SHOULD PROFESSIONALS who work in the District but live somewhere else pay taxes to D.C.? The District Court of Appeals has struck down such a levy, and in doing so calls attention to some thorny issues of local and regional taxation. The court had to decide what kind of tax the city had imposed in 1975 when it made those lawyers, doctors, writers, architects and others subject to the local levy on unincorporated businesses. The District has viewed the measure as a franchise tax. The court, however, decided that the tax had the features of an income tax-and therefore was at odds with the home-rule charter, which says the District can't tax the income of non-residents.
The District government is considering seeking a review by the full nine-member appellate court. That would be good, because the decision could have very disruptive effects. To start with, if last week's judgment stands, the city would have to refund perhaps $45 million brought in by this tax since 1975. The several thousand professionals involved would have some additional tax accounting to take care of, too. Those who live in the suburds would have to pay federal income tax on the refunds. Besides doing that, the city residents affected would have to file amended local tax returns, and those in higher brackets could wind up paying more District income tax.
Beyond that, the decision may encourage new challenges to other District taxes on the business operations of non-residents. After all, if the courts start defining "indirect" income taxes too broadly, almost anything affecting the receipts of a sole proprietor or unincorporated entrepreneur might be called into question. That could restrict the city even more than Congress intended when it wrote the charter provision barring a "commuter tax."
The basic problem, of course, is that charter provision. It should be repealed. Besides provoking legal disputes about what is or isn't an income tax, it obviously bars the District from levying any payroll tax and thus puts more of the burdens of underwriting city services on local residents and tourists than on those who work in town and live next door. Moreover, the ban keeps the city and the whole region from exploring one possible route for financing the non-federal share of Metro. If this fiscal straitjacket were removed, a lot of problems of city and regional financing could be dealt with more sensibly.