Opposition Brief — Mathy v. Virginia Department of Taxation

a _

K CLERK

No. 97-412

In The

Supreme Court of the United States

October Term, 1997

*

JOSEPH J. MATHY et al.,

Petitioners,

COMMONWEALTH OF VIRGINIA

DEPARTMENT OF TAXATION,

Respondent.

.

On Petition For A Writ Of Certiorari

To The Supreme Court Of Virginia

*

BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

+

RiCHARD CULLEN

Attorney General of the

Commonwealth of Virginia

Mary G. Morris*

Senior Assistant

Attorney General

Office of the Attorney General

900 East Main Street

Richmond, Virginia 23219

804-786-1968

*Counsel of Record for Respondent

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

Whether the Supreme Court of Virginia decided a

question of federal law or addressed a state law issue

only when it decided that the petitioners were not enti-

tled to a credit against Virginia individual income taxes

for payments of the District of Columbia tax on unincor-

porated businesses?

Whether petitioners attempted to raise a new federal

question in their Petition for Rehearing to the Supreme

Court of Virginia, which was denied?

il

TABLE OF CONTENTS

Page

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Reasons for Denying the Writ ..................... 3

1. The Lack of a Substantial Federal Question .... 3

2. The Failure to Present an Issue Involving the Full

Faith and Credit Clause, Comity or the Suprem-

OO CIID. och ckccncncéssaicevesssvevaaeseuae 5

SONNY GRIER «5a o's oc cdecewssicsnensebaneen 6

Full Faith and Credit and Comity ............. 7

3. The Failure to Establish Any Issue Involving the

Equal Protection or Due Process Clauses of the

Shee CSE a oécccnesvicnsssiasenbeageeene 11

CS ng . innccdadededneewuntee eee 12

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TABLE OF AUTHORITIES

Page

CASES

Bishop v. District of Columbia, 401 A.2d 955 (1979),

aff'd en banc, 411 A.2d 997 (1980)............. 4,5, 8

Caldwell v. Seaboard System Railroad, Inc., 238 Va.

RE eee 11

City Council of Emporia v. Newsome, 226 Va. 518,

I EE win Sea ca eh csansacenscsesre 11

City of Charlottesville v. DeHaan, 228 Va. 578, 323

Te dace na ah eh ietnr andes varees ss 11

Clark v. Clark, 11 Va. App. 286, 398 S.E.2d 82 (1990) ..... 8

DiAntonio v. Northampton-Accomack Memorial Hos-

pital, 628 F.2d 287 (4th Cir. 1980) ................. 12

District of Columbia v. Califano, 647 A.2d 761 (D.C.

ene Ah hd Wie 6 4505 9.044094 04 006: 9

Eastern Indemnity Co. v. Hirschler Fleischer, 235 Va.

| ee 7, 8

Elmendorf v. Taylor, 10 Wheat. 152 (1825) ........... 6, 8

Fauntleroy v. Lum, 210 U.S. 230 (1908)............. 6, 10

Gibbons v. Ogden, 9 Wheat. 1 (1824).................. 6

Hampton v. McConnel, 3 Wheat. 234 (1818)........... 10

King v. Forst, 239 Va. 557, 391 S.E.2d 60 (1990)..... 4, 8

Martin’s Executors v. Commonwealth, 126 Va. 603,

EE ate ance 12

Mathy v. Commonwealth, 253 Va. 356, 483 S.E.2d

EES ETS SE passim

TABLE OF AUTHORITIES - Continued

North Dakota v. United States, 495 U.S. 423 (1990) ...6, 7

Printz v. United States, 521 U.S. __, 117 S. Ct. 2365

SET Rina ak cee COREA DO RO ee eee eae eRe dae area en 7

Wallihan v. Hughes, 196 Va. 117, 82 S.E.2d 553

RR rer rn Fey ye et Me ere beep pa Q

Wisconsin Public Intervenors v. Mortier, 501 U.S. 597

2 | rrr rr ere err went Ad palace 6

U.S. CONSTITUTION

ee Ts Bs ro sas a ns 5 kee 6

Rage Te, Se os ue eek whee eke ene 6

STATUTES

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elemga” 2 fee eee eT eer re re eer 1

MISCELLANEOUS

Pub. Law No. 93-198, 87 Stat. 774 (1973) (Home

SE SMD kn kde dee RE Oa een aaa aaa \

STATEMENT OF THE CASE

The petitioners, Joseph J. Mathy and Sarah G. Mathy,

challenge the interpretation and application of § 58.1-332

of the Code of Virginia of 1950, as amended (the Code).

The Circuit Court for the City of Alexandria granted

summary judgment to the Virginia Department of Taxa-

tion (the Department), ruling that the Mathys were not

entitled to tax credits against their Virginia taxable

income for the years 1991 through 1993 because the Dis-

trict of Columbia tax on unincorporated businesses, D.C.

Code § 47-1808.1, (the DCUBT) in question was an unin-

corporated business tax, ineligible for the credit under

§ 58.1-332 of the Code. The Mathys appealed the decision

of the lower court to the Supreme Court of Virginia,

which granted an appeal on October 23, 1996. On April

18, 1997 the Supreme Court of Virginia affirmed the deci-

sion of the trial court but on different grounds, finding

that the Mathys were not entitled to the Virginia credit

against individual income taxes because the plain lan-

guage of § 58.1-332(A), as applied to the DCUBT, denied

the credit. The decision is reported at Mathy v. Common-

wealth, 253 Va. 356, 483 S.E.2d 802 (1997). On May 15, 1997

the Mathys filed a Petition for Rehearing in the Supreme

Court of Virginia, raising for the first time a new reason

for finding that the credit should be allowed. By its Order

dated June 6, 1997, the Supreme Court of Virginia denied

the Petition for Rehearing and the petitioners subse-

quently filed their Petition for Writ of Certiorari with this

Court.

The Department asserts that the petitioners have mis-

interpreted the decision of the Supreme Court of Virginia

in Mathy by phrasing their question presented and juris-

dictional statements as if the Supreme Court of Virginia

interpreted the DCUBT in isolation and purported to

render a decision with respect to that statute which

would have an impact in the District of Columbia. In fact,

the Supreme Court of Virginia addressed a question of

Virginia law involving the availability of a credit against

individual income taxes for certain taxes paid by Virginia

residents to other states. In interpreting the Virginia stat-

ute, the Supreme Court of Virginia had to evaluate the

DCUBT and found that “the tax [the DCUBT] imposed on

the Mathys is illegal and unauthorized under the Home

Rule Act for purposes of qualifying for a credit under

Code § 58.1-332(A) .. . ” Mathy, 253 Va. at 362 (emphasis

added).

In their Petition for Rehearing, petitioners attempted

to challenge the finding of the Supreme Court of Virginia

by raising for the first time the argument that the DCUBT

was not imposed by the D.C. Council and therefore could

not run afoul of the District of Columbia Home Rule Act.!

This argument was not briefed by the Department or

argued orally and was not considered by the Supreme

Court of Virginia, which denied the Petition for Rehear-

ing.

Under the rules and guidelines of this Court for the

exercise of certiorari the petitioners must present an

important federal question which should be decided by

the Court. The petitioners have failed to establish any

1 Home Rule Act iS the popular name for the District of

Columbia Self-Government and Governmental Reorganization

Act, Pub. L. No. 93-198, 87 Stat. 774 (1973).

3

federal question, better yet a substantial or important

federal question. Similarly, the attempt by petitioners to

create a federal question is based in part on a legal

argument first raised in their Petition for Rehearing,

which the Supreme Court of Virginia did not consider.

¢

REASONS FOR DENYING THE WRIT

1. The Lack of a Substantial Federal Question.

The petitioners have attempted to craft a federal

question by focusing solely on the DCUBT and not on the

question presented to the Supreme Court of Virginia and

answered by it. This case has always involved nothing

more or less than an issue of state tax law. Virginia law?

provides a credit against the individual income tax of

Virginia residents for certain taxes paid to another state.

2 Section 58.1-332 of the Code of Virginia provides, in

pertinent part, as follows:

A. Whenever a Virginia resident has become liable to another

state for income tax on earned or business income .. . for the

taxable year, derived from sources outside the Commonwealth

and subject to taxation under this chapter, the amount of such

tax payable by him shall. . . be credited on the taxpayer’s return

with the income tax so paid to the other state.

However, no franchise tax, license tax, excise, unincorporated

business tax, occupation tax or any tax characterized as such by

the taxing jurisdiction, although applied to earned or business

income, shall qualify for a credit under this section, nor shall

any tax which, if characterized as an income tax or a commuter

tax, would be illegal and unauthorized under such other state’s

controlling or enabling legislation qualify for a credit under this

section.

Va. Code § 58.1-332 (Repl. Vol. 1997).

Va. Code § 58.1-332 (Repl. Vol. 1997). There are, however,

several limitations on the availability of the credit. The

credit is not allowed for the payment of the types of taxes

enumerated in the second paragraph of paragraph A of

§ 58.1-332. The exclusion which the Supreme Court of

Virginia focused on in Mathy is that which denies a credit

for taxes which, if characterized as an income tax or

commuter tax, would be illegal and unauthorized under

the controlling or enabling legislation of that state. Id.

The Supreme Court of Virginia noted that it was

bound by principles of comity and prior precedent to find

that the DCUBT is an income tax. Mathy, 253 Va. at 360

citing Bishop v. District of Columbia, 401 A.2d 955 (D.C.

1979); King v. Forst, 239 Va. 557, 391 S.E.2d 60 (1990). In so

finding, the Supreme Court of Virginia noted that the

“Mathys are entitled to a credit under Code § 58.1-332(A)

unless the tax ‘would be illegal and unauthorized under

such other state’s controlling or enabling legisla-

tion.’ .. . Therefore, .. . we must determine whether the

UB tax would be illegal and unauthorized under the

District of Columbia’s Home Rule Act.” Mathy, 253 Va. at

361. The only purpose for which the Supreme Court of

Virginia addressed the DCUBT was to determine whether

the petitioners were entitled to a tax credit under Virginia

law.

In support of their contention that a substantial fed-

eral question is presented, the petitioners argue that the

D.C. Council does not impose the DCUBT and therefore

the proscription in the Home Rule Act that “the [District

of Columbia] Council shall have no authority to. . . (5)

impose any tax on the whole or any portion of the per-

sonal income, either directly or indirectly or at the source

thereof, of any individual not a resident of the District”

does not apply. At all stages of the litigation of this case

prior to the Petition for Rehearing, the petitioners argued

only that the DCUBT did not violate the Home Rule Act

because it was not a tax on “personal income” although it

is an income tax. The issue of the legality of the DCUBT

was squarely before the trial court and the Supreme

Court of Virginia and the petitioners did not present the

argument that was first presented in the Petition for

Rehearing.* Petitioners also renew their contention that

the DCUBT is not a tax on “personal income”, a deter-

mination which clearly does not present an important

federal question worthy of a grant of certiorari by this

Court.

2. The Failure to Present An Issue Involving the Full

Faith and Credit Clause, Comity or the Supremacy

Clause.

The petitioners make essentially unsupported asser-

tions that this case presents issues involving the Full

3 Home Rule Act at § 602(a)(5).

4 The Department disputes the validity of the argument

made with respect to the application of the Home Rule Act, but

does not reach the merits of that argument at this stage of the

proceedings. The Department does note that the court in Bishop

v. District of Columbia, 401 A.2d 955 (D.C. 1979), aff'd en banc, 411

A.2d 997 (1980), addressed the legislative activity of the D.C.

Council in enacting the DCUBT.

Faith and Credit and Supremacy® Clauses of the United

States Constitution. The Petition provides no authority

for its claim that the decision of the Supreme Court of

Virginia in Mathy violated the Supremacy Clause of the

Constitution. As discussed below, the Supremacy Clause

is not implicated in this litigation. Similarly, the Petition

asserts that the Supreme Court of Virginia in its decision

was required to give full faith and credit and comity to

the DCUBT in deciding the Virginia income tax issue

before it and in support of those assertions refers the

Court, without discussion, to Fauntleroy v. Lum, 210 US.

230 (1908) and Elmendorf v. Taylor, 10 Wheat. 152, 159-160

(1825). Neither of these cases support the proposition for

which they are cited in the Petition.

Supremacy Clause

Under the Supremacy Clause, “state laws that ‘inter-

fere with, or are contrary to the laws of congress, made in

pursuance of the Constitution’ are invalid.” Wisconsin

Public Intervenors v. Mortier, 501 U.S. 597, 604 (1991) quot-

ing Gibbons v. Ogden, 9 Wheat. 1, 211 (1824). The Suprem-

acy Clause applies in instances of federal preemption,

which is not involved in the current controversy. This

Court has stated that “[s]tate law may run afoul of the

Supremacy Clause in two distinct ways: the law may

regulate the Government directly or discriminate against

it... or it may conflict with an affirmative command of

Congress.” North Dakota v. United States, 495 U.S. 423, 434

5 Article IV, cl.1, U.S. Constitution.

6 Article VI, cl. 2, U.S. Constitution.

(1990). Neither situation as discussed in North Dakota is

present in Mathy.” The key to understanding the applica-

tion of the Supremacy Clause is found in a decision by

this Court, this year, in Printz v. United States, 521 U:S.

__, 117 S. Ct. 2365 (1997). In Printz, the Court recognized

that the Supremacy Clause “makes ‘Law of the Land’

only ‘Laws of the United States which shall be made in

pursuance [of the Constitution]’ ” and does not extend to

every act of Congress. Id. Nothing in the Petition suggests

that any aspect of the DCUBT is in pursuance of the U.S.

Constitution and accordingly the Supremacy Clause is

not applicable in any circumstance.

Full Faith and Credit and Comity

The principle of comity and the concept of full faith

and credit often are discussed in tandem, as is done in the

Petition, without distinguishing between the two.

Although not cited by the Petition, the concept of full

faith and credit is based in Article IV, clause 1 of the U.S.

Constitution, which provides that “[f]ull faith and credit

shall be given in each state to the public acts, records and

judicial proceedings of every other state.” The principle

of comity, on the other hand, is often relied on in situa-

tions in which the full faith and credit clause does not

apply but, out of courtesy and mutual interest, courts

give recognition and effect to legislative, executive and

judicial acts of another jurisdiction. Eastern Indemnity Co.

7 The Supremacy Clause argument presumably is founded

in the petitioners’ theory that the DCUBT is an act of Congress.

Even assuming that premise is correct, the Supremacy Clause is

not implicated in this matter for the reasons stated herein.

v. Hirschler Fleischer, 235 Va. 9, 366 S.E.2d 53 (1988); Clark

v. Clark, 11 Va. App. 286, 398 S.E.2d 82 (1990).

The Supreme Court of Virginia adhered to the princi-

ple of comity in the Mathy decision, to the extent the

principle was applicable. The Supreme Court of Virginia

in a predecessor case to the pending matter specifically

identified the principle of comity in its decision in finding

it was “bound by the interpretation given by the highest

court of a sister jurisdiction to the law of that jurisdic-

tion.” King v. Forst, 239 Va. 557, 560 (1990) citing Elmendorf

v. Taylor, 23 U.S. (10 Wheat.) 152 (1825). As noted in King,

the decision in Elmendorf does not stand for the proposi-

tion that the Supreme Court of Virginia must “recognize

and enforce the legislative acts of the District of Colum-

bia” as asserted in the Petition. Petition at 17. Rather,

Elmendorf states a “disposition, in cases depending on

the laws of a particular State, fo adopt the construction

which the Courts of the State have given to those laws.”

Elmendorf v. Taylor, 23 U.S. (10 Wheat.) 152, 159-60 (1825).

This is the principle applied by the Supreme Court of

Virginia in Mathy in its finding that the DCUBT consti-

tutes a tax on personal income. The court indicated that it

was applying the principle of comity by applying the rule

of Bishop v. District of Columbia, 401 A.2d 955 (D.C. 1979),

aff'd en banc, 411 A.2d 997 (1980). The Supreme Court of

Virginia held that it was bound by the finding of the

court in Bishop that “ ‘[t]he tax is levied upon personal

income.’ ” Mathy, 253 Va. at 362, quoting Bishop v. District

of Columbia, 401 A.2d at 961. The court in Mathy also

found that the District of Columbia Court of Appeals also

had determined that the DCUBT is a personal income tax

—

in District of Columbia v. Califano, 647 A.2d 761. 763 (D.C.

1994). Mathy, 253 Va. at 362.

The Supreme Court of Virginia was not presented

with an issue of full faith and credit or comity in looking

further at the DCUBT and determining that it is illegal

and unauthorized under the Home Rule Act. The issue

before the Supreme Court of Virginia was one of first

impression, never having been considered by a court in

the District. And further, the Supreme Court of Virginia

was in the position only of interpreting the DCUBT for

purposes of applying Virginia law. The full faith and

credit clause was not intended to be “an unrestricted and

inexorable mandate to be used to subordinate or set

at naught one state’s sovereign powers to those of

another. . . . The policies of a state that involve its public

acts, records, judicial proceedings, fundamental laws or

like sovereign rights and interests do not fall within the

spirit or intended purpose of the clause. . . ” Wallihan v.

Hughes 196 Va. 117, 129, 82 S.E.2d 553, 561 (1954). The

court in Mathy was interpreting Virginia law and in so

doing, of necessity, interpreted the DCUBT, addressing a

question not previously addressed judicially. In fact, the

Supreme Court of Virginia applied federal law, the Home

Rule Act, to the DCUBT, in a case of first impression, in

an attempt to reconcile the two statutes. In doing what it

was charged to do, the court determined that the DCUBT

was in conflict with the Home Rule Act.

The Supreme Court of Virginia was not purporting to

enforce or not enforce the DCUBT; the court interpreted

the D.C. statute in order to apply the Virginia statute in

question. The petitioners encourage this Court to grant

10

their petition because of the potential impact of the deci-

sion of the Supreme Court of Virginia in the District of

Columbia and claim error by the court in “failing to

recognize the presumption of correctness of the assess-

ment of the D.C. tax in question.” Petition at 18. In fact,

the decision of the Supreme Court of Virginia has no

impact on the District of Columbia. The court was clear in

its decision that its finding with respect to the DCUBT

was “for the purposes of qualifying for a credit under

[Virginia law].” Mathy, 253 Va. at 362.

The decision in Fauntleroy v. Lum, 210 U.S. 230 (1908),

does not support the petitioners’ contention in the Peti-

tion that the Supreme Court of Virginia was bound “to

give full faith and credit and comity, not only to the

judicial decisions of the District of Columbia, but also to

the legislative acts of the District of Columbia.” Petition

at 16. Fauntleroy involved an action on a Missouri judg-

ment brought in a Mississippi court. 210 U.S. at 233. The

underlying claim for which the judgment was rendered

involved futures trading which was illegal in Mississippi.

Although the initial action could not have been brought

in Mississippi, the plaintiff in Fauntleroy had a valid

Missouri judgment which he could enforce in Mississippi.

That represents the full extent of the decision in Faunt-

leroy and it has no application to the pending matter. The

doctrine expressed in the case is that “the judgment of a

state court should have the same credit, validity, and

effect in every other court in the United States, which it

had in the State where it was pronounced ... ” Id. at 236,

guoting Hampton v. McConnel, 3 Wheat. 234 (1818).

The Petition, again without discussion, claims error

in failing to presume the validity of the DCUBT and in

11

support of that position cites three decisions of the

Supreme Court of Virginia which do not support their

position. The cases cited, Caldwell v. Seaboard System Rail-

road, Inc., 238 Va. 148, 380 S.E.2d 910 (1989), City of

Charlottesville v. DeHaan, 228 Va. 578, 323 S.E.2d 131

(1984), and City Council of Emporia v. Newsome, 226 Va.

518, 311 S.E.2d 761 (1984), were all cases decided by the

Supreme Court of Virginia involving questions of Vir-

ginia law and the presumption referred to by petitioners

is the presumption given acts of the Virginia General

Assembly by the courts in Virginia. For example, the

Supreme Court of Virginia in Newsome stated that [e]very

law enacted by the General Assembly carries a strong

presumption of validity.” 226 Va. at 523 (emphasis

added).

3. The Failure to Establish Any Issue Involving the

Equal Protection or Due Process Clauses of the U.S.

Constitution.

In their attempt to craft some argument involving a

federal question or the Constitution, the petitioners

assert, again without support, that by denying the Vir-

ginia credit to the petitioners they are subjected to double

taxation in violation of the equal protection clause and

the due process clause of the U.S. Constitution. Petition at

19. As the petitioners did not provide any authority to

support their assertion that the decision in Mathy violates

the equal protection and due process clauses, it is impos-

sible to analyze their theory. In an attempt to address the

issue raised, however cursorily, the Department notes

that the denial of the credit to petitioners is not discrimi-

natory nor does it violate the equal protection clause.

12

There is no aspect of discrimination or arbitrariness in the

interpretation or application of § 58.1-332 of the Virginia

Code and petitioners do not point to any such discrimina-

tion or arbitrariness. The fact that a law makes classifica-

tions and may apply to a class only does not mean that it

is a special law or that it is discriminatory. Martin's Execu-

tors v. Commonwealth, 126 Va. 603, 102 S.E. 77 (1920). A

law will be valid as long as it applies equally to all

persons within the class. DiAntonio v. Northampton-

Accomack Memorial Hospital, 628 F.2d 287 (4th Cir. 1980).

Petitioners make no allegation that § 58.1-332 is not

applied equally to all taxpayers subject to the enumerated

taxes. Section 58.1-332 provides a credit to taxpayers in

certain circumstances and all other credits are denied.

Many taxpayers with income sourced outside Virginia are

not granted a credit against Virginia income taxes, includ-

ing those with unearned or nonbusiness income sourced

outside Virginia. The General Assembly of Virginia has

provided credits in certain instances in an act of legisla-

tive grace, none of which is mandated by any interpreta-

tion of constitutional law.

CONCLUSION

The Petition for Certiorari does not present any fed-

eral question, notwithstanding petitioners’ efforts to cre-

ate any number of federal and Constitutional arguments.

The fact remains that the Supreme Court of Virginia in

Mathy decided a question of Virginia law — the availabil-

ity of a tax credit to the petitioners for taxes paid with

respect to non-Virginia sourced income. The paucity of

13

support for the various arguments propounded by the

petitioners provides perhaps the best analysis of the

weakness of their arguments. The Petition fails to estab-

lish any issue sufficient to warrant a grant of the writ

and, accordingly, the Department respectfully requests

that the Petition be denied.

Respectfully submitted,

Commonwealth of Virginia

Department of Taxation

RICHARD CULLEN

Attorney General of Virginia

Mary G. Morris*

Senior Assistant Attorney General

Office of the Attorney General

900 East Main Street

Richmond, Virginia 23219

(804) 786-1968

*Counsel of Record for Respondent