Federal Judge Rejects Suit Seeking Commuter Tax

Proponents of a District commuter tax lost a battle in federal court last week, but they are already planning to press their case in several other ways.

On Thursday, a federal judge tossed out a lawsuit filed last summer that sought to give the District the power to tax the income of residents of other states who work in Washington. It was a source of revenue that the suit's plaintiffs -- the District mayor, D.C. Council and 18 city taxpayers -- argued was necessary to keep the city financially sound.

U.S. District Judge Ellen Segal Huvelle said she agreed that the unfairness of the District's tax burden and its inability to tax non-residents -- as states do -- was "obvious and regrettable."

But, the judge ruled, the Constitution and other key court rulings prevented her from overturning a federal law that prohibits the District from imposing the tax.

Now the forces behind the lawsuit, led by District home-rule activists at the nonprofit organization D.C. Appleseed, say they see other avenues of attack.

"Equity for District residents wasn't built in a day," said Walter Smith, one of the lawyers leading the case and the executive director of D.C. Appleseed. "We've been working on it for 100 years, and we're still not there. But we won't give up."

First, the group plans to appeal Huvelle's decision to the next-highest court, the U.S. Court of Appeals for the D.C. Circuit.

Del. Eleanor Holmes Norton (D-D.C.) said that, because numerous past court rulings have concluded that the District is a unique government entity not entitled to all the rights of states, few judges are willing to recognize that the Constitution promises District residents the same treatment other states' residents receive.

Though Norton said she understands Huvelle's position, she said the decision must be appealed.

"We can't let a ruling that leaves us as second-class citizens lie there," she said. "The deck is stacked against the District, unless the courts finally offer a vision of the authority of the Congress over the District in keeping with our rights to equality under the law. . . . We need a lot of courage in a judge."

Second, the District proponents hope that Congress will consider crafting a national solution for the tax inequity they believe is suffered by the nation's capital. The District is home to dozens of federal agencies staffed by suburbanites, and their presence creates a need for more services than the city's 590,000 residents require, advocates note. They say the city also cannot tax large tracts of federal property, increasing the tax burden on city taxpayers.

Virginia and Maryland lawmakers vigorously oppose a commuter tax, arguing that it would be unfair to expect a few residents in two neighboring states to shoulder the District's revenue problem.

Taxes on out-of-state commuters are common across the country, and D.C. officials have estimated that one would add $540 million to $1.4 billion to the city's treasury. But Congress barred the city from having the power to levy such a tax, and incorporated that ban into the 1974 D.C. Home Rule Act.

"Virginia and Maryland attorneys argued this is a national problem and needs a national solution," Smith said. "I'm hoping that with a federal court agreeing this is inequitable, Congress will now act and do the right thing for the District."

Norton said she has written some proposed legislation for a federal contribution bill, so that the federal government provides an annual amount of money to keep the city financially sound.

Alice M. Rivlin, a Brookings Institution scholar who studied the imbalance of the District's finances, said she was surprised that attorneys for Maryland and Virginia argued that the District already receives significant federal subsidies.

"It does?" Rivlin asked, noting that such federal contributions have been small and often tied to specific projects.

Smith said even Huvelle, who said that Congress's ban was unfair but that she couldn't change it, recognized that the city needs financial help.

"We have a General Accounting Office report that we have this structural imbalance," Smith said. "We've got to overtax D.C. residents and underserve everybody. We need something to get the revenues we need to serve our residents and visitors."