Level 3 Communications v. State Corp.. Comm'n
| Decision Date | 09 June 2011 |
| Docket Number | 102044,102045,Record Nos. 102043,102046. |
| Citation | 282 Va. 41,710 S.E.2d 474 |
| Parties | LEVEL 3 COMMUNICATIONS, LLCv.STATE CORPORATION COMMISSION, et al. |
| Court | Virginia Supreme Court |
OPINION TEXT STARTS HERE
N. Pendleton Rogers (Eric M. Page; Douglas Richards; LeClairRyan, Richmond, on briefs), for appellants.Wayne N. Smith, Senior Counsel (William H. Chambliss, General Counsel, on brief), for appellee State Corporation Commission.No brief filed by appellees Department of Taxation and Attorney General of Virginia.Present: KINSER, C.J., LEMONS, GOODWYN, MILLETTE, and MIMS, JJ., and RUSSELL and LACY, S.JJ.OPINION BY Justice S. BERNARD GOODWYN.
In this appeal, we consider whether the State Corporation Commission (SCC) has the authority to deduct a telecommunications company's Internet-related revenues when determining the gross receipts it certifies to the Virginia Department of Taxation (Department) pursuant to Code § 58.1–400.1.
Level 3 Communications, LLC (Level 3) filed several applications with the SCC for “review and correction of determination of gross receipts certified to the Department” (applications) regarding calendar year 2002 and several years thereafter. The applications sought correction of the SCC's certifications of Level 3's gross receipts for those years because the certified amounts included Internet-related revenues. The SCC concluded it did not have the authority to exclude such revenues from Level 3's certified gross receipts, and dismissed Level 3's applications as they related to the inclusion of Internet-related revenues in Level 3's gross receipts.1 Level 3 appeals.
Level 3 is a telecommunications company with a network in Virginia providing wholesale Internet services to major Internet service providers. This appeal consolidates four proceedings initiated by Level 3 in applications filed, pursuant to Code § 58.1–2674.1, to correct the amount of its gross receipts certified by the SCC to the Department. In each of its applications, Level 3 asserted that the federal Internet Tax Freedom Act (ITFA), Pub.L. No. 105–277, §§ 1100 et seq., 112 Stat. 2681 (1998), reproduced at note to 47 U.S.C. § 151,2 proscribes state taxation of its Internet-related revenues. As a result, Level 3 argued that the SCC must exclude Internet-related revenues from its gross receipts certified to the Department for purposes of the Department computing the company's potential minimum tax liability.
The SCC assigned Level 3's applications to a hearing examiner. The SCC Staff (Staff) filed a motion to dismiss in part, contending that the SCC did not have jurisdiction to determine the issues raised in Level 3's applications.
The Department filed a motion to join the Staff's motion to dismiss Level 3's applications. The Department asserted that the SCC is part of the “remedial scheme” envisioned by the applicable law and is an “indispensable party” with exclusive authority to calculate gross receipts. The Department also sought dismissal, with prejudice, claiming the ITFA does not require the exclusion of Internet-related revenues from gross receipts, and that the Department has no “independent authority to audit or modify the ‘gross receipts' amount certified to it” by the SCC.
After hearing oral argument, the hearing examiner agreed to suspend the proceeding to allow Level 3 to pursue a ruling by the Department regarding whether revenue generated by providing Internet access should be included in gross receipts subject to a minimum tax. However, the Department declined to issue a ruling prior to “the conclusion of the case pending with the SCC regarding calendar years 2002 [tax years 2003] and thereafter.”
After the Department declined to issue a ruling, on September 3, 2008 the hearing examiner filed a report determining that the SCC has no authority to exclude Internet-related revenues from gross receipts it is statutorily obligated to report to the Department.
The SCC issued an opinion after considering the hearing examiner's recommendation, noting that its relevant role, as defined by statute, is limited to certifying the telecommunications company's gross receipts to the Department. The SCC concluded that because the relevant statutes define gross receipts and do not empower the SCC to establish deductions from gross receipts not enumerated in the statutes, the ITFA does not reach the SCC's function under Virginia law, and the ITFA does not impact the SCC's duties because the SCC makes no determination of tax liability and imposes no tax.
The SCC entered a final order dismissing Level 3's applications to the extent it sought exclusion of Internet-related revenues from the SCC gross receipts certifications sent to the Department. The SCC specifically stated that it did not reach any issue regarding the Department's exercise of its power to collect taxes or remedies available to a taxpayer that seeks to challenge the levy of such taxes.
Level 3 argues that the SCC incorrectly determined that it does not have authority to determine whether its Internet-related revenues should be excluded from the gross receipts certified to the Department. Specifically, Level 3 argues that the SCC misconstrued the scope of its duty under Virginia law and, as a result, incorrectly determined that the ITFA does not reach the SCC's function.
The SCC responds that its “duty under Virginia law [is] to collect information on gross receipts; to determine that the deductions provided by Virginia law have been properly taken; and to provide that information to the Department of Taxation.” Therefore, because the ITFA limits state and local taxation, and taxation is outside the scope of the SCC's duty, the SCC argues that the ITFA does not address the SCC's duty. We agree.
Because the issues in this appeal involve strictly questions of law, this Court reviews de novo whether the SCC properly construed the applicable statutes. Piedmont Envtl. Council v. Virginia Elec. & Power Co., 278 Va. 553, 563, 684 S.E.2d 805, 810 (2009). Under Virginia tax law, telecommunications companies are subject to either a corporate income tax on income from Virginia sources or to a minimum tax on gross receipts. Code §§ 58.1–400, –400.1. A telecommunications company pays the minimum tax only when its regular corporate income tax liability is less than the minimum tax. Code § 58.1–400.1(A). The minimum tax is imposed at a rate of 0.5% of the telecommunications company's gross receipts. Id. The Department determines whether a telecommunications company is subject to the minimum tax. See Virginia Cellular LLC v. Virginia Dep't of Taxation, 276 Va. 486, 489, 666 S.E.2d 374, 375 (2008).
Code § 58.1–400.1 assigns the SCC the limited function of certifying telecommunications companies' gross receipts to the Department for the purpose of determining the minimum tax. Pursuant to Code § 58.1–2628(A), telecommunications companies file a statement of their gross receipts with the SCC. The SCC then certifies to the Department the names, addresses and gross receipts for each telecommunications company. Code § 58.1–400.1(C).
The General Assembly has defined “gross receipts” as “all revenue from business done within the Commonwealth, including the proportionate part of interstate revenue attributable to the Commonwealth if such inclusion will result in annual gross receipts exceeding $5 million.” Code § 58.1–400.1(D). Code § 58.1–400.1 specifies what the SCC must include in, and what the SCC may exclude from, the certified gross receipts. Code § 58.1–400.1 enumerates two specific deductions, but it does not authorize the SCC to deduct Internet-related revenues from gross receipts. After allowing the two specified deductions, if applicable, the SCC is required by statute to certify the remaining revenue amount as the company's gross receipts. The SCC has no other relevant function aside from providing copies of the certifications to the telecommunications companies.
If a telecommunications company disagrees with the SCC's certification of gross receipts, the company may apply to the SCC for review and correction of the certification within 18 months of the date of the certification to the Department. Code § 58.1–2674.1. If the SCC finds that the certification is incorrect, it shall correct the certification sent to the Department. Id. Level 3 timely filed its applications with the SCC to contest certifications for the relevant tax years.
Level 3 maintains that the gross receipts the SCC certified to the Department are incorrect because the SCC erroneously included Level 3's Internet-related revenues in its gross receipts. Level 3 argues that although the calculation and imposition of tax is the...
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