Appeals from the Superior Court of the District of Columbia (CVT-8524-05) (Hon. Jose M. Lopez, Trial Judge).
The opinion of the court was delivered by: Belson, Senior Judge
Before WASHINGTON, Chief Judge, FISHER, Associate Judge, and BELSON, Senior Judge.
Appellant District of Columbia appeals from the trial court's March 8, 2006, decision that granted appellee taxpayers' Cross-Motion for Summary Judgment and its subsequent order of March 24, 2006, granting appellees a refund of unincorporated business franchise taxes ("UB Taxes") paid in the amount of $241,815. We disagree with the trial court's holding that Title 47, D.C. Code Enactment Act of 1996 ("Enactment Act of 1996") violated the provisions of the Home Rule Act by permitting the Council of the District of Columbia to impose the UB Tax on the personal income of a real estate partnership's nonresident partners, and reverse.
Appellees, residents of the states of Montana, Florida, and Maryland, are partners in four partnerships which generate rental income from real estate located in the District of Columbia. Appellees paid UB Tax totaling $241,815 for the calendar years ending December 31, 1999-2000, and the fiscal years ending September 30, 2000-2002, for the four real estate partnerships. Appellees' timely refund claims for these periods were denied, and the District of Columbia Office of Tax Appeals denied their subsequent appeals. Appellees then filed suit in the Superior Court of the District of Columbia seeking refunds of the amounts paid. Both parties filed motions for summary judgment. The Superior Court granted appellees' motion for summary judgment and denied appellant's motion for summary judgment. The trial court held that the UB Tax could not be imposed on any unincorporated business income if "that net income is to be distributed to the nonresidents directly and personally" because the Enactment Act of 1996 "carried forward the prohibiting effect of [the] Home Rule Act['s]" ban on the taxation of personal income of nonresidents of D.C. This timely appeal followed.
II. The Status of the Law Applicable in the District of Columbia
A. District of Columbia Income and Franchise Act of 1947
Congress enacted the District of Columbia Revenue Act of 1947 which, inter alia, imposed an income tax on D.C. residents and resident estates and trusts and "a franchise tax upon every corporation and unincorporated business for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District . . . ." District of Columbia Income and Franchise Tax Act of 1947, Pub. L. No. 80-195, ch. 258, 61 Stat. 328, 349 (codified at D.C. Code § 47-1810.01 (a)(2) (2001)) (hereinafter "Tax Act of 1947"). It specifically provided that "for the purposes of this article . . . the words 'taxable income' mean . . . that portion of the entire net income of every nonresident which is subject to tax under title VIII of this article [Tax on Unincorporated Businesses]." 61 Stat. at 643. Congress initially set the tax rate at 5.0% per annum and raised it several times. 61 Stat. at 346. In addition, Congress established that the UB Tax would "be payable by the person or persons, jointly and severally, conducting the unincorporated business. The taxes . . . may be assessed in the name of the unincorporated business or in the name or names of the person or persons liable for the payment of such taxes, or both." 61 Stat. at 346 (codified at D.C. Code § 47-1808.05 (2001)).
In 1973, Congress enacted the District of Columbia Self-Government and Governmental Reorganization Act. Pub. L. No. 93-198, 87 Stat. 774 (1973) (codified at D.C. Code § 1-201.01 et seq.) (hereinafter "Home Rule Act"). The purpose of this legislation was to allow Congress to maintain its legislative power over the District of Columbia, as provided by the U.S. Constitution, but allow residents to elect local officials while creating a tripartite form of government with limited legislative powers. § 102 (a), 87 Stat. at 777 (codified at D.C. Code § 1-201.02 (2001)). With respect to the Council's taxation powers, Congress mandated that SEC. 602. (a) The Council shall have no authority to pass any act contrary to the provisions of this Act except as specifically provided in this Act, or to --
(5) impose any tax on the whole or any portion of the personal income, either directly or at the source thereof, of any individual not a resident of the District . . . . § 602 (a)(5), 87 Stat. at 813 (codified at D.C. Code § 1-206.02 (a)(5) (2001)). In addition, the Home Rule Act provided:
(b) No law or regulation which is in force on the effective date of Title IV of this Act [January 2, 1975] shall be deemed amended or repealed by this Act except to the extent specifically provided herein or to the extent that such law or regulation is inconsistent with this Act, but any such law or regulation may be amended or ...