Cox Commc'ns Hampton Roads, LLC v. City of Norfolk
| Decision Date | 03 August 2020 |
| Docket Number | Civil Docket No.: CL19-4764 |
| Court | Circuit Court of Virginia |
| Parties | 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
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.
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) (). 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 2016.1
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 administrativeappeals 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.2 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.
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 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. ( ) 5, Br. Supp. Defs.' Mot. Partial Summ. J. ( ) 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.)
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...
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