Opinion
Civil Docket No.: CL19-4764
08-03-2020
Re: Cox Communications Hampton Roads, LLC v. City of Norfolk and C. Evans Poston, Jr., Commissioner of the Revenue for the City of Norfolk
Todd G. Betor, Esquire Eversheds Sutherland LLP 700 Sixth Street, NW, Suite 700 Washington, DC 20001-3980 Eric S. Tresh, Esquire Alla Raykin, Esquire Eversheds Sutherland LLP 999 Peachtree Street, NE, Suite 2300 Atlanta, Georgia 30309 Adam D. Melita, Esquire Deputy City Attorney Norfolk City Attorney's Office 900 City Hall Building 810 Union Street Norfolk, Virginia 23510
Todd G. Betor, Esquire
Eversheds Sutherland LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980 Eric S. Tresh, Esquire
Alla Raykin, Esquire
Eversheds Sutherland LLP
999 Peachtree Street, NE, Suite 2300
Atlanta, Georgia 30309 Adam D. Melita, Esquire
Deputy City Attorney
Norfolk City Attorney's Office
900 City Hall Building
810 Union Street
Norfolk, Virginia 23510 Dear Counsel:
Today the Court rules on the cross-motions for partial summary judgment filed by Plaintiff, Cox Communications Hampton Roads, LLC ("Cox"), and Defendants, the City of Norfolk and C. Evans Poston, Jr., Commissioner of the Revenue for the City of Norfolk. Cox argues that the Internet Tax Freedom Act ("ITFA") prohibits the City of Norfolk's Business, Professional, and Occupational License ("BPOL") tax on its internet access services. The City of Norfolk (the "City") contends that because its BPOL tax is a fee for a specific privilege or, alternatively, is not levied on Cox's internet access services themselves, it does not come within the ambit of the ITFA. Cox also seeks a determination of which party bears the burden of proving at trial whether Norfolk's BPOL tax is grandfathered under the ITFA.
The Court holds that the ITFA proscribes Norfolk's BPOL tax as applied to the gross receipts associated with Cox's internet access services, unless the assessment is otherwise grandfathered by the ITFA. The Court also finds that the issue regarding the burden of proof is not properly before the Court. The Court therefore GRANTS Cox's motion for partial summary judgment, although it declines to rule on which party bears the burden of proving that Norfolk's BPOL tax falls within the ITFA's grandfather clause. The Court DENIES the City's motion for partial summary judgment.
Background
Under Virginia law, a "local governing body" may require a license for certain "businesses, trades, professions, occupations and callings." Va. Code §§ 58.1-3700, 58.1-3703(A); see also id. § 58.1-3703.1(A)(1) (setting forth when a license is required). This license is often referred to a Business, Professional, and Occupational License, or a "BPOL." See, e.g., Norfolk City Code § 45.7-8. If such a license is required, it is "unlawful to engage in such business, employment or profession without first obtaining the required license." Va. Code § 58.1-3700. Virginia law also provides that the local governing body "may levy and provide for the assessment and collection of . . . license taxes . . . upon the persons, firms and corporations engaged therein," subject to certain statutory limitations. Id. § 58.1-3703(A). Within this statutory framework, the City requires BPOLs, Norfolk City Code § 24-25.3, and levies a Norfolk BPOL tax (the "BPOL Tax") on businesses and other corporate entities seeking to conduct business within the city, id. § 24-25.9(c).
Congress originally enacted the IFTA in 1998 as a temporary moratorium barring federal, state, and local governments from imposing "[t]axes on Internet access," as well as certain taxes on electronic commerce. 47 U.S.C. § 151 note § 1101(a). Included is an exception for entities meeting the criteria of the ITFA's grandfather clause. Id. note § 1104. Congress renewed the ITFA several times before making it permanent in 2016.
The 2016 amendment also repealed the grandfathering provisions, effective June 30, 2020. 47 U.S.C. § 151 note § 1104(a)(2)(A).
Cox has a Norfolk business license and provides, inter alia, internet access services to Norfolk customers. (Cox Pet. ¶¶ 10-12.) After paying the BPOL Tax on its total gross receipts in 2013, 2014, and 2015, Cox requested that the local Commissioner of the Revenue issue a refund for that portion of the gross receipts associated with internet access services for those years, i.e., $325,683.01, which the Commissioner denied. (Id. ¶¶ 15, 22.) Cox asserts that the ITFA prohibits the BPOL Tax on gross receipts from internet access services unless the BPOL Tax satisfies the ITFA's grandfather clause. (Id. ¶¶ 30-33.) For the 2016 tax assessment, Cox did not pay the BPOL Tax on gross receipts associated with its claimed internet access services, and the Commissioner of the Revenue subsequently issued an additional assessment for $128,373.52 plus penalties and interest. (Id. ¶¶ 19-21.) Cox appealed the additional assessment. (Id. ¶ 21.) After the Commissioner of the Revenue denied both Cox's refund request and its appeal of the additional assessment, Cox appealed the decisions to Virginia's State Tax Commissioner. (Id. ¶¶ 24-25.)
In 2017, the Tax Commissioner determined that the ITFA applies to, and therefore prohibits, the BPOL Tax on Cox's internet access services. (Pl.'s Mot. Partial Summ. J. & Mem. Supp. ("Pl.'s Mot.") Ex. F.) The Tax Commissioner also concluded that because he found that the ITFA applies to BPOL taxes on gross receipts from internet access charges, "the burden now rests with any Virginia locality . . . to prove it qualified for exemption under the [ITFA]'s grandfather provisions." (Id.) However, the Tax Commissioner determined that "the extraordinary burden shifting caused by the [ITFA] is . . . incompatible with the administrative appeals process" at state and local levels and would result in a state or locality determining "whether it satisfied its own burden of proof"; the Commissioner therefore ultimately opted not to issue an order of correction, allowing the City's assessment to stand. (Id.)
Both parties filed petitions appealing the Tax Commissioner's decision. The City claims that the Tax Commissioner erred in concluding that the BPOL Tax falls under the ITFA, and Cox asserts that the Tax Commissioner erred by not issuing an order for correction and granting the refunds. Both parties subsequently moved for partial summary judgment regarding application of the ITFA to the BPOL Tax. Cox also seeks a determination of which party bears the burden of proving whether the BPOL Tax falls under the ITFA's grandfather clause.
The City's petition, C. Evans Poston, Jr., Commissioner of the Revenue for the City of Norfolk, Virginia v. Cox Communications Hampton Roads, LLC, Case No. CL19-4765, was consolidated into this action on June 19, 2019.
Positions of the Parties
Cox's Position
Cox contests the application of the BPOL Tax to its gross receipts from internet access services. (Cox Pet. ¶ 12.) It argues that the Tax Commissioner's ruling is presumed valid and should be given weight but also concedes that questions of statutory interpretation are subject to de novo review by the Court. (Pl.'s Mot. 5.) Cox asserts that the statutory language of the ITFA is unambiguous, and according to the act's plain language, the BPOL Tax meets the definition of a tax, does not satisfy any of the ITFA's listed tax exceptions, and does not otherwise constitute a fee. (Id. at 5-6.) Cox asserts that the ITFA therefore prohibits the City's taxation of Cox's gross receipts from internet access services. (Id. at 5.) Cox further maintains that because the ITFA forbids imposing the BPOL Tax, the City—as the party claiming an exception—bears the burden of proving that the BPOL Tax is valid under the ITFA's grandfather clause. (Id. at 16.)
The City's Position
The City also claims that the ITFA's language is unambiguous. (Id. at 5.) Although it concedes that the BPOL Tax is a charge imposed by Norfolk for the purpose of generating revenue for City purposes (Defs.' Br. Opp'n Pl.'s Mot. Partial Summ. J. ("Defs.' Opp'n") 5, Br. Supp. Defs.' Mot. Partial Summ. J. ("Defs.' Mot.") 3-4), the City contends that the BPOL Tax is nevertheless a fee because it is a charge for the specific privilege that "entitles Cox to operate its personal and business services business within Norfolk's municipal boundaries" (Defs.' Reply Br. Supp. Defs.' Mot. Partial Summ. J. 9). According to the City, the BPOL Tax therefore does not fall under the ITFA's taxing moratorium. (Defs.' Mot. 3-4.) More specifically, the City claims that the BPOL Tax is a regulatory tool, businesses must pay the BPOL Tax to obtain and maintain a business license, and a business license is required to conduct business in Norfolk. (Id. at 12-13.) Businesses therefore are required to pay what the City claims is a fee, i.e., the BPOL Tax, for what it asserts is a specific privilege to provide personal and business services in Norfolk. (Id. at 13-14.)
In the alternative, the City asserts that even if the BPOL Tax constitutes a tax, it is a tax on business activity as measured by Cox's gross receipts, and not a tax on the internet access services themselves. (Id. at 14.) The City argues that the BPOL Tax therefore is not a tax on internet access at all, and it is accordingly not barred by the ITFA. (Id.) The City contends that the ruling of the Tax Commissioner should not receive any weight. (Id. at 3.) Finally, the City asserts that "summary judgment is not appropriate to resolve a question about where the burden of proof lies," and even if it were, "statutory law clearly places the burden on this issue on Cox," as Cox is the party appealing the issue. (Defs.' Opp'n 19-20.)
Analysis
Legal Standard
A court may grant summary judgment if no facts are in dispute and the pleadings, as well as any orders or admissions, indicate "that the moving party is entitled to judgment." Va. Sup. Ct. R. 3:20.
A party dissatisfied with a Tax Commissioner's ruling has the right to appeal that decision to the appropriate circuit court for judicial review of the determination. Va. Code § 58.1-3703.1(A)(7)(a).
Local governing bodies in Virginia are authorized to impose a BPOL tax on any business, employment, or profession operating within their city or county. Id. § 58.1-3703.1(A). Pursuant to this authority, the City of Norfolk requires that "[e]very person engaging in the city in any business, trade, profession, occupation or calling" obtain a license, Norfolk City Code § 24-25.3, and it imposes a related BPOL tax on, inter alia, retailers and unclassified business trades, id. § 24-25.9(c).
Under the ITFA, "[n]o State or political subdivision thereof may impose . . . [t]axes on Internet access." 47 U.S.C. § 151 note § 1101(a).
[The ITFA moratorium] does not apply to a tax on Internet access that was generally imposed and actually enforced prior to October 1, 1998, if, before that date—(A) the tax was authorized by statute; and (B) eitherId. note § 1104(a)(1).
(i) a provider of Internet access services had a reasonable opportunity to know, by virtue of a rule or other public proclamation made by the appropriate administrative agency of the State or political subdivision thereof, that such agency has interpreted and applied such tax to Internet access services; or
(ii) a State or political subdivision thereof generally collected such tax on charges for Internet access.
The ITFA defines a "tax" as "any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes, and is not a fee imposed for a specific privilege, service, or benefit conferred." Id. note § 1105(8)(A)(i). It defines a "tax on Internet access" as "a tax on Internet access, regardless of whether such tax is imposed on a provider of Internet access or a buyer of Internet access and regardless of the terminology used to describe the tax." Id. note § 1105(10)(A). "Internet access" includes "a service that enables users to connect to the Internet to access content, information, or other services offered over the Internet." Id. note § 1105(5)(A). The act lists exceptions to taxes on internet access, which include, inter alia, "a tax levied upon or measured by net income, capital stock, net worth, or property value" and certain state taxes expressly levied on gross receipts replaced a state income tax. Id. note § 1105(10)(B)-(C).
"[T]he starting point for interpreting a statute is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). When a statute is clear and unambiguous, the plain and ordinary meaning of its words shall prevail. Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992); Young v. Commonwealth, 273 Va. 528, 533, 643 S.E.2d 491, 493 (2007).
"[W]hen the language of an enactment is free from ambiguity, resort to legislative history and extrinsic facts is not permitted because we take the words as written to determine their meaning. And, when an enactment is unambiguous, extrinsic legislative history may not be used to create an ambiguity, and then remove it, where none otherwise exists." Brown v. Lukhard, 229 Va. 316, 321, 330 S.E.2d 84, 87 (1985) (citations omitted); see also Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 236 n.3 (2010) (pointing out that "reliance on legislative history is unnecessary in light of the statute's unambiguous language").
Discussion
A. The Tax Commissioner's Ruling Is Afforded No Weight.
Cox argues that the Tax Commissioner's ruling regarding application of the ITFA to the BPOL Tax "should be given weight"; however, Cox also acknowledges that this Court is not bound by the Tax Commissioner's ruling. The City, on the other hand, argues that this Court should not give any weight or deference to the ruling.
Generally, "'[t]he State Tax Commissioner's determination is presumed valid.' However, '[t]axing statutes must be construed strongly in the taxpayer's favor, and will not be extended by implication beyond the clear import of the statutory language.'" City of Richmond v. Va. Elec. & Power Co., 292 Va. 70, 74, 787 S.E.2d 161, 163 (2016) (first quoting Palace Laundry, Inc. v. Chesterfield Cty., 276 Va. 494, 497, 666 S.E.2d 371, 373 (2008), then quoting City of Lynchburg v. English Constr. Co., 277 Va. 574, 583, 675 S.E.2d 197, 201 (2009)).
[C]ourts do not defer to an agency's construction of a statute because the interpretation of statutory language always falls within a court's judicial expertise.
Though a court never defers to an administrative interpretation, in certain situations a court may afford greater weight than normal to an agency's position. When "the statute is obscure or its meaning doubtful, [a court] will give great weight to and sometimes follow the interpretation which those whose duty it has been to administer it have placed upon it." But even when great weight is afforded to an administrative interpretation of a statute, such an interpretation does not bind a court in deciding the statutory issue.Nielsen Co. (US), LLC v. Cty. Bd. of Arlington Cty., 289 Va. 79, 88, 767 S.E.2d 1, 4 (2015) (citations omitted) (quoting Superior Steel Corp. v. Commonwealth, 147 Va. 202, 206, 136 S.E. 666, 667 (1927)).
Under Virginia law, a court therefore should give the Tax Commissioner's interpretation of a tax statute "great weight" only if the wording of the statute is ambiguous. Nielsen, 289 Va. at 88, 767 S.E.2d at 4-5. Plain language controls in the absence of ambiguity. Id. Both parties maintain that the language of the ITFA is unambiguous; however, each offers a markedly different interpretation of the ITFA's so-called plain language.
As discussed in more detail below, the Court holds that the ITFA statutory language is unambiguous, so the Court relies on the plain and ordinary meaning of the words. See Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992); Young v. Commonwealth, 273 Va. 528, 533, 643 S.E.2d 491, 493 (2007). Pursuant to the ITFA, the BPOL Tax as applied to the gross receipts of Cox's internet access services is a "tax on Internet access" that is prohibited by the ITFA, unless the BPOL Tax falls within the act's grandfather provision. In light of the unambiguous statutory language, the Court gives the Tax Commissioner's ruling no weight. Even if interpretation of the ITFA as applied to the BPOL Tax were ambiguous, arguendo, the Court's independent interpretation agrees with that of the Tax Commissioner, making the amount of weight, if any, given to the Tax Commissioner's rulings a moot point. B. Norfolk's BPOL Tax Is a Tax—and Not a Fee Imposed for a Specific Privilege—Under the ITFA.
Because the Court finds the ITFA unambiguous, it need not consult the alleged legislative history highlighted by the parties. Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 236 n.3 (2010); Brown v. Lukhard, 229 Va. 316, 321, 330 S.E.2d 84, 87 (1985).
When the ITFA was enacted in 1998, it proscribed, inter alia, new "taxes on Internet access." 47 U.S.C. § 151 note § 1101(a). The act defines a prohibited "tax," in pertinent part, as "any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes, and is not a fee imposed for a specific privilege, service, or benefit conferred." Id. note § 1105(8)(A)(i). The ITFA does not provide a separate definition of, or further elaborate on, what constitutes a "fee" under the statute.
As an initial matter, the City concedes that the BPOL Tax is a charge that Norfolk imposes, pursuant to legislative authority, to generate revenue for governmental purposes. The dispute therefore is whether, as the City argues, the BPOL Tax is also "a fee imposed for a specific privilege." Cox argues that, consistent with what it contends was the intent of Congress and the broad reach of the statutory language, the BPOL Tax is a prohibited tax—and not a fee—because it aligns with the traditional definition of a tax. The City, by contrast, asserts that the BPOL Tax is not a "tax" as defined by the ITFA because, despite the fact that it generates city revenue, it qualifies as a fee imposed on Cox for a specific privilege: "it entitles Cox to operate its personal and business services business within Norfolk's municipal boundaries."
Cox relies on traditional state and federal court definitions to conclude that the BPOL Tax is a tax and not a fee. The City, by contrast, asserts that when a statute provides a definition, reliance on other interpretations of the defined term is improper; it claims that it is especially inappropriate to look to state-law interpretations of "tax" when interpreting that term in the context of a federal statute. The City also argues, as a matter of statutory construction, that the ITFA's definition does not simply distinguish between a traditional tax and a traditional fee because, if that were the case, there would be no need for the definition of "tax" to address an allowable "fee." In other words, if "any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes" defines the intended prohibited tax, there is no need to mention fees, as any non-tax would be an allowable fee. The City asserts that, by including a conjunction, Congress intentionally divorced the statute from traditional definitions of tax and fee by indicating that some allowable fees might also be governmental charges imposed to generate revenue for governmental purposes, i.e., a charge could be both a tax and a fee under the statute.
The parties agree that labeling an identified charge as a "tax" or a "fee" is not dispositive; regardless of terminology, a tax is characterized by its economic effect. See, e.g., Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 288 (1977) ("There is no economic consequence that follows necessarily from the use of the particular words, 'privilege of doing business,' and a focus on that formalism merely obscures the question whether the tax produces a forbidden effect."). In fact, the ITFA includes express language stating that questions regarding whether a particular charge or levy is a "tax on Internet access" must be evaluated "regardless of the terminology used to describe the tax." 47 U.S.C. § 151 note §1105(10)(A).
Courts certainly should interpret words used in a statute according to any statutorily provided definitions. Stenberg v. Carhart, 530 U.S. 914, 942 (2000). Although "tax" is defined in the ITFA, there is no corresponding definition of "fee." The Court holds that a plain reading of the applicable statutory language reveals that Congress's intent was to distinguish between a prohibited "tax"—generally "any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes"—and an allowable "fee"—a charge "imposed for a specific privilege, service, or benefit conferred." Consistent with this interpretation, courts are frequently asked to determine whether a governmental charge ultimately is either a tax or a fee, effectively making the two terms mutually exclusive. See, e.g., Valero Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134 (4th Cir. 2000) ("To determine whether a particular charge is a 'fee' or a 'tax,' the general inquiry is to assess whether the charge is for revenue raising purposes, making it a 'tax,' or for regulatory or punitive purposes, making it a 'fee.'" (emphasis added)); Indian Creek Monument Sales v. Adkins, 301 F. Supp. 2d 555, 560 (W.D. Va. 2004) (contrasting taxes and fees); Cty. of Loudoun v. Parker, 205 Va. 357, 360, 126 S.E.2d 805, 807 (1964) (distinguishing between taxes "for revenue purposes" and fees "for regulation purposes").
The Court recognizes that, under this framework, there arguably was no need for the drafters of the ITFA to address allowable fees; they could simply define a prohibited tax, implicitly making everything else a fee. However, the ITFA definition of "tax" also recognizes, inter alia, that certain charges classified as fees, i.e., those for a specific privilege, may also be designed to raise revenue for governmental purposes. In light of this—as well as the multiple definitional exceptions included in the ITFA and the absence of a bright-line test to delineate between a tax and a fee—the Court does not find the use of the conjunction in the statutory definition of "tax" problematic. See Barr v. Atl. Coast Pipeline, LLC, 295 Va. 522, 530 & n.3, 815 S.E.2d 783, 786 & n.3 (2018) (noting that "whenever it is necessary to effectuate the obvious intention of the legislature, disjunctive words may be construed as conjunctive, and vice versa" (quoting S.E. Pub. Serv. Corp. v. Commonwealth, 165 Va. 116, 122, 181 S.E. 448, 450 (1935)) and citing in a footnote numerous federal cases supporting this proposition).
As the City points out, some jurisdictions impose "license taxes" that have these characteristics. (Defs.' Mot. 12 ("[A] license tax may be imposed both for revenue and to regulate." (emphasis added by the City) (quoting Cty. Bd. of Supervisors of Fairfax Cty. v. Am. Trailer Co., 193 Va. 72, 76, 68 S.E.2d 115, 119 (1951))).) In this regard, the Court agrees with the City that certain charges could be both "imposed by [a] governmental entity for the purpose of generating revenues for governmental purposes" and "imposed for a specific privilege." Courts nevertheless often must make the ultimate determination regarding whether a charge is a tax or a fee.
It is noteworthy that the ITFA definition of "tax" coincides with longstanding definitions of "tax" and "fee." Courts and other authorities have defined a "tax" using terminology remarkably similar to that used in the ITFA, i.e., "any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes." 47 U.S.C. § 151 note § 1105(8)(A)(i). For instance, the Virginia Supreme Court has defined a tax as a charge "exacted solely for revenue purposes and its payment gives the right to carry on the business without further conditions." Parker, 205 Va. at 360, 126 S.E.2d at 808 (emphasis added); see also Marshall v. N. Va. Transp. Auth., 275 Va. 419, 431, 657 S.E.2d 71, 77 (2008) (holding that "when the primary purpose of an enactment is to raise revenue, the enactment will be considered a tax, regardless of the name attached to the act"). Similarly, federal courts have defined a tax as a charge that "'is imposed by a legislature upon many, or all, citizens' and 'raises money, contributed to a general fund, and spent for the benefit of the entire community.'" Norfolk S. Ry. v. City of Roanoke, 916 F.3d 315, 319 (4th Cir. 2019) (quoting San Juan Cellular Tel. Co. v. Pub. Serv. Comm'n, 967 F.2d 683, 685 (1st Cir. 1992)); see also Valero, 205 F.3d at 134 (defining a "tax" as a charge "for revenue raising purposes"). Consistent with these definitions, Black's Law Dictionary defines "tax" as "[a] charge, usu[ally] monetary, imposed by the government on persons, entities, transactions, or property to yield public revenue." Tax, Black's Law Dictionary (11th ed. 2019) (emphasis added). The Court holds that the first part of the ITFA's definition of tax—"any charge imposed by any governmental entity for the purpose of generating revenues for governmental purposes"—is intended to define a tax, as opposed to a fee.
The ITFA does not expressly define a "fee," but the second part of its "tax" definition essentially does so by distinguishing a traditional tax from "a fee imposed for a specific privilege, service, or benefit conferred." This characterization of a "fee" is consistent with judicial interpretations of the term. The Virginia Supreme Court has consistently pointed out that governmental fees are imposed in exchange for a specific privilege, service, or benefit. See, e.g., Elizabeth River Crossings OpCo, LLC v. Meeks, 286 Va. 286, 302, 749 S.E.2d 176, 183 (2013) (holding that the user fee paid by the toll road users was, inter alia, "in exchange for a particularized benefit not shared by the general public"); Hampton Roads Sanitation Dist. Comm'n v. Smith, 193 Va. 371, 378, 68 S.E.2d 497, 501 (1952) (holding that atoll, or service fee, "is nothing more than an authorized charge for the use of a special facility").
Recognizing that the line of demarcation between a tax and a fee under some conditions is unclear—while understanding that classifying a governmental charge as one of the two charges is often necessary—the U.S. Court of Appeals for the Fourth Circuit adopted a three-part test to distinguish a tax from a fee. Valero, 205 F.3d at 134. The test evaluates "(1) what entity imposes the charge; (2) what population is subject to the charge; and (3) what purposes are served by the use of the monies obtained by the charge." Id. When considering the first factor, charges imposed by the legislature—as opposed to an administrative agency—are more often considered taxes. Norfolk S. Ry., 916 F.3d at 319. Under the second prong, charges imposed on a large portion of the public as well as those based on an ability to pay, instead of receiving a particular benefit or being subject to a regulatory burden, are more likely to be taxes. Id. Finally, for the third—and in close cases, the most important—factor, charges raised to benefit a community at large are taxes. Id. at 134.
The City acknowledges the tax-versus-fee distinction standard set out in Valero but argues that its application is limited to interpreting the Tax Injunction Act ("TIA")—the federal statute in question in Valero—which lacks a definition of "tax." The Fourth Circuit and other courts have applied this test in contexts other than the TIA, however. See, e.g., Norfolk S. Ry., 916 F.3d at 319-22 (applying the Valero standard to determine whether a charge levied by a municipality was a tax and therefore a potential violation of the Railroad Revitalization and Regulatory Reform Act, which applies to taxes but not fees); Dist. of Columbia v. E. Trans-Waste of Md., Inc., 758 A.2d 1, 11 (D.C. 2000) (applying the Valero test to determine whether a solid waste facility charge was a tax or a fee for purposes of the D.C. Anti-Injunction Act). Additionally, Valero itself refers to the "general inquiry" of a tax or a fee—not tying the test explicitly to the TIA. 205 F.3d at 134. In fact, almost all TIA cases that have relied on the Valero standard involved determining whether a given locality or state charge is a tax or a fee because, if it is a tax, federal courts lack jurisdiction under the TIA. See, e.g., GenOn Mid-Atl., LLC v. Montgomery Cty., 650 F.3d 1021, 1023-25 (4th Cir. 2011) (determining whether a county "exaction on carbon dioxide emissions" was a tax or a fee); DIRECTV, Inc. v. Tolson, 513 F.3d 119, 125-26 (4th Cir. 2008) (analyzing whether "charges levied on cable providers by North Carolina's political subdivisions" were taxes or fees); Retail Indus. Leaders Ass'n v. Fielder, 475 F.3d 180, 189 (4th Cir. 2007) (determining whether the Maryland Fair Share Health Care Fund Act was a tax or fee provision). Moreover, the court from which Valero adopted the three-part test noted that "[c]ourts have had to distinguish 'taxes' from regulatory 'fees' in a variety of statutory contexts. Yet, in doing so, they have analyzed the legal issues in similar ways." San Juan Cellular, 967 F.2d at 685 (emphasis added). Thus, simply because courts usually apply the Valero three-factor analysis in a TIA context does not preclude courts from applying the standard—or a similar test—to distinguish taxes from fees in non-TIA settings.
The Tax Injunction Act states that "[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341.
Applying the Valero test demonstrates that Norfolk's BPOL tax is a tax: the City itself imposes the charge as authorized by the Virginia General Assembly, all businesses in Norfolk—a large portion of the public—are subject to it, and the funds benefit the City of Norfolk as a whole. Each of the factors suggests that the BPOL Tax is in fact a tax and not a fee, and each cuts against the City's argument that the BPOL Tax is a fee imposed for a specific privilege.
The Court is not persuaded by the City's argument that the BPOL Tax is a fee imposed for a specific privilege. The City claims that the BPOL Tax qualifies as a specific privilege under the ITFA because, in the instant case, the tax granted Cox the privilege of providing personal and business services within Norfolk's municipal boundaries. Under this rationale, however, virtually all taxes would be converted to fees. More importantly, the Virginia Supreme Court expressly rejected this argument in Dulles Duty Free, LLC v. County of Loudoun. 294 Va. 9, 803 S.E.2d 54 (2017). There, Dulles Duty Free, LLC ("Dulles") challenged Loudoun County's imposition of the BPOL tax on its international sales of duty-free merchandise, claiming the tax violated the Import-Export Clause of the U.S. Constitution. Id. at 11-12, 803 S.E.2d at 55. Like Cox, Dulles was required to obtain a business license and was subject to a BPOL tax based on a percentage of its gross receipts. Id. at 12-13, 803 S.E.2d at 56. The Virginia Supreme Court expressly rejected the County's argument that the BPOL tax is "placed on 'the privilege to engage in a business activity,'" as opposed to being a tax on the goods themselves. Id. at 23, 803 S.E.2d at 62.
The U.S. District Court for the Western District of Virginia perhaps synthesized the tax-versus-fee distinction best:
Taxes are customarily enacted by the legislature or governing body of the state or locality, contribute primarily to a general fund that collects the general revenue of the jurisdiction, and are spent for the general welfare of the entire community. By contrast, fees are ordinarily payments made in exchange for privileges or "government provided benefit[s]," correlate in amount to the degree of benefit received by the payor, and are directed to a special fund designed to serve a regulatory purpose.Indian Creek, 301 F. Supp. 2d at 560 (quoting United States v. City of Huntington, 999 F.2d 71, 74 (4th Cir. 1993)).
Whether viewed within the confines of the ITFA's statutory language or in terms of the well-established definitions of "tax" and "fee," the Court holds—based on the undisputed facts—that the BPOL Tax as applied to the gross receipts on Cox's internet access services is a tax and not a fee. A governmental body, the Norfolk City Council, adopted the BPOL Tax as a Norfolk ordinance—pursuant to authorization by Virginia's legislature—and the tax applies to "[e]very person engaging in the city in any business, trade, profession, occupation or calling." Norfolk City Code § 24-25.3(a). Nowhere does the City claim that it uses the BPOL Tax funds for anything other than general governmental purposes. Nor does the City credibly argue that the BPOL Tax is imposed for the purpose of regulation or that it requires compliance with certain conditions other than payment. The City's argument that the BPOL Tax is a fee imposed for the specific privilege of operating a business in Norfolk is contrary to Virginia case law. In short, the Court holds that the BPOL Tax as applied to the gross receipts of Cox's internet access services is a tax for purposes of the ITFA. C. Norfolk's BPOL Tax Is a "Tax on Internet Access."
Although it is undisputed that Cox provides "Internet access" services to Norfolk customers, the City alternatively contends that even if the BPOL Tax is a tax under the ITFA, it is not a tax on the internet access services themselves. Instead, the City asserts that Cox is charged for the privilege of conducting business in the City of Norfolk as measured by business activity; hence, although the activity in question is the provision of internet access services, that does not make these services the subject of the tax. Cox in turn points to both the plain language of the ITFA and the operation and effect of the BPOL Tax to argue that the BPOL Tax is, in fact, a tax on internet access services as contemplated by the statute.
The ITFA broadly defines a "tax on Internet access" as "a tax on Internet access, regardless of whether such tax is imposed on a provider of Internet access or a buyer of Internet access and regardless of the terminology used to describe the tax." 47 U.S.C. § 151 note § 1105(10)(A). The only potentially relevant exception is for "a tax levied upon or measured by net income, capital stock, net worth, or property value." Id. § 1105(10)(B). It is undisputed that the BPOL Tax applies to gross receipts, however, so that exception does not apply here. Hence, the lone issue is whether the BPOL Tax applies to the actual internet access services that Cox provides or, alternatively, to Cox's privilege to conduct business within Norfolk's municipal boundaries as measured by revenue from those services.
Based on the ITFA's definition of a "tax on Internet access," Congress clearly intended to cast a large net in the sea of internet services, prohibiting taxes on internet access in any form except those listed as exceptions. It is undisputed that the BPOL Tax is based on gross receipts and therefore does not fall under any of the listed exceptions. Further, the ITFA specifically recognizes the possibility of imposing such taxes on "provider[s] of Internet access" and minimizes the importance of the exact wording used. Id. § 1105(10)(A). The ITFA clearly envisions that taxes on internet access might fall on internet access providers such as Cox. Looking at the plain language of the ITFA therefore indicates that the BPOL Tax is a tax on internet access as defined by the ITFA.
Significantly, the Virginia Supreme Court has previously held that a locality's BPOL tax is a direct tax on goods, as opposed to a fee for the privilege of engaging in business. Dulles, 294 Va. at 23-24, 803 S.E.2d at 62. There, Loudoun County argued that its BPOL tax—which is almost identical to Norfolk's BPOL tax—did not violate the Import-Export Clause of the U.S. Constitution because it taxed "the privilege to engage in a business activity," which it argued "is not the same as a tax on goods." Id. The Dulles court rejected this argument, holding that the BPOL tax "is in its 'operation and effect' a direct tax on the export goods in transit." Id. (emphasis added) (citing Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69, 84 (1946)). Like Norfolk, Loudoun County based its tax on gross receipts on business activity, but the court held that the effect of the tax fell directly on the goods in question.
Like Norfolk, "Loudoun County requires every person 'engag[ed] in a business' in Loudoun County to obtain a business license" and imposes a BPOL tax based on gross receipts. Dulles, 294 Va. at 12, 803 S.E.2d at 56 (quoting Loudoun Cty. Ordinance § 840.03(a)).
In the instant case, the City similarly argues that the ITFA does not apply to the BPOL Tax because the BPOL Tax relates to the privilege of conducting business and not the internet access services themselves. This argument is contrary to the operation-and-effect analysis used by the Virginia Supreme Court in Dulles. The BPOL Tax, by measuring business activity via gross receipts, acts as a tax directly on the services that generate those receipts. Cox is an internet access provider, and the City applied its BPOL tax to the gross receipts related to Cox's provision of internet access services. Per Dulles, Norfolk's BPOL tax on Cox's gross receipts related to internet access services therefore constitutes a tax on internet access for purposes of the ITFA.
The Court also finds it noteworthy that the ITFA excepts from its definition of "tax on Internet access" certain state taxes that are expressly levied on gross receipts in lieu of a state corporate income tax. 47 U.S.C. § 151 note § 1105(10)(C). This apparently was intended to exclude four specific taxes from the scope of the act, including the state of Washington's business and occupation tax. H.R. Rep. No. 113-510, at 3 (2014) (providing background of the ITFA); see also Wash. Dep't Revenue, Excise Tax Advisory 3047.2017 (May 10, 2017), http://taxpedia.dor.wa.gov/documents/current%20eta/3047.pdf (noting that "[t]he ITFA does not prohibit the imposition of Washington's business and occupation (B&O) tax on . . . the sale of Internet access"). The IFTA's inclusion of a specific exception for Washington's B&O tax—a gross receipts tax assessed against entities for conducting business in the state—and not for other BPOL taxes—such as the City of Norfolk's BPOL tax—is further proof of Congress's intent to prohibit the BPOL Tax as a "tax on Internet access." See POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, 114 (2014) ("By taking care to mandate express pre-emption of some state laws, Congress if anything indicated it did not intend the [federal Food, Drug, and Cosmetic Act] to preclude requirements arising from other sources."); Va. Dep't of Health v. NRV Real Estate, LLC, 278 Va. 181, 187-88, 677 S.E.2d 276, 279 (2009) (applying "the time-honored principle expressio unius est exclusio alterius," in which "the mention of specific items in a statute implies that all items omitted were not intended to be included").
The Washington statute provides, in pertinent part, as follows: "Upon every person engaging within this state in any business activity . . . the amount of tax on account of such activities is equal to the gross income of the business multiplied by the rate of 1.5 percent." Wash. Rev. Code § 82.04.290(2)(a).
Based on the above, the Court holds that the BPOL Tax is a "tax on Internet access" as that phrase is defined by the ITFA. D. The Issue Regarding the Burden of Proof Is Not Properly Before the Court.
As part of its motion for partial summary judgment, Cox requests a determination of which party bears the burden of proving at trial whether Norfolk's BPOL tax is grandfathered under the ITFA. The City responds that a summary judgment motion is not appropriate to resolve this issue.
Under the Rules of Supreme Court of Virginia, a court may grant summary judgment if there are no material facts genuinely in dispute and it appears from the pleadings, orders, or admissions "that the moving party is entitled to judgment." Va. Sup. Ct. R. 3:20 (emphasis added). The Virginia Supreme Court has defined "judgment" as "[a] court's final determination of the rights and obligations of the parties in a case." Comcast of Chesterfield Cty., Inc. v. Bd. of Supervisors of Chesterfield Cty., 277 Va. 293, 306, 672 S.E.2d 870, 876 (2009).
The Court holds that the determination of who bears the burden of proving an issue at trial would not finally resolve the parties' rights and obligations as envisioned by the Virginia's summary judgment rule. Further, the case on which Cox relies, La Bella Dona Skin Care, Inc. v. Belle Femme Enters., LLC, does not support its stated proposition that the issue of which party bears the burden of proof at trial can be addressed by summary judgment. 294 Va. 243, 257, 805 S.E.2d 399, 406 (2017) (discussing the burden of proof as a question of law to be reviewed de novo and nothing more pertaining to summary judgment).
Although the Court agrees with Cox that the issue of which party bears the burden of proof regarding a triable issue is a legal issue that could be appropriately determined pretrial, a summary judgment motion is not the appropriate vehicle to do so.
Conclusion
The Court holds that the ITFA prohibits the BPOL Tax as applied to the gross receipts associated with Cox's internet access services, unless the BPOL Tax otherwise is grandfathered by the ITFA. The Court also finds that the issue of which party bears the burden of proving at trial whether Norfolk's BPOL tax is grandfathered under the ITFA is not properly before the Court.
The Court need not resolve whether the ITFA "preempts" the BPOL Tax, as Cox argues, or merely "prohibits" the BPOL tax. The Court notes, however, that the U.S. Supreme Court in dicta seems to indicate preemption is the appropriate characterization. See Aloha Airlines, Inc. v. Dir. of Taxation of Haw., 464 U.S. 7, 12 (1983) (pointing out that "when a federal statute unambiguously forbids the States to impose a particular kind of tax on an industry affecting interstate commerce, courts need not look beyond the plain language of the federal statute to determine whether a state statute that imposes such a tax is preempted").
The Court therefore GRANTS Cox's motion for partial summary judgment, although it declines to rule on which party bears the burden of proving that the BPOL Tax falls within the ITFA's grandfather clause. The Court DENIES the City's motion for partial summary judgment.
Attached is an Order consistent with the ruling in this letter opinion. Signatures are waived pursuant to Rule 1:13 of the Rules of Supreme Court of Virginia. The parties shall file any objections with the Court within fourteen days.
Sincerely,
/s/
David W. Lannetti
Circuit Court Judge DWL/wmp
Enclosure