Companies with a home base in Washington's suburbs take note: The District of Columbia Court of Appeals today sided with Virginia-based BAE Systems in a dispute with the city's Office of Tax and Revenue over what it means to "maintain" an office in the District.
BAE claimed exemptions from the city's corporate franchise tax in 2001 and 2002, according to the opinion (PDF). The company said that while its headquarters were in Virginia, enough of its employees provided high-technology services in Washington – working essentially full-time in federal agency offices as contractors – to qualify for an exemption aimed at developing the city's high-tech sector.
The Office of Tax and Revenue took the position that BAE didn't qualify for the exemption and owed an additional $534,764. The Office of Administrative Hearing found in BAE's favor and the city appealed, arguing that to "maintain" an office under the law providing for the exemption, BAE would have to exercise "predominant dominion, control, or autonomy" over that office. Judge Roy McLeese III, writing for the three-judge panel, said the city's proposed definition was "unconvincing" and too restrictive.
"For example, an outside company that was hired to maintain an office building in a state of repair might well have no dominion, control, or autonomy over any of the offices in the building," he wrote. "Similarly, a former spouse who was required by a divorce decree to pay to maintain a residence for the other spouse and the children of the marriage might have no rights at all with respect to the residence."
McLeese noted that the city's proposed definition would conflict with previous tax decisions holding that a company could "maintain" a building without owning or controlling it.
The court found that the tax office's arguments failed when it came to the legislative intent of the exemption as well, which McLeese wrote was ambiguous. On the one hand, he said, legislators seemed to want the exemption to give businesses an incentive to move to D.C., but on the other hand spoke more generally about the need to create high-tech jobs for residents.
In a statement, BAE spokesman Mike Teegardin said the company "is pleased by the decision and that our position was affirmed by the D.C. Court of Appeals. BAE Systems is proud to be an employer in the District of Columbia and an important part of the community." BAE was represented by Crowell & Moring partner Robert Willmore.
A spokeswoman for the Office of Tax and Revenue said they are reviewing the decision and could not comment until that process was finished. A spokesman for the D.C. Office of the Attorney General declined to comment as well.
Judges Kathryn Oberly and Corinne Beckwith also heard the case.