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Sprint Communications Co. v. Kelly

DISTRICT OF COLUMBIA COURT OF APPEALS


March 15, 1994

SPRINT COMMUNICATIONS COMPANY, CABLE & WIRELESS COMMUNICATIONS INC., METROMEDIA COMMUNICATIONS CORPORATION NEE CSI NEE ITT, METROCOM NEE TMC, REALCOM OFFICE COMMUNICATIONS, INC. NEE CONTEL, ALLNET COMMUNICATION SERVICES, INC., MID-ATLANTIC TELECOM, INC., LONG DISTANCE SERVICE OF WASHINGTON, INC., APPELLANTS
v.
SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. SPRINT COMMUNICATIONS COMPANY, CABLE & WIRELESS COMMUNICATIONS, INC., METROMEDIA COMMUNICATIONS CORPORATION, CONTEL OFFICE COMMUNICATIONS, INC., ALLNET COMMUNICATION SERVICES, INC., LONG DISTANCE SERVICE OF WASHINGTON, INC., APPELLANTS V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. ALLNET COMMUNICATION SERVICES, INC., APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. CABLE & WIRELESS COMMUNICATIONS, INC., APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. CONTEL OFFICE COMMUNICATIONS, INC., APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. AMERICAN TELEPHONE & TELEGRAPH COMPANY, AT&T COMMUNICATIONS OF WASHINGTON, D.C., APPELLANTS V. DISTRICT OF COLUMBIA, APPELLEE. METROMEDIA COMMUNICATIONS CORPORATION, APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. CABLE & WIRELESS COMMUNICATIONS, INC., APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES. RICHARD J. RICE, INC., APPELLANT V. SHARON PRATT KELLY, SHARON MORROW, & DISTRICT OF COLUMBIA, APPELLEES

Appeals from the Superior Court of the District of Columbia; (Hon. John F. Doyle, Motions Judge)

Before Rogers, Chief Judge, and Ferren and Farrell, Associate Judges. Per Curiam Opinion for the court. Concurring opinion of Associate Judge Farrell

The opinion of the court was delivered by: Per Curiam

PER CURIAM: These seven consolidated appeals represent the continuation of litigation by long-distance telephone companies challenging the D.C. Gross Receipts Tax Amendment Act of 1987 (the 1987 Act). See Barry v. American Tel. & Tel. Co., 563 A.2d 1069 (D.C. 1989). Appellants here *fn1 contend that the motions Judge erred as a matter of law in granting summary 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 Supreme 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 judgment. *fn2

I.

The background of this tax litigation, which followed AT&T's divestiture of its local operating companies in connection with the antitrust suit in United States v. American Tel. & Tel. Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd mem., 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed 2d 472 (1983), is set forth in Barry v. American Tel. & Tel. 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 divestiture of AT&T in January, 1984. *fn3 The 1987 Act required telecommunications companies previously exempt 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 telecommunications equipment located in the District of Columbia and billed to a District telephone. *fn4 The 1987 Act also provided for exemptions from the District's personal property tax, and certain sales and use taxes, whenever a company had property in the District of Columbia that produced gross receipts subject to the gross receipts tax. *fn5 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. *fn6

Following argument, the motions Judge granted the District's motion for summary judgment, issuing a written decision on February 18, 1992. *fn7 See Cable & Wireless Communications, 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 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 federal law of recovery of the tax from their customers. *fn8 We address only the first two contentions. *fn9 See Holland v. Hannan, 456 A.2d 807, 814 (D.C. 1983) (standard of review of grant of summary judgment).

II.

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 §§ 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, provides that "all 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. *fn10 Further, the provision has never prevented delegations of taxing authority to the District of Columbia or to the territorial governments. *fn11 Indeed, as the District of 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 governments. See supra note 11 and District of Columbia v. John R. Thompson Co., 346 U.S. 100, 105, 97 L. Ed. 1480, 73 S. Ct. 1007 (1953) (analogizing the delegation of legislative power under the Act of 1871 to similar 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. *fn12 Thus, the purpose of the Origination Clause, relating to the distribution of power within Congress, was to give to the immediate representatives of the people "the primary role in raising revenue" to finance the general, federal government. *fn13 See United States v. Munoz-Flores, 495 U.S. 385, 394-95, 109 L. Ed. 2d 384, 110 S. Ct. 1964 (1990) (citing THE FEDERALIST 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 FEDERALIST 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 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 enactment 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). *fn14

We reject appellants' argument that because the D.C. Self-Government Act provides the source of the local 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, 42 L. Ed. 134, 17 S. Ct. 766 (1897)) (citing 1 J. STORY, COMMENTARIES ON THE CONSTITUTION § 880, pp. 610-11 (3d ed. 1858)). Consequently, "a statute that creates a particular government program and that raises revenues to support that program, as opposed to a statute that raises revenue to support Government generally, is not a 'Bill for raising Revenue' within the meaning of the Origination Clause." Id. 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 obligations 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 revenue for the United States government and its operations was clearly not its "main purpose." Rather, the principal purpose of the Self-Government Act was to provide a measure of 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) ("the purpose of [the Self-Government Act] is to enact a District of Columbia 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 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 defraying 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 District of Columbia in support of the activities of the local government. *fn15 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. *fn16 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. Id.

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 ignore the purpose of the Origination Clause, described above, and the history of delegations of taxing authority to the territorial and local District of Columbia governments. In Millard v. Roberts, 202 U.S. 429, 50 L. Ed. 1090, 26 S. Ct. 674 (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." Id. 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 Milliard, the taxing authority delegated to the District of Columbia 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 governments 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 delegate 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 language 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 enacted 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 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 expressly 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 § 1-233); cf. 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). *fn17 The provisions of § 47-501 and § 47-504 were simply modified by the codifiers following the enactment of the Self-Government Act, to refer to the new, elected Council of the District of Columbia. See D.C. Code §§ 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 Office. 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 Act 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 revenue 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 taxing authority by the Self-Government Act and to the 1987 Act itself as violative of the Origination Clause must fail.

III.

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 Columbia, impermissibly discriminates against long-distance telephone carriers not based in the District of Columbia, in violation 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 produce gross receipts subject to the 1987 Act. *fn18 When, by contrast, carriers (such as appellants) located outside of the District 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. *fn19

Appellants contend that the exemptions and credits in the 1987 Act place long distance telephone companies located outside 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 imposing a heavier tax burden on out-of-state businesses that compete in an interstate market than it imposes on its own residents who also engage in commerce among States." American Trucking Ass'ns v. Scheiner, 483 U.S. 266, 282, 97 L. Ed. 2d 226, 107 S. Ct. 2829 (1987). We are compelled to agree.

The Commerce Clause, art. I, § 8, cl. 3, authorizes Congress 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 Supreme Court has 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, 50 L. Ed. 2d 514, 97 S. Ct. 599 (1977). To ensure "an area of free trade among the several states," the Supreme Court has held that "no State, consistent with the Commerce Clause, may 'impose a tax which discriminates against interstate commerce . . . by providing a direct commercial advantage to local business.'" Id. 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) applies to an activity with a substantial nexus to the taxing state; (2) is fairly apportioned; (3) discriminates against interstate commerce; and (4) is fairly related to services or benefits provided by the states. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 51 L. Ed. 2d 326, 97 S. Ct. 1076 (1977); see Quill Corp. v. North Dakota, 119 L. Ed. 2d 91, 112 S. Ct. 1904, 1912 (1992); Goldberg v. Sweet, 488 U.S. 252, 259-60, 102 L. Ed. 2d 607, 109 S. Ct. 582 (1989). Only the third prong is at issue in this case. *fn20

Under the anti-discrimination component of the Complete Auto, supra, test, a tax discriminates against interstate commerce if it is "facially discriminatory, has a discriminatory intent, or has the effect of unduly burdening interstate commerce." Amerada Hess Corp. v. Director, Div. of Taxation, 490 U.S. 66, 75, 104 L. Ed. 2d 58, 109 S. Ct. 1617 (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, 81 L. Ed. 2d 540, 104 S. Ct. 2620 (1984), and Tyler Pipe Indus., Inc., v. Washington Dep't of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199 (1987).

The internal consistency principle was originally applied by the Supreme Court in fair apportionment cases under the Commerce Clause. *fn21 "The first . . . component of fairness in 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 involving a claim of facial discrimination against interstate commerce. The Court invalidated a West Virginia gross receipts tax which "on its face . . . appeared 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 manufactured in the State but not otherwise. The State argued that exempting resident manufacturers was necessary to compensate 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." Id. at 644. *fn22 The forbidden discrimination in Armco was revealed by the fact that "if 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 tax while sellers resident in West Virginia will pay only the manufacturing tax." Id. 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." Id. 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. Anticipating the Armco decision, the Supreme Court of Washington invalidated the tax on Commerce Clause grounds. *fn23 See Tyler Pipe Indus., Inc., supra, 483 U.S. at 235-36. The State then legislatively "turned the B & O tax exemption scheme inside out" by "removing the wholesale tax exemption for local manufacturers and replacing it with an exemption from the manufacturing tax for the portion of the manufacturers' output that is subject to the wholesale tax." Id. at 236 (footnote 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 property 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 practical equivalent of the exemption" previously invalidated by 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 manufacturing tax for the same item. This statutory exemption for manufacturers that sell their products 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 internal consistency, pointing out that Washington's

multiple activities exemption only operates to impose a unified tax eliminating the risk of multiple taxation when the acts of manufacturing and wholesaling are both carried out within the State. The exemption excludes similarly situated manufacturers and wholesalers which conduct one of those activities within Washington and the other activity outside the State.

Id. at 246-47 (emphasis added). *fn24 The State's exemption scheme therefore discriminated against interstate commerce in that "the 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." Id. 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 "exerted an inexorable hydraulic pressure on interstate truckers to ply their trade within the State that enacted the measure rather than 'among the several States'").

Applying Armco, Tyler Pipe, and Scheiner, we conclude that the tax scheme in the 1987 Act cannot withstand a Commerce Clause challenge. The District of Columbia argues in vain that the 1987 Act is not discriminatory because all carriers with personal property in the District that produces revenues subject to the gross receipts tax receive the same exemptions. 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 carriers 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 property tax under the 1987 Act *fn25 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. *fn26 The 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 hypothesize:

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 personal property tax (and sales and use taxes) on all but a small portion of its personal property. In contrast, 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 anywhere.

Under Tyler Pipe, supra, 483 U.S. at 242-43, 246-48, the District of Columbia may not enact a tax scheme whereby the only company that can fully benefit from the available exemptions 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 U.S. 525, 538, 93 L. Ed. 865, 69 S. Ct. 657 (1949)). *fn27 On the other hand, the Court is not unanimous about the validity of the restrictive internal consistency principle of Armco and its progeny. Some members of the Court have suggested reasons to re-examine the Court's extension of the principle at least to state tax schemes that are not discriminatory on their face as in Armco. *fn28 In any event, the shifting ground is particularly unfortunate for the 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 Washington upon having its tax scheme overturned in Tyler Pipe Indus., Inc., supra, to hold that the invalidation of the tax would be prospective only; *fn29 the Supreme Court has repudiated such civil prospectivity. See Harper v. Virginia Dep't of Taxation, 125 L. Ed. 2d 74, 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 predate or postdate our announcement of the rule") (citing James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 115 L. Ed. 2d 481, 111 S. Ct. 2439, 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 refunds, see Dennis v. Higgins, 498 U.S. 439, 111 S. Ct. 865, 871, 112 L. Ed. 2d 969 (1991) (citing McKesson Corp. v. Division of Alcoholic Beverages, 496 U.S. 18, 31, 110 L. Ed. 2d 17, 110 S. Ct. 2238 (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. *fn30 See Harper v. Virginia Dep't of Taxation, supra, 113 S. Ct. at 2519-20 (dictum). Alternatively, the District government could collect the additional tax from appellants' competitors, or it could do a combination 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 commerce, 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 appellants, however, "because federal law does not necessarily entitle them to a refund," and the District of Columbia may "create[] in hindsight a nondiscriminatory scheme." Harper v. Virginia Dep't of Taxation, supra, 113 S. Ct. at 2519-20 (dictum) (citing McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, supra, 496 U.S. at 40).

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 forbidden commerce clause discrimination outside the fair apportionment context, should be reexamined. The reasons are essentially those stated by Justice Scalia in part I of his Dissent 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 telecommunications carriers, it must provide credits enabling carriers in many instances to escape any local taxation based on property located or business conducted in the District. Consider, 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 another state hypothetically might capture them under its similar tax, the District must go further and exempt those receipts from the reach of its personal property or use taxes as well -- either that or it must eliminate the exemption relieving locals from paying double taxes (personal property and gross receipts) based on a single transaction. I claim no expertise in commerce clause analysis, but this seems to me unnecessarily formalistic *fn1 and hard to justify by any generalized 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.


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