Opposition Brief — Garrett v. District of Columbia

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| FEB 27 1947

No. 1014 CRARLIS ELMORE SrOPLEY

IN THE SUPREME COURT OF THE UNITED STATES

OcToBER TERM, 1946

ETHEL 8S. GARRETT and GEORGE A. GARRETT,

Petitioners,

v.

DISTRICT OF COLUMBIA, Respondent.

On Petition for Writ of Certiorari to the United States Court

of Appeals for the District of Columbia.

BRIEF IN OPPOSITION

VERNON E. WEst,

Corporation Counsel, D. C.,

CHESTER H. Gray,

Principal Assistant Corporation Counsel, D. C.,

Attorneys for Respondent,

District Building.

Harry L. WALKER,

Assistant Corporation Counsel, D. C.,

Of counsel for Respondent,

District Building.

DIVISION OF PRINTING AND PUBLICATIONS—GOVERNMENT OF THE DISTRICT @F COLUMBIA

7 eee

INDEX

PAGE

Sussecr INpex

Summary of Argument -_-_---- PO SAE C0 Se Cen oe Oe ene e 1

Argument -----~-~---~----~------~-~----------y--------------~--------- 2

Cnt. neces hice sinsnictonsasnivetigstinalcsii taint llfincinennaic itis anata eledenianeninl 8

Cases CrTep

Brushaber v. Union Pacific R. Co., 240 U. S. 1, 60 L. Ed. 493, 36 S. Ct. 236 7

Butterfield v. Strannahan, 192 U. S. 470, 492, 48 L. Ed. 525, 24 S. Ct. 349__- 7

Citizens Telephone Co. v. Fuller, 229 U. 8. 322, 57 L. Ed. 1206, 33 S. Ct. 833. 7

Cohens v. Virginia, 19 U. S. 264, 6 Wheat. 264, 5 L. Ed. 257... -......-... 3

Cook v. Marshall County, 196 U. 8. 261, 49 L. Ed. 471, 25 S. Ct. 233 _.... 7

Davis v. United States, 87 F. 2d 323 (C. C. A. 2d). sert. den. 301 U. S. 704,

OF O. Ch. GE GR as ee Ie etnccleg rtidcedenteneancknedaeintnen 7

Del Vecchio v. Bowers, 296 U. S. 280, 285, 56 S. Ct. 190, 80 L. Ed. 229.... 2

District of Columbia v. Pace, 320 U. S. $98, 702, 64 S. Ct. 406, 88 L. Ed. 408 2

Fessler vy. Commissioner (CCA-7), 38 F. (2d) 155 (1930), cert. den. 281

7, & 8% GF Ff he ee Se ene eeeeeeee ae

Flint vy. Stone-Tracy Co., 220 U. S. 103, 55 L. Ed. 389, 31 S. Ct. 342 _..... 7

Hardware Dealers Mut. Fire Ins. Co. v. Glidden Co., 284 U. S. 151, 158,

76 L. Ed. 214, 52 S. Ct. “ wees i a Ta Ue an ema: Oe

Heiner v. Donnan, 285 U. 8. 312, 52 S. Ct. _ 76 L. Ed. 7m ae 5 Ye

Helvering v. New York Trust Co., 292 U. S. 455, 466, 54 S. Ct. 806, 809,

ee § Pee eee a a ee aS

Louisville Gas & Electric Co. v. Coleman, O77 U. S. 32, 48 S . Ct. 423, 72

B,.. BRR: FOR cccccisccepetnncanieiapiiantnen einai. Goken Ndhdetbenaitne 5

Metropolitan Co. v. Brownell, 294 U. S. 580, “584, 79 L. ‘Ed. “1070, 55 S. Ct

kick ctinintitathsstnes scien hainnhararciciaaaalaas vislalphabaiitoal 7

Neild v. District of Columbia, 71 App. D. C. 306, 110 F. od 246 SEE RTS

Nicol vy. Ames, 173 U. S. 509, 514, 43 L. Ed. 786, 19 S. Ct. 522 _............ 7

Quong Wing v. Kirkendall, 223 U.S. 59, 56 L. Ed. 350, 32 S.Ct. 192 _.... 7

Ninking-fund Cases, 99 U. S. 700, 718, 25 L. Ed. 496 __-_- sciahiasiga 6

Steward Machine Co. v. Davis, 301 U. S. 548. 584. 57 S . 883, sl L.

2&2 bd ancte nt ein cue Qe

Wight v. Davidson, 181 U.S. 371, 21 Ss. Ct. 616, 45 L. ‘Ea. 900 aclabiiniaiitemeaciis?

INDEX—Continued

Orner AUTHORITIES

Revised Rules of The Supreme Court of the United States:

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CONSTITUTION OF THE UNrtTep STATES

I i I I oo tas 1 a othe eenseehinsainnineke

ES TE a Caer eee peer eee WOR shes

Statutes Crrep

District of Columbia Income Tax Act:

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3. 4, 5.6,

IN THE SUPREME COURT OF THE UNITED STATES

Ocroser TERM, 1946

No. 1014

ETHEL 8S. GARRETT and GEORGE A. GARRETT,

Petitioners,

Vv.

DISTRICT OF COLUMBIA, Respondent.

On Petition for Writ of Certiorari to the United States Court

of Appeals for the District of Columbia.

BRIEF IN OPPOSITION

SUMMARY OF ARGUMENT

This case does not present any of the questions upon which

this Court ordinarily grants a writ of certiorari. The case in-

volves only the question of the reasonableness of a classification

]

ORI INO DI 5

ee,

2

for tax purposes made by the Congress in the exercise of its

exclusive power to legislate for the District of Columbia.

The provisions of the Fourteenth Amendment, including the

equal protection clause, being directed to the states, do not ap-

ply to the District of Columbia. The Fifth Amendment does

apply to the District of Columbia but contains no equal protec-

tion clause. With one exception, no tax statute enacted by

Congress has been declared to be in violation of the Fifth Amend-

ment because of classification. ;

When legislative classification is the subject of review by the

courts, there is a presumption of the existence of facts underly-

ing constitutionality.

ARGUMENT

1. The petition should be denied.

This Court has stated that it will not ordinarily review de-

cisions of the United States Court of Appeals for the Dis-

trict of Columbia which are based upon statuies limited in

their operation to the District of Columbia. District of Co-

lumbia v. Pace, 320 U.S. 698, 702, 64 S. Ct. 33, 88 L. Ed. 408;

Del Vecchio v. Bowers, 296 U. S. 280, 285, 56 S. Ct. 190, 80

L. Ed. 229. The statute involved in the case at bar, like the

one involved in District of Columbia v. Pace, supra, is limited

in its operation to the District of Columbia.

Rule 38, par. 5(c) of the Revised Rules of this Court in-

dicates the character of the reasons for which a review on

writ of certiorari will be granted. Applying those reasons to

the instant case, it is obvious that no question of general

importance is involved. It seems equally certain that the

ease does not involve any question of substance relating to

the construction or application of the Constitution, or a treaty

or statute, of the United States, which has not been, but

should be, settled by this Court. True it is, of course, that the

3

statute involved was, as are all statutes in force and effect in

the District of Columbia, enacted by the Congress of the

United States in the exercise by that body of the power ex-

pressly delegated to it by Article I, Section 8, Clause 17 of

the Constitution. In that sense only was the Congress act-

ing as a legislature of national character. Cohens v. Virginia,

19 U. S. 262, 6 Wheat. 264, 5 L. Ed. 257. But the fact re-

mains that the statute in question is not national in its oper-

ation.

This case does not involve any situation where the United

States Court of Appeals for the District of Columbia has

failed to give proper effect to an applicable decision of this

Court. Heiner v. Donnan, 285 U.S. 312, 52 S. Ct. 358, 76 L.

Ed. 772, upon which petitioners apparently rely for their con-

tention to the contrary, is not applicable to the instant case,

as will hereinafter be shown.

2. The statute involved is valid.

The whole theory of petitioners’ contentions may be sum-

marized in this manner:

Section 6(a) of the District of Columbia Income

Tax Act (Pet. for Writ of Cert., p. 3) defines capital

assets as property, other than stock in trade ete., held

by the taxpayer for more than two years, and ex-

cludes gain or loss from the sale or exchange of such

assets from the computation of net income for tax

purposes. Section 6(h) of the same Act (Pet. for

Writ of Cert., p. 3) provides that gain or loss from

the “sale or exchange of property other than a capital

asset shall be treated in the same manner as other in-

come or deductible losses”’.

Thus, under those two sections of the statute gains

from the sale or exchange of property held for two

ie et

————

4

years or less are subject to tax. The tax in contro-

versy was assessed upon the gain from the sale of

securities held by these petitioners for less than two

years.

‘Petitioners say that this results in discrimination,

for which “there is * * * no rational basis”, and that

“the consequence is an invalid discrimination against

taxpayers such as petitioners.” (Brief in Support of

Petition, p. 14). They contend, more specifically,

that “The requirement that property be held for more

than two years, in order to be recognized as a capital

asset and as such immune from tax on sale, is, * * *

arbitrary, unreasonable and contrary to fact, and

therefore invalid under the Fifth Amendment of

(sic) the Constitution as applied by this Court in nu-

merous decisions, including particularly Heiner v.

Donnan, 285 U. S. 312, 52 S. Ct. 358, 76 L. Ed. 772;

ef. Louisville Gas & Electric Co. vy. Coleman, 277 U.S.

32, 37-39, 48 S. Ct. 423, 72 L. Ed. 770.” (Brief in

Support of Petition, p. 10).

Heiner v. Donnan, supra, is no authority for declaring Sec-

tion 6(a) invalid in part or in toto, because the ruling in that

case, holding invalid a Federal statute conclusively defining

transfers made within two years of death as transfers in con-

templation of death, appears to have been predicated upon

the premise that such conclusive presumption created a rule

of substantive law which the taxpayer was unable to rebut

as distinguished from a rule of evidence which would have the

effect of shifting the burden of proof. Insofar as Section 6(a)

of the District Act is concerned, the definition therein does

not create an irrebuttable rule of substantive law; it merely

states what are and what are not to be considered capital

assets in the computation of the tax. The two-year holding

period in the definition in Section 6(a) is not the only quali-

fication. In order for a taxpayer to take advantage of the

“non-imposition” of a tax on, “exemption” of, or non-recog-

nition of, gains from the sale of any property held by him it

5

must not only appear, affirmatively, that he has held the

property for more than two years but, negatively, (1) that

the property is not stock in trade or other property of a kind

which would properly be included in the inventory of a tax-

payer if on hand at the close of the taxable year and (2) that

it is not property held by the taxpayer primarily for sale

to customers in the ordinary course of the taxpayer’s trade or

business. It is true that with respect to property held less

than two years the statute provides that such property shall

not be considered “capital assets”. All property sold must

fall within the category of “a capital asset” or of “property

other than a capital asset”. If the property sold comes within

the definition of “a capital asset”, the amount realized from

the sale will not be taxed and likewise, any loss resulting from

the sale will not be recognized. On the other hand, if the

property sold comes within the definition of “property other

than a capital asset”, the amount realized from the sale will

be taxed or any loss resulting from the sale will be allowed as

a deduction. Thus the taxpayer, if his property be such as

meets the two negative qualifications of “capital assets” in

the statute, has it in his power to meet the other qualification,

and thus to have his property considered as a “capital asset”

by holding it for more than two years before selling. There-

fore Section 6(a) does not in fact deprive taxpayers of prop-

erty without due process of law; it merely furnishes a guide

to all taxpayers as to how they may bring the sales of their

property within or without the statute as they wish. This

is a “far ery” from the statute involved in the Heiner case.

Once a taxpayer had made a transfer of his property before

death, he could not controvert the conclusive presumption in

the statute involved because he could not prolong his life

for more than two years from the date of such transfer if it

should happen to be his destiny to die within two years from

such date.

The statute involved in Louisville Gas & Electric Co. vy.

Coleman, supra, was held by this Court to be void under the

6

equal protection clause of the Fourteenth Amendment to the

Constitution. And the Fourteenth Amendment does not ap-

ply to the District of Columbia since that amendment is di-

rected to the states. Wight v. Davidson, 181 U. 8S. 371, 21S.

Ct. 616, 45 L. Ed. 900. The Fifth Amendment, which does

apply to the District of Columbia, contains no equal protec-

tion clause. Moreover, under the Fourteenth Amendment:

“* * * even the states, though subject to such a

clause, are not confined to a formula of rigid uniform-

ity in framing measures of taxation. * * * They may

tax some kinds of property at one rate, and others at

another, and exempt others all together. * * * If

this latitude of judgment is lawful for the states, it is

lawful, a fortiori, in legislation by the Congress,

which is subject to restraints less narrow and confin-

ing. * * *” Steward Machine Co. v. Davis, 301 U. 8.

548, 584, 57 S. Ct. 883, 81 L. Ed. 1279.

In his dissenting opinion as an Associate Justice in Heiner

v. Donnan, supra, the late Chief Justice Stone pointed out

that:

“No tax has been held invalid under the Fifth

Amendment because based on an improper classifica-

tion, and it is significant that in the entire one hun-

dred and forty years of its history, the only taxes

held condemned by the Fifth Amendment were those

deemed to be arbitrarily retroactive. See Nichols v.

Coolidge, 274 U.S. 5381; Untenmyer v. Anderson, 276

U.S. 440; Coolidge v. Long, 282 U.S. 582.”

In the instant case, as in all cases where legislative classi-

fication is the subject of review by the courts, there is a pre-

sumption of the existence of facts underlying constitutionality,

and the burden is on petitioners to establish that there could

have been no reasonable basis for the selection made by Con-

gress in Section 6(a) of the District of Columbia Income Tax

Act, supra. Sinking-fund Cases, 99 U. S. 700, 718, 25 L. Ed.

496 ; }

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525, 2

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7

i; Nicol v. Ames, 173 U.S. 509, 514, 43 L. Ed. 786, 19 S. Ct.

!. Butterfield v. Strannahan, 192°U. S. 470, 492, 48 L. Ed.

), 24 S. Ct. 349; Hardware Dealers Mut. Fire Ins. Co. v.

dden Co., 284 U.S. 151, 158, 76 L. Ed. 214, 52 S. Ct. 69;

tropolitan Co. v. Brownell, 294 U. S. 580, 584, 79 L. Ed.

70, 55 S. Ct. 538.

Regardless of the reasons underlying the enactment of the

vital gains and losses provisions of the Federal Revenue Act

1921 (see Helvering v. New York Trust Co., 292 U.S. 455,

5, 54 S. Ct. 806, 809, 78 L. Ed. 1361), it seems clear, as the

urt below stated, that in enacting Sections 6(a) and 6(b)

the District Act:

“* * * The apparent purpose of Congress was to

distinguish, for tax purposes, between investment and

speculation. We cannot say that this is an unreason-

able purpose, or that the minimum period of two

years has no tendency to promote it, or even that a

different minimum period would promote it more ef-

fectively. ‘It is common knowledge that stocks and

bonds held for more than two years are more likely

to have been acquired for investment than those

turned over sooner * * *.’ Davis v. United States,

87 F. 2d 323, 325 (C. C. A. 2d) * * *.” Cert. denied

301 U. S. 704, 57 S. Ct. 937, 81 L. Ed. 1359 (R. 12).

Respondent submits that Section 6(a) is, in every separate

ovision and in toto, of indubitable validity under the au-

ority of Steward Machine Co. v. Davis, supra; Brushaber v.

nion Pacific R. Co., 240 U.S. 1, 60 L. Ed. 493, 36 S. Ct. 236;

tizens Telephone Co. v. Fuller, 229 U.S. 322, 57 L. Ed. 1206,

S$. Ct. 833; Quong Wing v. Kirkendall, 223 U.S. 59, 56 L.

1. 350, 32 S. Ct. 192; Flint v. Stone-Tracy Co., 220 U.S. 107.

L. Ed. 389, 31 S. Ct. 342; Cook v. Marshall County, 196

$. 261, 49 L. Ed. 471, 25 8. Ct. 233; Neild v. District of Co-

mbia, 71 App. D. C. 306, 110 F. 2d 246; and Fessler v. Com-

issioner (CCA-7), 38 F. 2d 155 (1930), cert. den. 281 U. S.

3, 74 L. Ed. 1165, 50S. Ct. 409.

8

CONCLUSION

The petition for writ of certiorari should be denied.

Respectfully submitted,

VERNON E. WEst,

Corporation Counsel, D. U.,

Cuester H. Gray,

Principal Assistant Corporation Counsel, D. C.,

Attorneys for Respondent,

District Building.

Harry L, WALKER,

Assistant Corporation Counsel, D. C.,

Of counsel for Respondent,

District Building.