TITLE:  Reconsideration of District of Columbia 9-1-1 Emergency Telephone System Surcharge and Effect of New Amendments, B-302230, December 30, 2003
BNUMBER:  B-302230
DATE:  December 30, 2003
**********************************************************************
Reconsideration of District of Columbia 9-1-1 Emergency Telephone System
Surcharge and Effect of New Amendments, B-302230, December 30, 2003

    
    
    
    
B-302230
    
December 30, 2003
Mr. Robert J. Spagnoletti
Corporation Counsel
Government of the District of Columbia

   Subject: Reconsideration of District of Columbia 9-1-1 Emergency Telephone
System Surcharge and Effect of New Amendments
Dear Mr. Spagnoletti:

   This responds to two requests of your office with regard to the District
of Columbia 9-1-1 Emergency Telephone System considered in B‑288161,
Apr. 8, 2002, to James M. Eagen III, Chief Administrative Officer of the
House of Representatives.You asked us to reconsider our decision that the
U.S. House of Representatives is not required to pay the District 9-1-1
emergency telephone system surcharge as originally enacted in 2000. You
also asked whether recent amendments to District law that made fundamental
changes to the nature and applicability of the surcharge cured the problem
identified in our 2002 decision that made the surcharge an impermissible
tax on the federal government.

   For the reasons given below, we find no basis to change our previous
determination that the House of Representatives was not required to pay
the District*s 9-1-1 emergency telephone system surcharges, as originally
enacted.However, the recent amendments to the District 9-1-1 emergency
telephone system surcharge changed the nature of the tax. As now imposed,
the legal incidence of the tax is not on the federal government, but on
the provider of services. Therefore, federal agencies may pay service
provider bills that include itemization of the amended District 9-1-1
surcharge.
BACKGROUND
Your office disagrees with our conclusion in B-288161 that the District
9-1-1 emergency telephone system surcharge, as originally enacted, was an
impermissible tax on the federal government.  In our 2002 decision, we
considered whether the United States and its instrumentalities must pay
the District 9-1-1 surcharge, or whether the surcharge amounted to a tax
impermissibly imposed on the federal government.  Citing McCulloch v.
Maryland, 17 U.S. (4 Wheat.) 316 (1819), our decision noted that the
United States and its instrumentalities are constitutionally immune from
direct taxation by state and local governments.  We concluded that,
despite its use of the term *user fee,* the District*s 9-1-1 emergency
telephone system surcharge constituted a tax, the legal incidence of which
fell directly upon the federal government as user of telephone services in
the District of Columbia.  Accordingly, we held that the federal
government, including the House of Representatives, was constitutionally
immune from, and need not pay, the District*s 9-1-1 emergency telephone
system surcharge.  B-288161, supra.[2]
After we issued B-288161, your office requested that we reconsider our
conclusion.  You said that your research had not revealed any case in
which a court had invoked the tax immunity doctrine to set aside a
district tax levied upon the United States or one of its
instrumentalities.  You believe that the constitutional considerations
underpinning the McCulloch tax immunity doctrine do not apply to the
District, given its unique status as a federal district and a **partially
independent* governmental unit.*  You also believe that the District*s
power to impose a tax or fee on federal government entities is controlled
exclusively by federal statute, and you said that you can find no federal
statute prohibiting the District from imposing the surcharge on the
federal government.  Moreover, you argue that, if Congress wishes to
preclude the District from taxing other federal entities, it may easily do
so by disapproving or amending the relevant District acts through
established processes and statutory provisions.  Letter from Interim
Corporation Counsel Arabella Teal to GAO General Counsel Anthony Gamboa,
Oct. 31, 2002. 
    
    
Recently, the District amended the statute creating its 9-1-1 surcharge. 
See Budget Support Congressional Review Emergency Act of 2003, D.C. Law
15-149, S:S: 501, 502 (Sept. 22, 2003).[3]  The 2003 amendments eliminated
provisions of the original law characterizing the surcharge as a *user
fee* and explicitly imposed it upon telephone subscribers.  The amendments
also repealed the provisions stating that the surcharge was not to be
considered revenue of the telephone companies, as well as those allowing
the telephone companies to retain up to 2 percent of the surcharge to
cover their administrative costs in collecting the surcharge for the
District.  See D.C. Law 15-149, S: 502, to be codified at D.C. Code S:S:
34-1801-1804. 
Now, as amended, the District 9-1-1 surcharge is described in District law
as a *tax,* and it is *imposed on all local exchange carriers . . .
calculated [as a flat rate] on the basis of each individual telephone line
sold or leased in the District of Columbia.*  Emergency and Non-Emergency
Number Telephone Calling Systems Fund Emergency Amendment Act of 2003,
D.C. Law 15-149, tit. V, S: 502, to be codified at D.C. Code S: 34-1803. 
Telephone service providers are required to *submit the tax . . . to the
Mayor on a quarterly basis.*  Id.  The amendments took effect on October
1, 2003.  D.C. Law 15-149, S: 504. 
DISCUSSION
First, we will address your request that we reconsider our 2002 decision
holding that the federal government is immune from paying the District
9-1-1 surcharge, as originally enacted.  Second, we will consider whether,
under the 2003 amendments, the federal government may pay the District
9-1-1 surcharge. 
1. The District 9-1-1 Surcharge, as Originally Enacted, is an
Impermissible Tax
Our 2002 decision was predicated upon federal supremacy and sovereignty,
as upheld in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).  You
argue that McCulloch has no application to a tax enacted by the District
of Columbia because the District is part of the federal government and the
rule in McCulloch is limited to protecting the federal government from
taxation by the states.  We disagree.  We see McCulloch as protecting the
supremacy and sovereignty of the federal government from interference by
any subordinate jurisdiction, including the government of the District of
Columbia.  
The Supremacy Clause Bars Interference by Any Subordinate Government
McCulloch concerned an attempt by the state of Maryland to impose a tax
upon the Bank of the United States, a federal instrumentality.  To resolve
the resulting controversy, the Supreme Court turned to the Supremacy
Clause of the United States Constitution, which provides that *[t]his
Constitution, and the Laws of the United States which are made in
Pursuance thereof . . . shall be the supreme Law of the Land.*  U.S.
Const., Art. VI, cl. 2.  The Supreme Court found that the Supremacy Clause
rendered the federal government and its instrumentalities immune from
state taxes like the one imposed by Maryland.  McCulloch, 17 U.S. at 436. 
McCulloch is often cited for the proposition *that States may not impose
taxes directly on the Federal Government, nor may they impose taxes the
legal incidence of which falls on the Federal Government.*  United States
v. County of Fresno, 429 U.S. 452, 459 (1977).  Quoting United States v.
New Mexico, 455 U.S. 720, 735 (1982) (itself quoting McCulloch at 430),
you argue that *the principal purpose of the [McCulloch] immunity doctrine
[is] that of forestalling *clashing sovereignty* . . . by preventing the
States from laying demands directly on the Federal Government.*  Letter
from Interim Corporation Counsel Arabella Teal to GAO General Counsel
Anthony Gamboa, Oct. 10, 2002.  It is true that most of the court cases
that have applied McCulloch involved attempts by units of state and local
government to tax the federal government, but the language of Chief
Justice Marshall*s opinion in McCulloch shows that the Court had more in
mind. 
While McCulloch factually concerns the propriety of a state tax, it is
apparent from Chief Justice Marshall*s opinion that, for the Court, larger
issues were at stake, including protecting and preserving the sovereignty
and supremacy of the federal government.  His opinion emphasizes that the
elevation of the federal government*s authority over the rest of the
nation *so entirely pervades the constitution, is so intermixed with the
materials which compose it, so interwoven with its web, so blended with
its texture, as to be incapable of being separated from it, without
rending it into shreds.*  McCulloch, 17 U.S. at 426.  Chief Justice
Marshall stated that
*no principle, not declared [in the Constitution], can be admissible,
which would defeat the legitimate operations of a supreme government.  It
is of the very essence of supremacy, to remove all obstacles to its action
within its own sphere, and so to modify every power vested in subordinate
governments, as to exempt its own operations from their own influence. 
This effect need not be stated in terms.  It is so involved in the
declaration of supremacy, so necessarily implied in it, that the
expression of it could not make it more certain.*
Id. at 427 (emphasis added).  Because the Court understood that *the power
to tax involves the power to . . . control,* id. at 431, the Court found
the federal government exempt from the influence and power of *subordinate
governments,* as a necessary and essential implication of the Supremacy
Clause.[4]  Chief Justice Marshall sought to establish a rule that allowed
subordinate governments within the American federal system sovereignty
over the private persons and property situated within their borders, but
not sovereignty over the federal government and its instrumentalities.[5] 
It was intended to serve as a rule under which *[w]e are relieved, as we
ought to be, from clashing sovereignty; from interfering powers.*[6]  Id.
at 430 (emphasis added).
As we already observed, the rule in McCulloch has been applied mostly to
attempts by states and their local governments to tax the federal
government, even though its language clearly evinces a broader purpose.
    Attempts by territories and possessions of the United States to tax the
federal government have faced a similar rule.  Federal cases have
uniformly held that territories and possessions of the United States may
not tax the federal government or its instrumentalities without the
consent of Congress.  Often cited for this proposition is Domenech v.
National City Bank of New York, 294 U.S. 199 (1935).  Congress statutorily
granted Puerto Rico a general power of taxation.  Puerto Rico attempted to
use that authority to tax a branch of a bank organized under the laws of
the United States.  Id. at 200-202.  Domenech held that a territory or
island possession is *an agency of the federal government.*  Id. at 204. 
As such, territories and possessions have no independent sovereignty
comparable to that of a state; all of their authority, including their
authority to impose taxes, must be derived from the federal government. 
Cf. id. at 204-205.  *[L]ike a state, though for a different reason, such
an agency may not tax a federal instrumentality.*  Id. at 205.  The Court
explained:
*A state, though a sovereign, is precluded from [taxing the federal
government] because the Constitution requires that there be no
interference by a state with the powers granted to the federal
government.  A territory or a possession may not do so because the
dependency may not tax its sovereign.* 
Id. at 205 (footnote omitted).[7] 
We recognize that, just as it is not a state, the District is also not a
territory or a possession.  The District is *a unique entity.*  E.g.,
Firemen*s Ins. Co. v. Washington, 483 F.2d 1323, 1328 (D.C. Cir. 1973). 
However, it is clear to us that the rule in McCulloch has a broader
purpose than your office argues.  These precedents demonstrate that the
Constitution does not contemplate, and the Supreme Court will not allow,
*subordinate governments* of any stripe within the American federal system
to tax the federal government without the consent of Congress.
The Federal Government Must Clearly Consent to be Taxed or Regulated
The Supremacy Clause does not bar all efforts by subordinate governments
to regulate or tax the federal government but rather only those efforts to
which the federal government has not clearly and expressly consented.  The
decision in Hancock v. Train, 426 U.S. 167, 178-79 (1976), illustrates and
emphasizes this point.  In Hancock, the Supreme Court rejected an attempt
by the state of Kentucky to compel federal installations to obtain state
permits before operating facilities that might contaminate the air.  The
Court quoted McCulloch and the Supremacy Clause.  426 U.S. at 178.  Then,
the Court added:
*Taken with the *old and well-known rule that statutes which in general
terms divest pre-existing rights or privileges will not be applied to the
sovereign* *without a clear expression or implication to that effect,*
this immunity [i.e., McCulloch] means that where *Congress does not
affirmatively declare its instrumentalities or property subject to
regulation,* *the federal function must be left free* of regulation. 
Particular deference should be accorded that *old and well-known rule*
where, as here, the rights and privileges of the Federal
Government at stake not only find their origin in the Constitution, but
are to be divested in favor of and subjected to regulation by a
subordinate sovereign.*
Id. at 179 (footnotes omitted and emphasis added).  This passage from
Hancock is often cited by the federal courts.[8]  
In a relatively recent case, this requirement for express federal consent
to regulation or taxation was applied to a law enacted by the District of
Columbia.  In District of Columbia Financial Responsibility and Management
Authority v. Concerned Senior Citizens of the Roosevelt Tenant Ass*n,
129 F. Supp. 2d 13 (D.D.C. 2000), a tenant association claimed that a
District law gave it *the right of first refusal* to buy a building before
the District sold it to the District of Columbia Financial Responsibility
and Management Assistance Authority (commonly referred to as the "Control
Board").  129 F. Supp. 2d at 14-15.  Congress created the Control Board in
a federal law and specified a very short list of those District laws that
would apply to the Control Board.  Id. at 16.  The court had no doubt
whatsoever that a District law not on that list could have no application
to the Control Board.  The list (only three laws) represented the sole
extent to which Congress had consented to District regulation of the
Control Board.  Id. at 16-18. 
The requirement for express consent has also been applied to attempts by
territories and possessions of the United States to tax the federal
government or its instrumentalities.  For example, in Domenech (discussed
in greater detail above), the Court said, *[T]he Congress may consent to
such taxation; but the grant to [a territory or possession] of a general
power to tax should not be construed as a consent.  Nothing less than an
act of Congress clearly and explicitly conferring the privilege will
suffice.*  294 U.S. at 205 (footnote omitted).[9] 
The District of Columbia is Subordinate to the Federal Government
The District of Columbia is clearly subordinate to the federal
government.  The Constitution itself makes this clear when it describes it
as *such District . . . as may, by Cession of particular States, and the
Acceptance of Congress, become the Seat of the Government of the United
States,* over which Congress shall *exercise exclusive Legislation in all
Cases whatsoever.*  U.S. Const., Art. I, S: 8, cl. 17.  Your office notes
that the power Congress exercises over the District has been described by
the Supreme Court as *plenary,* Palmore v. United States, 411 U.S. 389,
397-98 (1973), and that, although Congress has delegated to the District
some of that authority, that delegation is *neither complete nor
irrevocable.*  Clarke v. United States, 886 F.2d 404, 407 (D.C. Cir.
1989), vacated as moot, 915 F.2d 699 (1990) (en banc).  Within the
District of Columbia, your office argues, there can be no opportunity for
*clashing sovereignty* because the District of Columbia is but a part of
the federal government.  Letter from Interim Corporation Counsel Arabella
Teal to GAO General Counsel Anthony Gamboa, Oct. 10, 2002.  Consequently,
within the District of Columbia there is only one sovereign, the Congress
of the United States.  See Metropolitan Railroad Co. v. District of
Columbia, 132 U.S. 1, 9 (1889); United States v. Cohen, 733 F.2d 128, 132
n.10 (D.C. Cir. 1984).  Thus, you argue McCulloch has no application to
District taxes because the District is a **unique entity* that is neither
a state nor the municipality of a state [and is not] sufficiently
independent* from the Federal government to *warrant application of the
tax immunity doctrine.*  Letter from Interim Corporation Counsel Arabella
Teal to GAO General Counsel Anthony Gamboa, Oct. 10, 2002, quoting
Firemen*s Ins. Co. v. Washington, 483 F.2d 1323, 1328 (D.C. Cir. 1973). 
This argument overlooks the larger issues of McCulloch.
The issue is not whether the District is a state, or a part of the federal
government, or even some unique other thing, but whether the District, as
a subordinate government, is exercising or attempting to exercise some
degree of sovereignty that has the effect of interfering in the operations
of the federal government without the consent of Congress.  Whatever it is
and however unique it may be, the District is constitutionally subordinate
to the federal government.  Before it may tax the federal government, the
District must be able to demonstrate that the federal government has
explicitly consented to be taxed by it.  Cf., e.g., Hancock, 426 U.S. at
179; Domenech, 294 U.S. at 204-205; Roosevelt Tenant, 129 F. Supp. 2d at
17.  
Your office supports its position, in part, by pointing out that no
federal court has ever struck down a District tax on the basis of the
McCulloch immunity.  Our research suggests this is true.  Equally true,
however, is the fact that no federal court has ever upheld a District tax
in the face of a challenge under McCulloch.  For the most part, in those
cases where a District tax has faced a challenge based on application of
the tax to a federal instrumentality, the tax survived because
Congress*not the District*enacted it, or because the court avoided the
question when it noticed that the tax explicitly precluded its application
to the federal government.[10] 
Congress Has Not Consented to Taxation by the District
The District Home Rule Act explicitly shields the federal government from
taxation by the District.  The United States Constitution vests in
Congress exclusive legislative authority for the District.  U.S. Const.,
art. I, S: 8, cl. 17.  As your office noted in its submissions to us,
congressional authority over the District is *plenary.*  Palmore v. United
States, 411 U.S. 389, 397-98 (1973).  Since Congress has exclusive
legislative authority over the District, all legislative authority that
the District government may legitimately assert, including the authority
to lay and collect taxes must have been given to it by Congress.[11] 
Thus, the proper analysis is not, as you suggest, to determine whether any
federal law precludes the District from taxing other elements of the
federal government, but rather whether any federal law authorizes it to do
so. 
In 1973, Congress granted the District a measure of *home rule* by
delegating to the District government *certain legislative powers* and
other specified authorities**subject to the retention by Congress of the
ultimate legislative authority* over the District.  District of Columbia
Self-Government and Governmental Reorganization Act (known also as the
*Home Rule Act*), Pub. L. No. 93-198, S: 102(a), 87 Stat. 774, 777 (1973)
(*Statement of Purposes*), codified at D.C. Code S: 1-201.02.  See also,
e.g., Home Rule Act, S:S: 1-206.01 (congressional *Retention of
Constitutional Authority* as District legislature); 1-206.02 (*Limitations
on the Council*).  It was clearly a limited grant of authority.  District
of Columbia v. Greater Washington Central Labor Council, 442 A.2d 110, 113
(D.C. 1982), cert. denied, 460 U.S. 1016 (1983). 
The Home Rule Act*s grants of taxing authority vis-`a-vis the federal
government are specifically limited in scope.  For example, for each kind
of tax that might conceivably be applied against the federal government,
Congress also enacted a specific exemption for the federal government. 
Your office noted several of those taxes and exemptions, including the
District property, sales, and cigarette taxes.  D.C. Code S:S:
1-206.02(a)(1), 47‑2005(1), 47-2403.  Your office infers from these
exemptions that Congress must have understood the District to have general
authority to tax the federal government; otherwise, it would not have felt
the need to create these exemptions. 
There are two problems with this inference.  First, if Congress intended
to exempt the federal government from District taxation in only a few
specific situations, one would expect to find at least a few instances
where Congress did not exclude the federal government from the District*s
authority to levy a tax that might reasonably have application to the
federal government.  Your office has not cited such a tax, however, and we
have identified none.  Second, as we noted above, the federal government
must explicitly give its consent clearly and unambiguously before a
subordinate government may impose taxes upon it; the drawing of such an
inference or an implication is not sufficient.  E.g., Hancock, 426 U.S. at
179.  As the Supreme Court said in Domenech, 294 U.S. at 205, with respect
to the authority of other subordinate governments, the grant by Congress
of the general power to tax is not sufficient.  There must be clear and
explicit statutory authority. 
The Home Rule Act did not give the District authority to tax the federal
government.  In fact, two provisions of the Home Rule Act clearly limit
the District in this area.  First, section 602(a)(3) specifies that the
District may not *enact any act . . .which concerns the functions or
property of the United States.*  Second, section 602(b) specifies,
*Nothing in this Act shall be construed as vesting in the District
government any greater authority . . . except as otherwise specifically
provided in this Act, over any Federal agency, than was vested in the
Commissioner.*[12]  Home Rule Act, 87 Stat. at 813-14, codified
respectively in D.C. Code S:S: 1-206.02(a)(3), 1‑206.02(b) (formerly
codified in S: 1-233).  Taken together, these provisions preclude the
District from imposing any direct taxes or other forms of interference
upon the federal government.
The Court of Appeals for the District of Columbia considered these two
provisions in District of Columbia v. Greater Washington Central Labor
Council, 442 A.2d 110 (D.C. 1982), cert. denied, 460 U.S. 1016 (1983). 
Although the factual situation in that case was different from the one
with which we are presently concerned, the court*s conclusions speak
directly to the purposes Congress had in mind when it created these
limitations.  Specifically, the court found these provisions were intended
to
*safeguard the operations of the federal government on the national
level.*  442 A.2d at 116.  The Act*s legislative history showed *[t]he
functions reserved to the federal level would be those related to federal
operations in the District and to property held and used by the Federal
Government for conduct of its administrative, judicial, and legislative
operations.*  442 A.2d at 116, quoting House Comm. on the District of
Columbia, 93d Cong., 2d Sess., District Executive Branch Proposal for Home
Rule Organic Act 182 (Comm. Print 1973).  *What Congress sought to protect
[in sections 602(a)(3) and 602(b)] was the integrity of the federal domain
as it relates to administration of federal legislation having national
implications.*  442 A.2d at 116.[13] 
The limitations of sections 602(a)(3) and 602(b) take on additional
meaning when they are considered in the context of applying a District tax
to other federal entities.  Inasmuch as *the power to tax involves  . . .
a power to control,* McCulloch, 17 U.S. at 431, any attempt by the
District to tax another federal entity without the benefit of express
authority from Congress necessarily places the District in the position of
attempting to exercise *greater authority over*[14] a federal agency,
intruding upon the *conduct of [federal] administrative, judicial, and
legislative operations,*[15] and compromising *the integrity of the
federal domain*[16] by violation of sections 602(a)(3) and 602(b).
               The Absence of Congressional Disapproval Does Not Constitute
Consent
Before it may tax the federal government, the District must have explicit
authorization.  E.g., Hancock, 426 U.S. at 179.  The submission of your
office implies that Congress must have consented:  In failing to
disapprove the District law creating the original surcharge, your office
suggests, Congress has effectively approved it and consented to its
provisions.  Letter from Interim Corporation Counsel Arabella Teal to GAO
General Counsel Anthony Gamboa, Oct. 31, 2002.  We disagree with this
position.
As we already noted, Congress delegated to the District only certain
specific powers, expressly conditioning their exercise upon compliance
with certain specific limitations and restrictions, and expressly
retaining to itself the *ultimate legislative power* for the District.  In
attempting to tax the federal government, the District exceeded its
authority under the Home Rule Act.  It is well accepted in the law that
ultra vires behavior is, ab initio, legally ineffective.[17]  For example,
in McConnell v. United States, 537 A.2d 211, 215 (D.C. 1988), the court
considered a District of Columbia voter initiative that would have
required different sentencing and treatment guidelines for addicts
convicted in the District, as compared with those prescribed by federal
law for the nation.  The court found the initiative violated the Home Rule
Act provision prohibiting the District from attempting to amend or repeal
any act of Congress having national application (as opposed to
congressional laws with purely local impact).  Id.  See District Code
S: 1‑206.02(3).  *It follows, therefore,* the Court concluded, *that
the amendments [which were the subject of the voter initiative] could
not*and did not*work an effective repeal of any of the provisions of [the
federal law].*  537 A.2d at 215.  There was no requirement for Congress to
disapprove the initiative; it simply had no effect. 
A similar holding can be seen in McMillan Park Committee v. National
Capital Planning Commission, 759 F. Supp. 908 (D.D.C. 1991), rev*d on
other grounds, 968 F.2d 1283 (D.C. Cir. 1992).  In McMillan, the District
government had enacted an amendment to the comprehensive land use plan
covering the District of Columbia.  The amendment changed the permitted
land uses for McMillan Park*from *parks, open space and recreation* to
*mixed use,* allowing for medium density residential and moderate density
commercial development.  The enacted amendment was submitted to Congress
under the Home Rule Act.  Congress did not disapprove it.  Subsequently,
private activists brought suit, complaining that applicable federal
procedural requirements had not been followed.  Id. at 911-13.  The court
agreed that the applicable procedures had not been followed.  In response,
the District argued that the court was without power to order relief: 
Since Congress had not disapproved the District law, it had the force of a
congressional enactment.  Id. at 916.  The court held the District*s
position *lacks merit entirely.  Clearly Congress could not have intended
that its silence could permit an invalid law to withstand legal
challenge.*  Id. at 917.  Congressional approval under the Home Rule Act
is based on the assumption that the District law was validly enacted, the
court said.  *[H]ad Congress been aware that the [amendment enacted by the
District] was the
product of regulatory violations, . . . it would have exercised its veto
authority.*  Id.  Having determined that the amendment was improperly
approved, the court found the District act was *therefore invalid.*  Id. 
When the District levies a tax on the federal government without explicit
statutory authority from Congress, the District exceeds its authority and
the tax is invalid and has no legal effect.  There is no requirement for
Congress to disapprove the District act.  Here, the District attempted to
impose a tax on the federal government, contrary to the restrictions and
limitations of federal sovereignty and the Home Rule Act.  Thus, to the
extent that it appeared to apply to the federal government, the original
District 9‑1‑1 surcharge was invalid and had no legal effect.
2. The District 9-1-1 Surcharge, as Amended, Qualifies as a Permissible
Vendor Tax
You also asked whether the 2003 amendments to the law creating the
District 9-1-1 surcharge cured the problems identified in B‑288161,
Apr. 8, 2002.  We conclude that the legal incidence of the tax imposed by
the 2003 law falls on providers of telephone services, not the federal
government as a user of telephone services.  Consequently, the federal
government may pay bills that include itemizations of the amended District
9-1-1 surcharge. 
The United States and its instrumentalities are immune from direct
taxation (sometimes referred to as a *vendee* tax).  However, when the
legal incidence of a tax falls directly on a vendor supplying the federal
government as a customer with goods or services, a *vendor* tax results
and the immunity does not apply.  E.g., 61 Comp. Gen. 257 (1982).  See
also 63 Comp. Gen. 49 (1983).  Determining where the legal incidence of
any particular tax falls can be extremely complex.  E.g., Valero
Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134 (4th Cir. 2000).  Here,
the nature of the amended District 9‑1‑1 surcharge seems clear
to us. 
Under the 2003 amendments, the District explicitly imposes a *tax* upon
telephone service vendors, rather than telephone service customers.  The
tax is calculated as a flat rate per line charge specified in the District
law and telephone service providers are required by the amended law to
*submit the tax . . . to the Mayor on a quarterly basis.*  The amendments
allow telephone companies to itemize the surcharge on customer phone
bills.  The itemization appears to serve only the purpose of informing the
customer of the charge now incurred by the vendor as a cost of doing
business in the District of Columbia.  The 2003 amendments repealed the
provisions stating that the surcharge was not to be considered revenue of
the telephone companies, as well as those which allowed the telephone
companies to retain up to 2 percent of the surcharge to cover their
administrative costs in collecting the surcharge.  See D.C. Law 15-149, S:
502, to be codified at D.C. S:S: 34-1801*34‑1804.  Nothing in the
District law as amended makes telephone customers liable to the District
if the customer does not pay the surcharge. 
We have examined 9-1-1 charges imposed by nearly two dozen states, most of
which we found were impermissible *vendee* taxes.  See, e.g.,
B‑301126, Oct. 22, 2003.  However, in B-238410, Sept. 7, 1990, we
considered Arizona*s 9-1-1 surcharge and concluded that it constituted a
*vendor* tax that could be reimbursed by the federal government.  The
Arizona statute differed in significant ways from those of the other
states.  Most importantly, Arizona explicitly imposed its *tax* on
telephone vendors (rather than directly on telephone subscribers, as in
the other states) and allowed the telephone companies to pass the Arizona
tax on to their customers as part of their costs of doing business. 
Because the companies were allowed to pass the tax on to their customers,
it was clear that the economic burden of the Arizona tax would fall on the
shoulders of the telephone companies* customers, but this did not alter
the outcome.[18]  If the tax went unpaid, it was the telephone company,
not the customers, to whom the state would look for payment.  In other
words, the legal incidence of Arizona*s tax fell not on the government as
a telephone subscriber, but on the telephone service vendors.
In our view, the amended District surcharge resembles more closely the
Arizona vendor tax considered in B‑238410 than the impermissible
vendee taxes of the other states that we have previously considered.[19] 
The 2003 amendments clearly and fundamentally changed the nature of the
surcharge, as originally enacted, and cured the problems noted in our
previous decision.  Now, the legal incidence of the tax falls on the
telephone service vendors, not on the federal government.
Conclusions
As discussed above, we find no basis to change our previous determination
that the House of Representatives was not required to pay the District*s
9-1-1 emergency telephone system surcharges, as originally enacted.  In
the absence of an express statutory consent by the federal government, the
Supremacy Clause of the United States Constitution precludes the District
from taxing the federal government or its instrumentalities.  The District
Home Rule Act, rather than providing the requisite consent, clearly
evidences a congressional desire to insulate the federal government from
District taxes and other forms of interference.  For this reason, the
District*s original 9-1-1 statute exceeded the District*s authority under
the Home Rule Act, and rendered the original 9-1-1 surcharge invalid and
legally ineffective.
On the other hand, we are satisfied that the recent amendments to the
District 9-1-1 emergency telephone system surcharge have cured the defects
noted in our previous decision.  As amended, the District 9-1-1 surcharge
is clearly a tax on the providers of telephone services in the District of
Columbia.  Accordingly, federal agencies may pay bills that itemize an
appropriate portion of the amended District 9-1-1 surcharge because the
tax is, for the telephone companies, a cost of doing business within the
District of Columbia.
Should you have any questions regarding this decision, please feel free to
contact Ms. Susan A. Poling of my staff at 202-512-5644.
    Sincerely yours,

    
/signed/
    
Anthony H. Gamboa
General Counsel

   cc:  Mr. James M. Eagen III
          Chief Administrative Officer
          Office of the Chief Administrative Officer
          House of Representatives
    
B-302230
    
Digests
    
1.      GAO finds no basis to change its previous determination in
B‑288161, Apr. 8, 2002, that the House of Representatives was not
required to pay the District of Columbia*s 9-1-1 emergency telephone
system surcharges as originally enacted by the District in 2000.  In the
absence of an express statutory consent by the federal government, the
Supremacy Clause of the United States Constitution precludes *subordinate
governments,* including the District, from taxing the federal government
or its instrumentalities.  See, e.g., McCulloch v. Maryland, 17 U.S.
(4 Wheat.) 316 (1819); Hancock v. Train, 426 U.S. 167, 178-79 (1976).
2.      The Home Rule Act, Pub. L. No. 93-198, 87 Stat. 774 (1973), does
not authorize the District of Columbia to tax the federal government. 
That act clearly evinces a congressional desire to preclude the District
from taxing or otherwise interfering with the federal government by
enacting express exemptions to each kind of District tax authorized by
Congress that might conceivably be applied against the federal government,
by barring the District from enacting any law *which concerns functions or
property of the United States,* and by disavowing any intent to vest in
the District *any greater authority [not] specifically provided in this
Act, over any Federal agency* than was previously vested in the District. 
See D.C. Code S:S: 1‑206.02(a)(1), 1‑206.02(a)(3),
1‑206.02(b), 47‑2005(1), 47-2403. 
3.      When the District of Columbia levies a tax on the federal
government without explicit statutory authority from Congress, the
District exceeds its authority and the tax is invalid and has no legal
effect.  There is no requirement for Congress to disapprove the District
act. 
4.      Amendments enacted by the District of Columbia in 2003 to its
9-1-1 emergency telephone system surcharge have cured the defects noted in
B‑288161, Apr. 8, 2002.  As amended, the District 9-1-1 surcharge is
clearly a tax on the providers of telephone services in the District of
Columbia, and federal agencies may pay bills that itemize an appropriate
portion of the amended District 9-1-1 surcharge because the tax is, for
the telephone companies, a cost of doing business in the District of
Columbia.
    

   ------------------------

   [1] Letter from Interim Corporation Counsel Arabella Teal to GAO General
Counsel Anthony Gamboa, Oct. 10, 2002, and Letter from Corporation Counsel
Robert J. Spagnoletti to GAO General Counsel Anthony Gamboa, Oct. 27,
2003.
[2] In the same decision, we held that the House of Representatives could
pay another District fee:  The right‑of‑way surcharge
authorized by the Fiscal Year 1997 Budget Support Act of 1996 (D.C. Law
11‑198, April 9, 1997).  D.C. Code S: 10‑1141.01-10-1141-.06
(2001).  That surcharge is imposed on telecommunications and other utility
companies for their use of public space below the surface of District
streets and sidewalks.  We found it to be a rental fee, the legal
incidence of which fell on the telecommunications and utility companies,
not on the federal government as an end user.  B-288161, supra. 
[3] Because this was an *emergency act,* an identical *permanent law* has
also been enacted:  D.C. Law 15-106.  Your letter states that the law took
effect Nov. 11, 2003.  Letter from Corporation Counsel, Robert J.
Spagnoletti to GAO General Counsel, Anthony Gamboa, Oct. 10, 2003.
[4] Cf. James A. Poore, III, The Constitution of the United States Applies
to Indian Tribes:  A Reply to Professor Jensen, 60 Mont. L. Rev. 17, 19,
23  (1999) (regarding the proposition that *the power of Indian tribal
government is limited by the Constitution of the United States,* *[i]n
McCulloch v. Maryland, the Chief Justice made it clear that the
Constitution applied to all subordinate governments*).
[5] McCulloch, 17 U.S. at 430 (*a principle which leaves the power of
taxing the people and property of a state unimpaired; which leaves to a
state the command of all its resources, and which places beyond its reach,
all those powers [of] the government of the Union*).
[6] See also, e.g., Hancock v. Train, 426 U.S. 167, 179 (1976) (*this
immunity means that . . . *the federal function must be left free* of
regulation . . . where, as here, the rights and privileges of the Federal
Government at stake not only find their origin in the Constitution, but
are to be divested in favor of and subjected to regulation by a
subordinate sovereign*) (footnotes omitted and emphasis added).
[7] See also United States v. Wheeler, 435 U.S. 313, 321 (1978);
Gumataotao v. Director of Department of Revenue and Taxation, 236 F.3d
1077, 1081-82 (9th Cir. 2001) (Guam would not be allowed to exercise
congressional delegation of general taxing authority to tax federal
bonds); District of Columbia National Bank v. District of Columbia, 348
F.2d 808, 812 (D.C. Cir. 1965) (*a territory or possession may not tax the
instrumentality of its sovereign without the latter*s consent*); Yerian v.
Territory of Hawaii, 130 F.2d 786, 789 (9th Cir. 1942) (*[a] Territory
cannot, any more than a State can, tax an instrumentality of the United
States without the consent of Congress*).
[8] See, e.g., Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 180, 187-88
(1988) (both the majority and the dissent); United States v. City of St.
Paul, 258 F.3d 750, 752 (8th Cir. 2001), Blackburn v. United States,
100 F.3d 1426, 1435 (9th Cir. 1996); State of Minnesota v. Hoffman, 543
F.2d 1198, 1206 (8th Cir. 1976). 
[9] See also 53 Comp. Gen. 173, 176 (1973) (*[i]t is clear that a United
States territory may not impose a tax upon its sovereign in the absence of
express statutory permission*).  For additional examples, see the cases
cited in note 7, supra.
[10] Cf., e.g., United States v. District of Columbia, 669 F.2d 738, 740
n.1 (D.C. Cir. 1981) (District sales tax, enacted by federal statute, did
not fall directly on federal government; but *[e]ven if the *legal
incidence* of the  tax fell on the United States, constitutionally
grounded federal tax immunity from state taxation [i.e., McCulloch] would
not bar the tax in question [because the District] sales tax was enacted
by Congress, not by [District or] a state*); United States v. District of
Columbia, 558 F. Supp. 213, 217-18 (D. D.C. 1982) (United States Capitol
Historical Society, a federal instrumentality, was exempt from District
sales tax requirements, because the federal statute *limits the District
of Columbia*s taxing power to the same extent that the states are limited
by the federal constitution*), vacated as moot, United States v. District
of Columbia, 70 F.2d 1521 (D.C. Cir. 1983) (during the appeal, Congress
enacted an express exemption for the Society); ITEL Corp. v. District of
Columbia, 448 A.2d 261, 263 (D.C. 1982) (tax at issue *was enacted not by
an independent sovereign, or even a partially-independent governmental
unit such as the District of Columbia government, but by the Congress
itself*). 
[11] Cf. Domenech, 294 U.S. at 204-05 (*Puerto Rico, an island possession,
like a territory, is an agency of the federal government, having no
independent sovereignty comparable to that of a state in virtue of which
taxes may be levied.  Authority to tax must be derived from the United
States.*).
[12] You have not cited and we are not aware of any statute or any
precedent holding that the Commissioner of the District was legally
authorized to tax the federal government.
[13] See also Techworld Development Corp. v. D.C. Preservation League, 648
F. Supp. 106, 115 (D. D.C. 1986) (*the limitation of [section 602(a)(3)]
is included to ensure that the local government does not encroach on
matters of national concern*).
[14] D.C. Code S: 1-206.02(b).
[15] 442 A.2d at 116.
[16] Id.
[17] Cf., e.g., 15 C.J.S. Commerce S: 8 (2003) citing, e.g., Target
Sportswear, Inc. v. United States, 875 F. Supp. 835, 841 (Ct. Int*l Trade
1995) (exercise of congressionally delegated authority must be within
scope of authority granted and comply with any procedures prescribed by
Congress; regulatory action taken by the President, ostensibly pursuant to
statutory delegation, but actually beyond the scope of the delegated
authority, or not in compliance with prescribed procedures, is ultra vires
and void); 56 Am. Jur. 2d Municipal Corporations and Other Subdivisions S:
180 (2003) (*[a]ll the powers of a municipal corporation are derived from
law and its charter . . . [a]cts beyond the scope of the powers conferred
on a municipality are "ultra vires" and are void*).
[18] The courts have unanimously rejected the notion that legal incidence
necessarily follows the economic burden of the tax.  E.g., United States
v. New Mexico, 455 U.S. 720, 734 (1982); Gurley v. Rhoden, 421 U.S. 200
(1975); United States v. Maryland, 471 F. Supp. 1030, 1037 (D. MD. 1979);
United States v. City of Leavenworth, 443 F. Supp. 274, 281 (D.
Kan.1977).  Thus, the legal incidence of a vendor tax does not shift to
the vendee when the vendor passes the tax on to his customers as a cost of
doing business.  Cf. B-238410, supra (*the legal incidence of a vendor tax
does not shift to the vendee when the vendor passes the tax on to his
customers as a cost of doing business*).
[19] There is one difference that concerned your office:  The Arizona tax
was calculated based on the providers* gross sales receipts, while the
amended District surcharge uses a flat rate assessment.  In a number of
previous 9-1-1 decisions, we have contrasted so-called *fees,* calculated
at flat, per customer rates, with *taxes,* calculated as percentages of
the vendor*s gross receipts.  Those were all cases in which the
terminology and form of the statutory surcharge at issue cast doubt upon
whether the surcharge was more in the nature of a tax imposed on the
customers or a fee for services imposed on the vendor.  Because a flat
rate charge usually bears little if any relationship to the cost or value
of services provided, we found in those cases that the state*s resort to a
flat rate assessment was generally more indicative of a vendee tax than a
vendor tax.  See, e.g., 66 Comp. Gen. 385, 387 (1987); B-301126, supra. 
There is no rule that vendor taxes may not be calculated on a flat, per
customer rate and the distinction made in those cases is inapposite to the
District surcharge since there is no question of whether the District
surcharge charge constitutes a *tax* or a *fee,* nor where its legal
incidence falls.