ANALYSIS OF JULY 14, 2022 SUPREME COURT OPINION
(Posted July 14, 2022) As I see it, there are several ways to make a given Supreme Court opinion sexy. The easiest is a high-profile appeal such as Taylor v. Northam, involving the fate of the statue of Gen. Lee on Monument Avenue in Richmond. That one was a media magnet from the moment the petitioner filed it in circuit court. Another is a case with a particularly interesting set of facts – things you don’t see every day, and that gather attention because of what happened. Among these, my favorites are the stupid-criminal stories that we see here from time to time.
For some appeals, the only path to that coveted sexiness is that they involve a lot of zeroes. That’s about the only thing that can light a bonfire in Coxcom, LLC v. Fairfax County. It’s a challenge to a Business and Professional Occupational License tax imposed by Fairfax on an Internet service provider located up there. To be sure, tax jocks will salivate at a new BPOL opinion. For the rest of you, I’ll have to try to make the prose sparkle.
Coxcom is, as you might expect, a subsidiary of Cox Communications. It provides subscription cable and Internet services to customers in Virginia and elsewhere. If you have an e-mail address that ends in cox.net, I suspect that you’re a customer.
In 1994, the county enacted an ordinance to create a BPOL tax. One of the categories of taxed industries is “business service occupations,” and that includes “On-line computer services.” The primary target of this tax appears to have been America Online, which was located in the county at the time. After paying a year or two of the tax, the company perceived that life would be better with a different corporate HQ, so it moved out in 1996 and stopped paying.
Ah, if only it had waited. In 1998, Congress stepped in to encourage the provision of Internet service. It passed, and President Clinton signed, the Internet Tax Freedom Act, which barred state and local taxation of Internet services. The act contained a clause that permitted preexisting taxes to continue if one of two circumstances existed: (1) an administrative agency had issued in interpretation that the BPOL tax would be assessed against such services, or (2) the locality “generally collected such charges for Internet access.”
Two more years later, in 2000, Coxcom arrived in Fairfax and set up shop. It didn’t pay the BPOL tax until 2013. In 2016, after paying four years’ worth of the tax, the company requested a refund of what it had paid, claiming that the federal act applied and neither of the preexisting conditions helped the county. The county’s tax department decided that the federal act didn’t apply because it was “a general tax on a business’s entire gross receipts” instead of a tax on Internet revenue. It further ruled that the preexisting-conditions exemption would cover this situation anyway.
Coxcom appealed to the state’s Tax Commissioner. That official dropped back 15 and punted. From today’s opinion:
The Commissioner found that ITFA generally prohibited the imposition of the BPOL tax on internet access services. The Commissioner concluded that the case turned on whether the grandfather clause applied and he declined to opine on that question.
He declined to opine? In tax appeals, I figured that was his job. That non-decision left both parties to appeal to circuit court. There, the court gave Coxcom a pyrrhic victory, ruling that the federal act does apply, and that the county had the burden to prove that the preexisting-conditions exception applied. It even ruled that the county hadn’t proved that the second exemption condition, the general collection of such taxes in the past, applied. But the court ruled that the first prong did apply, and the county had publicized the tax ordinance merely by enacting it and making it generally known. It accordingly upheld the tax on the company’s income.
Coxcom got a writ, and today the Supreme Court reverses. The court agrees that the federal act applies. In doing so, it takes definitional guidance from the act and not from Virginia caselaw. The broad language of the statute brought the county’s tax within its coverage. The court also agrees that the county bears the burden to prove that one of the exceptions applies.
Turning to the two exceptions, the court determines that the mere passage of the ordinance can’t qualify as an administrative agency’s interpretation. The county board itself isn’t an agency; it’s a governing body. And enacting an ordinance isn’t the same as a formal interpretation of it.
Turning to the second prong, the justices today accept the circuit court’s factual finding that the county didn’t prove that it generally collected taxes before 1998. The only taxpayer about which the court heard evidence of payment was AOL, and that ended years before Coxcom arrived. There was no evidence that the county collected the tax from a couple of other companies who provided services there. That means that the federal act governs and the exceptions don’t apply, so the Supreme Court remands the case for a calculation of the amount of the refund due to Coxcom.
Now, that wasn’t so bad, was it?