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March 5, 1957

D.C. TRANSIT SYSTEM, Inc., Plaintiff,
Guy W. PEARSON, Collector of Taxes, et al., Defendants

The opinion of the court was delivered by: HOLTZOFF

This case presents the question whether the plaintiff, D.C. Transit System, Inc., which succeeded Capital Transit Company as the owner and operator of streetcar and bus lines in Washington, D.C. and its environs on August 15, 1956, is liable to the District of Columbia for the 2% tax on gross receipts received by Capital Transit Company during the year ending June 30, 1956, the plaintiff having assumed all of the liabilities of its predecessor, but the tax having been repealed as of August 15, 1956. The tax authorities of the District of Columbia formally levied this tax, one half of which was due in September, 1956, and the second half in March, 1957. On failure to receive payment of the first half, the tax officials served on the plaintiff a formal notice of delinquency.

The plaintiff, claiming that it was not indebted for this tax, brought this action to enjoin the Collector of Taxes and the Tax Assessor of the District of Columbia from distraining on the plaintiff's property to enforce payment, and moves for a preliminary injunction. The defendants move to dismiss the complaint. Since their motion is accompanied by documents dehors the pleadings, it will be treated as a motion for summary judgment, as prescribed by Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C. The plaintiff also moves for summary judgment. The matter is now before the Court on these three motions.

 A preliminary question arises whether this action may be maintained. It is contended by counsel for the District of Columbia that the collection of taxes may not be impeded by injunction, but that if the plaintiff desires to contest liability, its exclusive remedy is to pay the tax and then sue for a refund. The basis for this position is D.C.Code, Section 47-2410, which provides that, 'No 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'. Similar enactments are found in United States Code. Title 26, 7421 directs that, '* * * no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court'. U.S.Code, Title 28, § 1341 provides that, 'The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.' In spite of the broad, sweeping language of these statutes, it had been uniformly held that they are but a restatement of the principle that equity will not interfere by injunction with the collection of taxes unless some special or extraordinary circumstance is present, justifying its interposition.

 In Miller v. Standard Nut Margarine Co., 284 U.S. 498, 509, 52 S. Ct. 260, 263, 76 L. Ed. 517, this doctrine was summarized as follows:

 'And this court likewise recognizes the rule that, in cases where complainant shows that in addition to the illegality of an exaction in the guise of a tax there exist special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence, a suit may be maintained to enjoin the collector.'

 This rule has been generally recognized and applied by the Federal courts. *fn1"

 Numerous exceptions to the comprehensive ban against injunctions to restrain the collection of taxes have been developed by judicial decisions. As a result these statutes may be said to be more honored in the breach than in the observance. Upon a showing of considerations that appeal to the discretion of a court of equity, a suit for an injunction may be entertained and a determination of the validity of the tax made in such summary and expeditious manner. One of the many exceptions to the prohibition comprizes cases in which it is sought to collect the tax from a person other than the original taxpayer, as for instance, a transferee of the taxpayer's property, or a person who has assumed his liability. *fn2" This case is within this exception. Accordingly, the Court is of the opinion that this action may be maintained and will proceed to a determination of the merits, namely, first, whether Capital Transit Company was liable for the tax in question; and, second, if so, whether this liability has been assumed by the plaintiff.

 The District of Columbia has for many years imposed a gross receipts tax on specified public utilities and banks. Later this tax was extended to companies operating street railroads and buses. During the period here involved such utilities were taxed at the rate of 2% per annum. The pertinent statutory provisions are found in D.C.Code, 47-1701:

 'Each national bank * * * and all other incorporated banks and trust companies in the District of Columbia, * * * and all gas, electric lighting, and telephone companies, * * * shall make affidavit to the board of personal tax appraisers on or before the 1st day of August each year as to the amount of its or their gross earnings or gross receipts, as the case may be, for the preceding year ending the 30th day of June, and each national bank and all other incorporated banks and trust companies respectively shall pay to the collector of taxes of the District of Columbia per annum 6 percent on such gross earnings and each gas company, electric-lighting company, and telephone company shall pay to the collector of taxes of the District of Columbia per annum 4 per centum on such gross receipts, from the sale of public utility commodities and services within the District of Columbia * * *. Each company operating a street railroad or both a street railroad and bus services in the District of Coumbia shall pay 2 per centum per annum on their gross receipts: * * *'.

 The law requires payment of personal taxes of all kinds to be made in equal semi-annual installments in September and March of the following fiscal year, D.C.Code 47-1209. This enactment has been applied to taxes on gross receipts.

 As required by statute, Capital Transit Company filed a return with the Board of Personal Tax Appraisers for the District of Columbia, on July 11, 1956, reporting taxable gross receipts for the year ending June 30, 1956, amounting to $ 21,128,108.13. On this basis the Board assessed a tax of $ 422,562.16. A bill for the first half of this tax, amounting to $ 211,281.08, due in September, 1956, and another bill for the second half in the same amount due in March, 1957, were sent to Capital Transit Company. No payment having been received, the Collector of Taxes dispatched a letter to the plaintiff notifying it that the first half of the tax assessed against Capital Transit Company for the period July 1, 1955 to June 30, 1956 was delinquent and unpaid, and that the addressee was liable for this indebtedness. The letter demanded payment within ten days, stating that otherwise the Collector might distrain and enforce collection by seizure and sale of goods, chattels, or effects. This suit followed.

 We now reach the first of the two major questions to be decided, namely, whether Capital Transit Company owed this tax. The Company had been operating streetcar and bus lines in Washington for a number of years under a Congressional franchise. Controversies that need not be recounted, culminated in the Act of Congress of August 14, 1955, 69 Stat. 724, which repealed and revoked the charter and the franchise of the Capital Transit Company as of a date one year subsequently, that is as of midnight August 14, 1956. *fn3" A series of negotiations ensued and eventuated in an agreement between Capital Transit Company and the T.C.A. Investing Corporation, dated July 7, 1956, whereby the latter undertook to organize a subsidiary corporation, and the former agreed to convey to the new company all of its assets in consideration of certain cash payments and an undertaking to assume all liabilities of Capital Transit Company. T.C.A. Investing Corporation then brought about the creation of the D.C. Transit System, Inc., the plaintiff in this action. The Act of July 24, 1956, Public Law 757, 84th Congress, 2d Session, 70 Stat. 598, granted to the plaintiff a franchise to operate a mass transportation system for passengers for hire within the District of Columbia and between the District of Columbia and the Washington Metropolitan Area. Section 8 of this Act repealed, as of August 15, 1956, the gross receipts tax on companies operating street railroads and buses in the District of Columbia. Specifically, Section 8(a) of the Act provided, in part, as follows:

 'Sec. 8(a) As of August 15, 1956, paragraph numbered 5 of section 6 of the Act entitled 'An Act making appropriations to provide for the expenses of the Government of the District of Columbia for the fiscal year ending June thirtieth, nineteen hundred and three, and for other purposes', approved July 1, 1902, as amended (D.C.Code, sec. 47-1701), is amended by striking out the third and fourth sentences * * *.'

 The sentences stricken from the law by this amendment contain the provision imposing a tax on gross receipts of street railroad and bus companies. Whether Capital Transit Company owed the tax involved in this case depends in large part upon the ...

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