JOSEPH J. MATHY, ET AL.
COMMONWEALTH OF VIRGINIA
DEPARTMENT OF TAXATION
April 18, 1997
Record No. 961290
JOSEPH J. MATHY, ET AL.
COMMONWEALTH OF VIRGINIA
DEPARTMENT OF TAXATION
Gerald B. Lee, Judge
Present: All the Justices
OPINION BY JUSTICE BARBARA MILANO KEENAN
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
In this appeal, we consider whether two Virginia taxpayers are
entitled to a credit under Code ‘ 58.1-332(A) for taxes paid
to the District of Columbia on income received from a partnership
conducted in the District of Columbia.
The facts in this case are not in dispute. The appellants,
Joseph J. Mathy and Sarah G. Mathy, are residents of Fairfax
County. Joseph Mathy is a general partner in The Mills Building
Associates, a District of Columbia general partnership (the
partnership). The partnership’s sole source of income during the
relevant years was rental income earned from the operation of an
office building in the District of Columbia.
The partnership filed District of Columbia tax returns for
1991, 1992, and 1993 and paid the taxes due on the income earned
from the commercial office rental pursuant to D.C. Code Ann.
” 47-1808.1 to -1808.6 (1990). This subchapter, labeled
"[t]ax on unincorporated businesses," provided, for the
years at issue, that "for the privilege of carrying on or
engaging in any trade or business within the District and of
receiving income from sources within the District, there is
levied . . . a tax at the rate of 10 per centum upon
the taxable income of every unincorporated business," plus a
surtax between 2.5% and 5% of the taxes due. D.C. Code Ann.
‘ 1808.3 (1990) (amended 1994) (the UB tax). "Taxable
income" is defined as "the amount of net income derived
from sources within the District . . . in excess of the
exemption granted under ‘ 47-1808.4" D.C. Code Ann.
Under the District of Columbia Code, these taxes may be
assessed in the name of the unincorporated business, but are
payable by the persons conducting the business. D.C. Code Ann.
‘ 47-1808.5. As a general partner, Joseph Mathy was
personally liable for payment of these taxes.
The Mathys filed Virginia income tax returns for 1991, 1992,
and 1993, and reported Joseph Mathy’s share of the net income
from the District of Columbia partnership. When the Mathys filed
those returns, they did not claim an out-of-state tax credit
against their Virginia taxes for the taxes paid pursuant to the
In 1994, the Mathys filed amended Virginia income tax returns
for the tax years 1991, 1992, and 1993, claiming an out-of-state
tax credit pursuant to Code ‘ 58.1-332(A) and requesting
refunds from Virginia for each of the tax years in issue. Code
‘ 58.1-332(A) provides:
Whenever a Virginia resident has become liable to another
state for income tax on any earned or business income for the
taxable year, derived from sources outside the Commonwealth and
subject to taxation under this chapter, the amount of such tax
payable by him shall, upon proof of such payment, be credited on
the taxpayer’s return with the income tax so paid to the other
However, no franchise tax, license tax, excise tax,
unincorporated business tax, occupation tax or any tax
characterized as such by the taxing jurisdiction, although
applied to earned or business income, shall qualify for a credit
under this section, nor shall any tax which, if characterized as
an income tax or a commuter tax, would be illegal and
unauthorized under such other state’s controlling or enabling
legislation qualify for a credit under this section.
The Virginia Department of Taxation (the Department)
determined that the Mathys were not entitled to the tax credit
under Code ‘ 58.1-332(A). The Mathys then filed in the trial
court this application for relief from erroneous assessments of
Virginia income taxes.
The trial court granted the Department’s motion for summary
judgment, holding that the Mathys were not entitled to a credit
against their Virginia taxes for payment of the UB tax. The court
stated that a plain reading of D.C. Code Ann. ‘ 47-1808.3
indicates that the tax imposed is not an income tax subject to
credit under Code ‘ 58.1-332(A), but is an unincorporated
business tax on income imposed for the privilege of conducting
business in the District of Columbia. Thus, the court held that
Code ‘ 58.1-332(A) does not provide a credit for payment of
On appeal, the Mathys argue that the trial court’s ruling
conflicts with the decisions of this Court in King v. Forst,
239 Va. 557, 391 S.E.2d 60 (1990), and the District of Columbia
Court of Appeals in Bishop v. District of Columbia, 401
A.2d 955 (D.C. 1979), aff’d en banc, 411 A.2d 997 (1980).
The Mathys contend that both cases held that the UB tax is an
income tax, and not an unincorporated business tax, franchise
tax, or privilege tax.
In response, the Department contends that the UB tax is an
unincorporated business tax within the meaning of Code
‘ 58.1?332(A), and is characterized as such by the District
of Columbia. In the alternative, the Department argues that even
if this tax is characterized as an income tax, it is illegal
under the District of Columbia Self-Government and Governmental
Reorganization Act (the Home Rule Act), Pub. L. No. 93-198, 87
Stat. 774 (1973) (codified in part in Title I, D.C. Code Ann.
(1992)), and, thus, the Mathys are not entitled to a credit under
Code ‘ 58.1-332(A).
The District of Columbia Court of Appeals, the highest court
of that jurisdiction, examined the UB tax in Bishop v.
District of Columbia, 401 A.2d at 958-61. The court held that
the tax is an income tax, explaining that "a tax on gross
receipts is not an income tax; a tax on net income is so,
regardless of its nomenclature." Id. at 960.
In reaching this conclusion, the court emphasized that a tax
must be characterized based on its nature and effect, rather than
on any label or title affixed to its provisions. Id. at
958. The court noted that, by its terms, the UB tax is a net
income tax because it is levied on taxable income, which is
defined as that amount of net income in excess of the exemption
granted by D.C. Code Ann. ‘ 47-1808.4. Id. at 960.
Under principles of comity, we applied the rule of Bishop
in King v. Forst. There, we explained:
interpreting the law of that jurisdiction, are controlling
authority in the courts of all other States as well as in the
Federal courts. This principle applies even where the
construction given by the foreign court to its law is directly
opposite to the construction the domestic court gives to its own
239 Va. at 561, 391 S.E.2d at 62 (citations omitted).
Applying the construction given D.C. Code Ann. ‘ 47-1808.3
by the District of Columbia Court of Appeals, we held that the UB
tax is an income tax. King, 239 Va. at 561, 391 S.E.2d at
62. Thus, we concluded that the Virginia taxpayer, a sole
proprietor of an unincorporated printing business located in the
District of Columbia, was entitled to a credit under former Va.
Code ‘ 58.1-332 for payment of the UB tax. Id.
Our decision in King is dispositive of the issue
whether the UB tax is an income tax. We find no merit in the
Department’s argument that the second paragraph of Code
‘ 58.1-332(A), added by the General Assembly in 1991,
effectively overrules King. The "taxing
jurisdiction," as the term is used in that paragraph, is the
District of Columbia, which has characterized the tax as an
income tax, irrespective of its title, "[t]ax on
unincorporated businesses." Bishop, 401 A.2d at 960.
Thus, the second paragraph of Code ‘ 58.1-332(A) does not
affect our ruling in King that the UB tax is an income
Our conclusion is not altered by the fact that Bishop
was based on a challenge to the UB tax as applied to
professionals and personal services businesses, rather than to
other types of unincorporated businesses such as the one in which
Joseph Mathy is a general partner. The court’s holding in Bishop
was based on the inherent nature of the UB tax, rather than on
the type of unincorporated business income at issue.
In addition, in King, we applied the rule of Bishop
to income derived from a printing business conducted in the
District of Columbia, which did not involve professional or
personal services. Our holding was based on the structure and
effect of the tax, as characterized by the District of Columbia
Court of Appeals, rather than on the type of unincorporated
business conducted by the taxpayer. See King, 239
Va. at 560, 391 S.E.2d at 62.
Since the UB tax is an income tax, the Mathys are entitled to
a credit under Code ‘ 58.1-332(A) unless the tax "would
be illegal and unauthorized under such other state’s controlling
or enabling legislation." Code ‘ 58.1-332(A).
Therefore, in the present case, we must determine whether the UB
tax would be illegal and unauthorized under the District of
Columbia’s Home Rule Act.
In the Home Rule Act, the United States Congress gave the
District of Columbia Council legislative authority over most
matters involving the District. See D.C. Code Ann.
” 1-201 to - 229.7. However, the Home Rule Act
expressly prohibits the Council from imposing a "commuter
tax," defined as "any tax on the whole or any portion
of the personal income . . . of any individual not a
resident of the District . . . ." D.C. Code
Ann. ‘ 1-233(a)(5); see Bishop, 401 A.2d at
957-58. Neither the Home Rule Act nor any other portion of the
District of Columbia Code defines the term "personal
The Department argues that if D.C. Code Ann. ‘ 47-1808.3
is an income tax, it violates this restriction in the Home Rule
Act as a tax on the personal income of a nonresident of the
District. In response, the Mathys argue that the tax does not
violate the Home Rule Act, but "is a perfectly legal income
tax which does not tax personal income, the only kind of income
protected by [the above] section of the Home Rule Act." The
Mathys further contend that the tax is imposed on their District
of Columbia rental business income, not on their personal income.
We disagree with the Mathys.
The rationale advanced by the Mathys was directly addressed
and rejected in Bishop. The court concluded that
"[t]he tax is levied upon personal income. If we dealt here
with a corporate franchise tax, the result would be
different." Id. at 961. The court noted that the
scheme of the tax illustrates its nature as a personal net income
tax, and that since the tax is imposed on unincorporated
businesses, it is "in reality a tax on the associates or
partners who run the business." Id. at 961 n.18.
In District of Columbia v. Califano, 647 A.2d 761, 763
(D.C. 1994), the District of Columbia Court of Appeals again
recognized that the UB tax is a personal income tax. The court
explained, "in the language of Bishop," that
this tax personally burdens the individuals who comprise the
unincorporated business and operates as an income tax on them
individually. Califano, 647 A.2d at 763-64. Since both Bishop
and Califano instruct that the UB tax imposes a tax on
personal income, we must conclude that the tax imposed on the
Mathys is illegal and unauthorized under the Home Rule Act for
purposes of qualifying for a credit under Code
‘ 58.1-332(A), because the Home Rule Act prohibits the
imposition of "any tax on the whole or any portion of the
personal income . . . of any individual not a resident
of the District . . ." D.C. Code Ann.
‘ 1-233(a)(5). Thus, the Mathys are not entitled to a credit
under Code ‘ 58.1-332(A), based on the plain language of the
second paragraph of that statute.
This is a case in which the trial court has reached the
correct result but has given the wrong reason. We will sustain
the result on the grounds assigned above. Doswell Ltd.
Partnership v. Virginia Elec. & Power Co., 251 Va. 215,
225, 468 S.E.2d 84, 90 (1996); Richmond, Fredericksburg &
Potomac R.R. v. Metropolitan Washington Airports Auth., 251
Va. 201, 214, 468 S.E.2d 90, 98 (1996); Robbins v. Grimes,
211 Va. 97, 100, 175 S.E.2d 246, 248 (1970).
For these reasons, we will affirm the trial court’s judgment.
 Under D.C. Code
Ann. ‘ 47-1808.1 (1990), the term "unincorporated
business" is defined, in relevant part, as
any trade or business, conducted or engaged in by any
individual, whether resident or nonresident, statutory or
common-law trust, estate, partnership, or limited or special
partnership . . . other than a trade or
business conducted or engaged in by any corporation and
include[s] any trade or business which if conducted or
engaged in by a corporation would be taxable under subchapter
VII of this chapter.
Code Ann. ‘ 41-114(2) provides that "[a]ll partners are
liable . . . [j]ointly for all other debts and
obligations of the partnership."