ANALYSIS OF AUGUST 24, 2017 SUPREME COURT OPINION
(Posted August 24, 2017) The Supreme Court of Virginia continues to chip away at the pile of undecided appeals in its inventory. Today we get a taxation decision that turns on a provision in the federal Constitution.
No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.
U.S. Const. Art I, §10, cl. 2. This is the Import-Export Clause, and it prohibits states from collecting money because of imports and exports. That’s the federal government’s racket.
Okay, so racket isn’t the right word. Permit me to be a tad playful. It’s the federal government’s prerogative, and this clause prevents each individual state from taxing imports and exports to death, merely because they pass through the state on their way to another destination.
Loudoun County assesses a Business, Professional, and Occupational License tax on businesses within its jurisdiction. Because Dulles Airport is in the county, that tax falls upon the many shops inside the airport, including one operated by Dulles Duty Free, LLC. As its name implies, this is a duty-free shop. Any traveler can come in and buy things, but if you’re headed out of the country – and have the boarding pass and passport to prove it – you can shop there and pay less.
Loudoun calculates its BPOL tax based on gross revenues. DDF’s store generates revenues from domestic and international sales, and the latter of these fall in the duty-free category. Loudoun calculates the BPOL tax based on all of the sales, but since 90% of the store’s revenue is from duty-free sales – hardly a surprise – the store decided to try to claim an exemption based on the Constitution.
The circuit court pondered the matter and ruled that the Import-Export Clause didn’t apply, but today, in Dulles Duty Free LLC v. Loudoun County, the justices unanimously reverse and remand for calculation of a refund. Justice McCullough’s opinion lays out the jurisprudential history of the clause. He notes that the seminal decision on the clause, handed down in 1946, has seen substantial erosion since then in several ways. But not in the way that applies to this case; the caselaw still prohibits states from taxing the movement of goods out of the country. Since DDF only receives revenue (at least 90% thereof) by selling goods to the person who’s in the process of taking it abroad, that means the Constitution overrides Loudoun’s tax scheme.