect. However, tax statutes are a separate and distinct

45a

category. For example, Valid Retroactive Inxome Tax laws
(as distinguished from gift taxes) are more often\he rule than
the exception and though the claim of “ ‘arbitrary retroac-
tivity’ may continue . . . torear its head in tax Wyiefs but
for practical purposes, in this field, it is as dead a\ wager
of law.’’'* Both sides in this case have advised that the law
in this area has best been expressed by the opinion o{ Mr.
Justice Stone in Welch v. Henry, 305 U.S. 134 (1938), though
they differently interpret it.

One of the crucial passages of Weich recites as follows:

The objection chiefly urged to the taxing statute
is that it is a denial of due process of law because
in 1935 it imposed a tax on income received in 1933.
But a tax is not necessarily unconstitutional because
retroactive. Milliken v. United States, 283 U.S. 15,
21; and cases cited. Taxation is neither a penalty im-
posed on the taxpayer nor a liability which he
assumes by contract. It is but a way of apportion-
ing the cost of government among those who in some
measure are privileged to enjoy its benefits and must
bear its ena. Since no citizen enjoys immunity
from that burden, its retroactive imposition does not
necessarily infringe due process, and to challenge the
present tax it is not enough to point out that the
taxable event, the receipt of income, antedated the
statute.

In the cases in which this Court has held invalid
the taxation of gifts made and completely vested
before the enactment of the taxing statute, decision
was rested on the ground that the nature or amount
of the tax could not reasonably have been an-
ticipated by the taxpayer at the time of the par-
ticular voluntary act which the statute later made
the taxable event. Nichols v. Collidge, 274 U.S. 531,
542; Untermeyer v. Anderson, 276 U.S. 440, 445
(citing Blodgett v. Holden, 275 U.S. 142, 147);
Coolidge v. Long, 282 U.S. 582. Since, in each of
these cases, the donor might freely have chosen to

'* Ballard: Retroactive Tax Legislation, 48 Harvard Law Review 592
(1935); See also, Hochman: The Supreme Court and the Constitutionality
of Retroactive Legislation, 73 Harvard Law Review 692, 706 (1960).

46a

give or not to give. the taxation, after the choice was
made. of a gift which he might well have refrained
from making had he anticipated the tax, was
thought to be so arbitrary and oppressive as to be
a denial of due process. But there are other forms
of taxation whose retroactive imposition cannot be
said to be similarly offensive. because their incidence
is not on the voluntary act of the taxpayer. And even
a retroactive gift tax has been held valid where the
donor was forewarned by the statute books of the
possibility of such a levy, Milliken v. Uni ted States,
supra. 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 ap-
plication is so harsh and oppressive as to transgress
the constitutional limitation.

In analyzing the 1987 tax to determine whether it is uncon-
stitutionally ‘“*harsh and oppressive’ it must be noted that
the District had a compelling reason to act. A loss in tax
revenue of 23.6 million dollars had developed between the
divestiture of January. 1984 and July of 1986 which other
taxpayers had to bear.” It does not appear to this Court so
unreasonable or oppressive when the Emergency Act accom-
panying the 1987 Tax Act became effective as of July, 1987
to apportion the burden for the preceding tax year to the
Carriers. The interval was no longer than the tax approved
in Welch and in many of the cases collected by Mssrs. Ballard
and Hochman in their articles cited supra.

The Petitioners here argue that they are entitled to the
same tests as were the gift taxpayers mentioned in Welch,
i.e. to notice of the impending tax and sufficient time to take
measures to avoid it. This Court holds that the true test for
the Petitioners is the Income Tax Test i.e. whether the tax
is unconstitutionally harsh and oppressive. Assuming
arguendo, however that the Gift Tax test is applicable the
carriers position is not improved. Circumstances can provide

* The District had to refund 14.7 million dollars from gross receipts
collections from the period January 1984 through June 1985 and 8.9
million uncollected from July 1985 through June 1986. Report of Com-
mittee on Finance and Revenue on Bill 7-186, Gross Receipts Tax Amend-
ment Act of 1987 at 8. D.C. Exhibit #15 at 929.

j

47a

notice, United States v. Darusmont, 449 U.S. 292 (1981). The
carriers have either been parties to or have been significantly
affected by an avalanche of litigation related to the revolu-
tion in the telecommunications industry.”!

Armed with this litigation experience it was certainly
reasonable for the industry to foresee as did Judge Nebeker
in C&P IV that a new tax to halt the substantive loss of
revenue was inevitable.*? Also with the failure of the tax on
the local operating company (C&P) and the predisposition
of the District to the Gross Receipts Tax it was certainly
foreseeable that such a tax would be levied on the Long
Distance Carriers covering as great a time interval as would
legally be possible. The claim that if they had only known
of the pendency of the tax the carriers would have closed
their business in the District or would have exercised some
undetailed organizational manuever to avoid the tax is not
attractive. An examination of the size of the carriers’ gross
receipts in the Kerwin Affadavit®’ and the words of Welch
(p. 148) ‘‘We cannot assume that stockholders would refuse
to receive corporate dividends even if they knew that their
receipt would be subject to a new tax or an increase in an
old one."’ provide answer to this claim.

‘'e.g. The drive by the OCC’s to enter the market. (Bell System Tariff
Offering of Local Distribution Facilities for Use by other Common Car-
riers, 46 FCC2d 413 aff'd sub nom Bell Telephone Co. v. FCC, 503 F2d
1250 (1974) cert. den. 422 U.S. 1026; MCI Telecommunications v. FCC
180, 188 U.S.App.D.C. 327, 580 F.2d 590, cert. den. 439 U.S. 980 (1978));
the break up of the Bell System (United States v. AT&T, supra) and the
tax cases governing the industry (C&P III and C&P IV, supra, Chesapeake
and Potomac Telephone Co. v. District of Columbia, 78 U.S.App.D.C. 53,
137 F.2d 674 (1943) called here C&P I and Chesapeake and Potomac
Telephone Co. v. District of Columbia, 86 U.S.App.D.C. 124, 179 F.2d
814 (1950) called here C&P II.

*2*"We hasten to note however that the significant structure changes
in the telephone industry resulting from the divestiture of AT&T (citing
cases) render the tax consequences of those changes appropriate for
legislative consideration. C&P IV at p. 82.

** Affadavit of supervising auditor Kerwin attached to the motion of
the District of Columbia for Summary Judgment.

Pore ere Y

Pa
3
|
;
3
+
:
4
a

48a

The final and most subtle argument in this set is that prin-
ciples of public utility law prohibiting retroactive rates or
surcharges render the retroactive portion of the tax between
the dates new tariffs might have been filed and July 1, 1986
to be invalid.

The authorities do indeed support the proposition that a
public utility may not set rates to recoup past losses nor may
a carrier recover from its ratepayers past deficiencies in rates
citing Nader v. FCC, 172 U.S. App. D.C. 1, 20, 520 F.2d 182,
202 (1975, citing Galveston Electric Co. v. Galveston, 258
U.S. 388 (1922), Washington Gas Light Co. v. Baker, 88 U.S.
App. D.C. 115, 188 F.2d 11 (1950), Williams v. WMATC 134
U.S. App. D.C. 342, 415 F.2d 922 cert. den. 393 U.S. 1081
(1969). Taxes however are not a loss. They are‘‘. . . neither
a penalty imposed on the taxpayer nor a liability which he
assumes by contract. It is but a way of apportioning the cost
of government. . . ."’ Welch at p. 146. They are instead
operating costs and “there is no difference in this respect
between state and federal taxes or betwen incomes taxes and
others.’’ Galvestion Electric Co. v. Galveston, supra at 399.
All parties here seem to agree that the ‘‘pass-through”’
method is not feasible but they differ upon the suitability
of the raising of rates. The answer to this is that before the
present court is the question of the validity of a tax and not
the solution to a rate case. The correct fora to determine the
latter are the Federal Communications Commission and the
United States Court of Appeals for the District of Colum-
bia Circuit.** Retroactive rates have certainly been disallowed
in many circumstances but not always. Bell Telephone Com-
pany of Pennsylvania v. Federal Communications Commis-
sion, et al., 245 U.S.App.DC 386, 761, 789 F.2d (See the
number of occasions when amortization has been approved
for regulatory expenses, obsolete property, acquisition ad-
justments, inflation, and acceleration of income tax deprecia-
tion.)?° There has been here no reference to any attempt by

“Communication Act of 1934, 47 U.S.C.A. #204, 204.

1 Priest, Principles of Public Utility Regulation Ch. 3 ‘Elements of
Rate Making.”

49a

the petitioners to seek an adjustment by the FCC of the tax
difficulties created by the break-up of the Bell System and
this Court will not presume that such is impossible. The
Court's task is to determine the validity of the 1987 tax and
it holds the Act constitutional and valid.

IV.
Conclusion

Any other points raised by the Plaintiffs the Court con-
siders peripheral to matters decided above and if not they
are considered and found unpersuasive.

For the reasons as aforesaid the Court finds that the
Respondent the District of Columbia is entitled to grant of
its Cross-Motion for Summary Judgment and further finds
that the Petitioners’ motions for Summary Judgment must
be denied.

ORDER

The Court having before it the cross motions for Summary
Judgment of the above captioned parties and having found
that there exists in the premises no genuine issue of material
fact and that the Respondent, the District of Columbia, is
entitled to judgment as a matter of law, now therefore the
cross motions of the Respondent for Summary Judgment
is hereby GRANTED and the motions of Petitioners and
each of them for Summary Judgment are hereby DENIED,
and it is this 18th day of February 1992

ORDERED that the Respondent, District of Columbia is
hereby granted Judgment of Dismissal on the Merits as to
each and every petition filed herein, and the aforesaid peti-
tions are dismissed with prejudice.

/s/ By: John F. Doyle

JOHN F. Doy te,
Senior Judge

cc:

50a

William Malone, Esquire

Miller & Holbrooke

1225 - 19th Street, NW, Suite 400
Washington, DC 20036

Attorney for U S Spring, Cable &

Wireless and Metromedia Communications
nee CSI nee ITT

John M. Wood, Esquire
Reed Smith Shaw & McClay
1200 - 18th Street, NW
Washington, DC 20036
Counsel for AT&T

Joseph A. Rieser, Jr., Esquire
Reed Smith Shaw & McClay
1200 - 18th Street, NW
Washington, DC 20036
Counsel for AT&T

Paul M. Tendler, Esquire
Tendler & Biggins

12th Floor

1090 Vermont Avenue, NW
Washington, DC 20005

Counsel for Metrocom nee TMC

Mitchell F. Brecher, Esquire
Dow, Lohnes & Albertson

1255 - 23rd Street, NW, Suite 500
Washington, DC 20037

Counsel for ALLNET

Russell M. Blau, Esquire

Swidler & Berlin

3000 K Street, NW, Suite 300

Washington, DC 20007-3841

Counsel for Mid-Atlantic and LDS of Washington

5la

Eric F. Facer, Esquire
Zuckerman, Spaeder, Goldstein,
Taylor and Kolker

1201 Connecticut Avenue, NW
Washington, DC 20036

Counsel for CONTEL nee Realcom

Charles R. Wunsch, Esquire
United Telecommunications, Inc.
KSWESALK

Westwood, Kansas 66205

John Payton, Esquire
Corporation Counsel, D. C.

Julia L. Sayles, Esquire

Assistant Corporation Counsel, D. C.
Chief, Finance Section

Communitv Development Division
51 N Street, NE, Room 310
Washington, DC 20002

Arlene L. Robinson, Esquire
Acting Deputy Corporation Counsel, D. C.
Community Development Division

Edward E. Schwab, Esquire
Assistant Corporation Counsel, D. C.
Appellate Division

DISTRICT OF COLUMBIA COURT OF APPEALS

No. 88-1482
MaRION S. BARRY, JR., ef al., APPELLANTS,
V.

AMERICAN TELEPHONE & TELEGRAPH COMPANY and
AT & T COMMUNICATIONS OF WASHINGTON, D.C., INC.,
APPELLEES,

and

No. 88-1483
DISTRICT OF COLUMBIA, et al., APPELLANTS,
Vv.

U S SPRINT COMMUNICATIONS CoMPANY, et al.,
APPELLEES,

and

No. 88-1535

AMERICAN TELEPHONE & TELEGRAPH COMPANY and
AT & T COMMUNICATIONS OF WASHINGTON, D.C., INC.,
CROSS-APPELLANTS,

La

MARION S. BARRY, JR., et al., CROSS-APPELLEES,

and

[1517-A]

53a
No. 88-1537

U S SPRINT COMMUNICATIONS COMPANY, et al.,
CROSS-APPELLANTS,

V.

MARION S. BARRY, JR., et al., CROSS-APPELLEES.

Appeals from the Superior Court of the
District of Columbia

(Hon. Iraline Green Barnes, Trial Judge)
(Argued March 29, 1989 Decided July 18, 1989) *

Edward S. Schwab, Assistant Corporation Counsel, with
whom Frederick D. Cooke, Jr., Corporation Counsel, and
Charles L. Reischel, Deputy Corporation Counsel, were on
the brief, for appellants ‘cross-appellees.

Julia L. Sayles, Assistant Corporation Counsel, and
Pastell Vann, Assistant Corporation Counsel, entered ap-
pearances for appellants /cross-appeilees.

John M. Wood, with whom Joseph A. Reiser, Jr., was on
the brief for apvellees cross-appellants American Tele-
phone & Telegraph Company and AT & T Communica-
tions of Washington, D.C., Inc.

William Malone, with whom John F. Noble, was on
the brief, for appellees cross-appellants U S Sprint Com-
munications Company Ltd. Partnership, ITT Communi-
cations Services, Inc., and Cable and Wireless Communi-
cations, Inc.

* The decision in this case was released this date.

(1517-B]

tp | jai Ae aA BE ALGAAS I BO 9 Kan it

ae

deep AR ham Re EN lal Ar

54a

Paul M. Tendler entered an appearance for appellee/
cross-appellant TMC Long Distance of Washington In-
corporated.

Mitchell F. Brecher entered an appearance for appellee/
cross-appellant Allnet Communications Services, Inc.

Andrew D. Lipman and Russell M. Blau entered ap-
pearances for appellees /eyoss-appellants Mid Atlantic
Telecom, Inc., Long Distance Service of Washington, Inc.,
and Contel Office Communications, Inc.

Craig T. Smith and Patrick E. McMahon entered ap-
pearances as of counsel for appellee/cross-appellant US
Sprint Communications Company.

Sandra K. Kincaid entered an appearance as of counsel
for appellee /eross-appellant ITT Communications & In-

formation Services, Inc.
Before MAcK, NEWMAN and BELSON, Associate Judges.

NEWMAN, Associate Judge: The District of Columbia,
et al. (the District) appeal a declaratory judgment en-
tered by the Tax Division of the Superior Court that the
Gross Receipts Tax Amendment Act of 1987 and its
companion bill, the Gross Receipts Tax Amendment Emer-
gency Act of 1987, which impose a retroactive and
prospective tax on the sale of telecommunications services
originating from or terminating on equipment located in
the District of Columbia, are unconstitutional.' On cross-

1 While these appeals were pending, the Council for the Dis-
trict of Columbia enacted new telephone tax legislation in
response to the adverse ruling below and the Supreme Court
decision in Goldberg v. Sweet, 109 S. Ct. 582 (1989), a case
upholding the constitutionality of an Illinois excise tax on
interstate telecommunications. 36 D.C. Reg. 1911-20 (1989) ;

[1517-C]

55a

appeal, American Telephone & Telegraph Co. and U §
Sprint Communications Company, et al. (collectively re-
ferred to as the Carriers) request that the decision below
be affirmed insofar as it holds the Acts unconstitutional
and reversed insofar as it rejects their claims that the
Acts are unconstitutional on other grounds. Although
the constitutional issues may be inviting, we are barred
from reaching them under our so-called anti-injunction
statute, which provides that “[n]o suit shall be filed to
enjoin the assessment or collection by the District of
Columbia or any of its officers, agents, or employees of
any tax.” D.C. Code § 47-3307 (1987). Therefore we
reverse and remand with instructions to vacate the trial
court’s declaration of unconstitutionality.

I.

This litigation indirectly springs from the divesture of
American Telephone and Telegraph Co. (AT & T) in
January 1984. The new relationships which evolved among
the telecommunications companies operating in the Dis-
trict of Columbia following the divestiture changed sig-
nificantly the implications and application of the District’s
gross receipts tax scheme, including a substantial reduc-
tion in taxable revenues. The District’s attempt to adjust
to the post-divestment realities of the telecommunications

see Toll Telecommunications Service Tax Emergency Act of
1989, D.C. Act 8-2, 36 D.C. Reg. 1892-1903 (1989) (emer-
gency legislation effective March 1, 1989, for a period of
ninety-days) ; Toll Telecommunication Service Tax Temporary
Act of 1989, Act 8-14, 36 D.C. Reg. 2375-2386 (1989) (tempo-
rary legislation that will take effect after completion of the
thirty-day congressional review period and remain in effect
for 225 days, during which time the Council will consider
permanent legislation).

[1517-D]

56a

business by amending the then existing tax laws gave
rise to the instant suit.’

2 Prior to the divestiture, Chesapeake and Potomac Tele-
phone Company (C & P), a wholly owned local subsidiary of
AT & T, was the sole provider of both local and long-distance
telephone service in the District of Columbia. C & P provided
long distance service to its customers through a “payment-
for-payment” arrangement with AT & T and other affiliated
local telephone companies. Under this arrangement, C & P
collected the long-distance charges from its customers and
passed the revenues on to AT & T. In turn, C & P received
a share of the total long-distance revenues collected by
AT & T from all of its subsidiaries. The “division of reve-
nues” which C & P received from AT & T was subject to the
District of Columbia’s gross receipts tax under D.C. Code
§ 47-2501 (1981 & Supp. 1988), as payments derived from
the sale of public utility services within the District of
Columbia. See Chesapeake & Potemac Tel. Co. v. District of
Columbia, 78 U.S. App. D.C. 53, 54, 187 F.2d 674, 674-75
(1943) (allowing taxation of C & P because it was receiving
revenue for public utility services which it rendered for the
public).

At the same time, C & P also had arrangements with un-
affiliated long-distance telecommuniations carriers (OCC’s)
for their use of C & P’s network access services and local
facilities. Under this arrangement, C & P played no part in
servicing or billing the OCC’s customers. In return for the
use of network access services and local facilities, C & P
received “access payments” from the OCC’s. Unlike the
division of revenues C & P received from AT & T, these
access payments were exempt from the gross receipts tax
because the charges were not derived from the sale of public
utility services within the District of Columbia. See Chesa-
peake & Potomac Tel. Co. v. District of Columbia, 117 US.
App. D.C. 21, 26, 325 F.2d 217, 222 (1963) (“when a public
service company supplies services or facilities to another
public utility company in the same field for the sole purpose
of enabling the latter company to serve its customers more
efficiently, such services are not ‘public utility commodities

[1517-E]

57a

Hoping to recapture the revenues lost by the changes
attendant to the divestiture, on July 17, 1987, the Council
of the District of Columbia enacted the Gross Receipts
Tax Amendment Act of 1987 (Act).* 34 D.C. Reg. 5068-
73 (1987). Pursuant to the Council’s emergency powers,
they also passed the Gross Receipts Tax Amendment
Emergency Act of 1987, making the provisions of the
Act effective as of July 17, 1987, for a period of ninety
days, and expiring on October 1, 1987. 34 D.C. Reg.
5275-80 (1987). The Emergency Act made the tax retro-
active to July 1, 1986, without any payment being due
before October 30, 1987.4

or services,’ within the meaning of our statute, and thus are
not subject to the gross receipt tax.”’).

The divestiture ended the payment-for-payment arrange-
ment between C & P and AT & T. Accordingly, in January
1984, C & P began treating payments received from AT & T
for the use of its network access services and local facilities
as access payments, and excluded those payments from its
gross receipts. This ‘ax treatment was eventually upheld
in District of Columuca v. Chesapeake & Potomac Tel. Co.,
516 A.2d 181, i184 (D.C. 1986).

3 The District estimated that as of 1986, the exclusion of
access charges mandated by this court’s decision in Chesa-
peake & Potomac Tel. Co., supra, 516 A.2d 181, resulted in
a revenue loss of approximately $23.6 million. Under the
Act, the District expected to recoup about $20 million from
the retroactive portion of the tax and approximately $18.5
million per year thereafter. See D.C. Council Committee on
Finance and Revenue, Report on Bill 7-186, “Gross Receipts
Tax Amendment Act of 1987,” at 7-8 (1987).

4 The purpose of the emergency legislation was to allocate
certain revenues to a prior fiscal year and to provide the
Department of Revenue authority and substantial lead time
to adopt rules governing collections of revenue under the
Act. 34 D.C. Reg. 5275 (1987).

[1517-F]

58a

The “permanent” Act became effective on October 1,
1987. The Act amended D.C. Code § 47-2501 (1981) to
require telecommunications companies previously exempt
from the gross receipts tax to pay a 6.7% tax on the

monthly gross receipts from the sale of toll tele-
communication services that originate from or
terminate on telecommunication equipment lo-
cated in the District and for which a toll charge
or periodic charge is billed to an apparatus, tele-
phone, or account in the District, to a customer
location in the District, or to a person residing
in the District, without regard to where the bill
for the service is physically received.

D.C. Law 7-25, §2, 34 D.C. Reg. 5068 (1987), codified
at D.C. Code § 47-2501 (b) (Supp. 1988). The tax is
self-executing, that is, every month the companies must
file an affidavit with the Mayor setting forth the amount
of monthly gross receipts on which payment of the tax
‘s made. D.C. Code § 47-2501 (b) (1) (A) (Supp. 1988).
The legislation also created exemptions from the District’s
personal property, sales and use taxes where the company
is also subject to the gross receipts tax, as well as a
credit against the gross receipts tax for personal property
tax paid to the District during the period of retroactivity,
July 1, 1986 through September 30, 1987. D.C. Code
§§ 47-2501 (b) (3) (B), (C), -2005 (5) & -2206 (Supp.
1988).

On October 7, 1987, U S Sprint Communications Com-
pany, et al., filed an action in the civil division of Superior
Court seeking a preliminary injunction, pendente lite, to
enjoin the District from collecting all taxes under the Act.°

5U S Sprint Communications Company (U S Sprint),
TMC Long Distance of Washington Incorporated (TMC)

[1517-G]

59a

While this action was pending, payments on the prospec-
tive and retroactive portions of the tax became due on
October 20, 1987 and November 1, 1987, respectively.
On or about November 16, 1987, the Department of Reve-
nue issued notices of deficiency assessments to U § Sprint,
Allnet, Mid Atlantic, RealCom, Long Distance and Star-
net, for failure to pay the tax.* The notices informed the
companies that enforcement measures to collect the tax
would be taken if payments were not received by No-
vember 25, 1987. Thereupon U §S Sprint, et al., filed an
amended complaint and an amended motion for a pre-
liminary injunction. With respect to the complaint, the
parties withdrew the prayer for a permanent injunction
and instead requested declaratory relief.

On November 24, 1987, American Telephone & Tele-
graph Company and AT & T Communications of Wash-
ington, D.C., filed a motion to stay that was almost
identical to the motion for preliminary injunction filed
by U S Sprint, et al. The following day, the two actions
were consolidated and transferred to the Tax Division,
where the court orally granted a temporary restraining
order on the collection of taxes, but withheld a written
order pending a hearing on the merits. After oral argu-
ment, on December 8, 1987, ’udge Barnes granted the
Carriers’ motion for a preliminary injunction notwith-

and Starnet International, Inc. (Starnet) were the original
plaintiffs in Civil Action No. 8599-87. Allnet Communication
Services, Inc. (Allnet), Cable and Wireless Communications,
Inc. (Cable & Wireless), Mid Atlantic Telecommunications,
Inc. (Mid Atlantic), Long Distance Service of Washington,
Inc. (Long Distance) and RealCom Communications Corp.
(RealCom) were permitted to intervene as party plaintiffs
on November 10, 1987.

6 Apparently some of the Carriers filed the requisite affi-
davits, but none paid the tax prior to commencing this suit.

[1517-H]

60a

standing the anti-injunction statute. The court found
that equitable relief was warranted in light of the circum-
stances attendant to the imposition, retroactively, of a
new tax enacted as emergency legislation.

This court granted the District's request for an expe-
dited interlocutory appeal on the grant of the preliminary
injunction motion and in an Order dated October 6, 1988,
we remanded the case after concluding that “the record
does not provide a sufficient basis for us to determine the
correctness of the trial court’s decision.” We therefore
directed the trial court to make more detailed findings of
fact and conclusions of law, or in the alternative, to rule
on the merits.’

Meanwhile, hearings on the merits had been held and
on November 11, 1988, the trial court granted a declara-
tory judgment. The court concluded that the Act’s retro-
active and prospective provisions violate the Due Process
Clause because of the overly burdensome costs of com-
pliance; that the Act violates the Commerce Clause be-
cause it imposes a tax that is unfairly apportioned and
not fairly related to the services provided in the District,
and that application of the Act’s provisions results in
double taxation. The District contends that the declara-
tory judgment should be reversed. The court also found

7 In our Order for Remand we asked, inter alia:

What is the factual and legal basis for the trial court’s
conclusion that this case presents exceptional and extraor-
dinary circumstances so as to warrant injunctive relief,
notwithstanding D.C. Code § 47-3307 (1987)? See Dis-
trict of Columbia v. Green, 310 A.2d 848 (D.C. 1973) ;
see also Bob Jones University v. Simon, 416 U.S. 725,
737 (1974) (injunction may issue only “if it is clear
that under no circumstances could the Government ulti-
mately prevail”) (citing Enochs v. Williams Packing
& Navigation Co., 370 U.S. 1, 7 (1962) ).

(1517-1)

6la

that the Act’s tax exemption/credit provisions do not
violate the Commerce Clause by discriminating in favor
of local business; that Congress’ delegation of legislative
power to tax is fully consistent with the Origination
Clause, and that the Act does not “concern the functions
or property of the United States” in violation of D.C.
Code § 1-233 (a) (3) (1987). On cross-appeal, the Car-
riers urge reversal of these findings.*®

II.

The District argues that D.C. Code § 47-3307 (1987)
deprives this court of subject matter jurisdiction because
it bars any suit that is filed to enjoin the assessment or
collection of a tax by the District of Columbia. Simply
put, the District claims that the Carriers, like all other
taxpayers, should be required to abide by the “pay first
and litigate later” rule, that is, as a condition precedent
to challenging the assessment in court, a party must pay
the tax. D.C. Code § 47-3307 (1987); see D.C. Code § 47-
3303; see also National Trust for Historie Preservation v.
District of Columbia, 498 A.2d 574, 576 (D.C. 1985)
(section 47-3307 “precludes equitable relief when there
is an adequate remedy at law and ensures that the re-
quirements of D.C. Code § 47-3303, that taxes be paid
before they are challenged, is not circumvented.’’).®

§ “Our review of the Tax Division’s decisions is the same as
in other civil cases that are tried without a jury. As to con-
clusions of law, we will not overturn the trial court’s holding
unless it is erroneous.” Chesapeake & Potomac Tel. Co.,
supra, 516 A.2d at 184 (citations omitted).

* There is no dispute that the Carriers have an adequate
remedy at law. Upon payment of the tax, the Carriers may
obtain judicial review of the assessment:

Any person aggrieved by any assessment by the District
of any [gross receipts tax] ... or penalties thereon, may

[1517-J]

62a

The Carriers do not dispute that they failed to fulfill
the jurisdictional requirements of section 47-3307 prior
to commencing this action in Superior Court. Rather,
the Carriers argue that section 47-3307 does not bar the
instant suit because they are seeking declaratory relief
and the statute only prohibits suits for injunctive relief.
Even if the statute is applicable, the Carriers claim that
Judge Barnes was correct in finding that equitable re-
lief is nevertheless warranted because of the exceptional
and extraordinary circumstances presented by the case.

Our first task then, is to determine whether the anti-
injunction statute applies to declaratory relief as well as
injunctive relief. We hold that it does. The generally
recognized purpose of an anti-injunctive statute is to
prevent disruptions in the flow of tax dollars to the state
treasury for government onerations and the provision of
essential public services." Although it is true that the

within 6 months after the date of such assessment appeal
from the assessment to the Superior Court of the District
of Columbia: Provided, that such person shall first pay
such tax together with penalties and interest due thereon
to the D.C. Treasurer.

D.C. Code § 47-3303 (1987) (emphasis added).

10 See Allen v. Regents, 304 U.S. 439, 456 (1938) (Reed, J.,
concurring) (“The prompt collection of revenue is essential
to good government. Summary proceedings are a matter of
right. The Government has been sedulous to maintain a sys-
tem of corrective justice. Any departure from the principle
of “pay first and litigate later” threatens an essential safe-
guard to the orderly functioning of government.”) (foot-
notes omitted); Bull v. United States, 295 U.S. 247, 259
(1935) (“taxes are the life-blood of government, and their
prompt and certain availability an imperious need.”) ; Dows
v. City of Chicago, 78 U.S. 68, 66 (11 Wall.) (1871) (“It
is upon taxation that the several States chiefly rely to obtain
the means to carry on their respective governments, and it is

[1517-K]

63a

language of section 47-3307 refers only to suits to “en-
join” the collection of any tax, we reject the Carriers’
narrow interpretation of that term to preclude only in-
junctive relief, for declaratory relief “may in every prac-
tical sense operate to suspend collection of the state taxes
until the litigation is ended” in the very same manner
that an injunction would. Great Lakes Dredge & Dock
Co. v. Huffman, 319 U.S. 293, 299 (1943).

Undoubtedly, declaratory relief may just as well in-
volve a mere declaration of the parties’ rights without
hampering or restraining the collection of taxes.’ Id. at
299. However, even where declaratory relief involves only
a declaration that a tax regulation is invalid, the threat
of a lawsuit to enforce that judgment effectively restrains

of the vtmost importance to all of them that the modes
adopted to enforce the taxes levied should be interfered
with as little as possible. Any delay in the proceedings of the
officers, upon whom the duty is devolved of collecting the
taxes, may derange the operations of government, and thereby
cause serious detriment to the public.”); see also Maricopa
v. Chatwin, 499 P.2d 190, 197 (Ariz. Ct. App. 1972) ; Pacific
Gas & Electric v. State Bd. of Equalization, 611 P.2d 463,
467, 165 Cal. Rptr. 122, 126 (Cal. 1980) (en banc) ; District
of Columbia v. Keyes, 362 A.2d 729, 737 (D.C. 1976), cert.
denied, 430 U.S. 968 (1977) ; American Can Co. v. McCanless,
193 S.W.2d 86, 88 (Tenn. 1946).

11 Clearly, however, that is not the situation here. Although
the Carriers would have us look away, we cannot ignore
the realities existing outside the fine legal parameters of
this case: the Carriers benefited from the protections afforded
by the preliminary injunction, pendente lite, granted in
Judge Barnes’ Order of December 3, 1987, which order, of
course, was subsumed by the declaratory judgment order of
November 11, 1987. See General Motors Corp. v. Miller
Buick, Inc., 467 A.2d 1064, 1070 (Md. 1983); Theis v. San
Antonio, 55 S.W.2d 931, 933-34 (Tex. Civ. App. 1977);
11 C. WRIGHT & A. MILLER, FEDERAL PRACTICE AND PRO-
CEDURE § 2947 (1973).

[1517-L]

64a

the government’s ability to assess and collect the tax in
a manner that is just as coercive as an injunction, though
less immediate. In other words, for all practical pur-
poses, the government is equally precluded from assess-
ing and collecting the tax whether it is injunctive or
declaratory relief that is granted. In this context then,
we fail to see any distinction between the two types of
anticipatory relief that warrants dissimilar treatment
under section 47-3307.

Furthermore, a contrary construction of section 47-
3307 would undermine the purpose of the statute by con-
doning prepayment interference with the collection of
taxes in one context, declaratory relief, and condemning
it in another, injunctive relief. We doubt that Congress
intended such an arbitrary result. Finally, our interpre-
tation compo

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1707%3A2. Public record. Not legal advice.