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Virginia Supreme Court: Loudoun’s business license tax on Dulles Duty Free unconstitutional

Courtesy Photo/FlyDulles.com
The Business Professional Occupational License Tax (BPOL) Loudoun County imposed on the sale of duty-free items to international travelers at Dulles International Airport’s duty-free store violated the Import-Export Clause of the Constitution of the United States, the Virginia Supreme Court said in an opinion Aug. 24.

The U.S. Import-Export Clause prevents states from imposing taxes on imports and exports without the consent of Congress.

Loudoun County imposes a BPOL tax on all local business owners, and in order for a business to renew its annual business license, it must report its gross receipts tax.

The Virginia Supreme Court’s decision was “as applied” to the specific facts of the case and not a challenge to the facial constitutionality of Loudoun’s BPOL tax.

Justice Stephen McCullough said Loudoun's BPOL tax on the store's export goods in transit was an “impermissible impost upon an export” in violation of the U.S. Import-Export Clause.

Loudoun County collects its license tax based on the measure of gross receipts. The tax is calculated based on gross receipts from the previous year.

For businesses with annual sales of no more than $200,000, the county levies a flat $30 fee. But for businesses with annual sales more than $200,000, the county collects 17 cents for every $100 in retail sales.

“Although the tax is imposed on the gross receipts of a business, it is in its 'operation and effect' a direct tax on the export goods in transit,” Justice Stephen McCullough said in the court’s opinion.

In 2014, Dulles Duty Free tried to correct the BPOL taxes Loudoun County imposed on its gross receipts of international sales from 2009 to 2013. The company did not challenge the county’s BPOL tax on its domestic sales, only its international sales.

However, a Loudoun County Circuit Court judge ruled the county did not violate the Import Export Clause of the U.S. Constitution and that Duty Free was not entitled to a refund from the assessments. Dulles Duty Free later appealed the ruling.

The county told the Times-Mirror that the combined BPOL taxes from 2009-2013 was about $160,000.

The Virginia Supreme Court concluded that the county’s BPOL tax was no different than a similar application in the Richfield Oil Corp. v. State Bd. of Equalization case.

In Richfield Oil Corp. v. State Bd. of Equalization,the Supreme Court ruled that the state’s gross receipts tax was unconstitutional because the oil that the the California-based oil company was selling to New Zealand was an export.

“The county argues that the BPOL tax is not a 'direct tax' and does not resemble the tax the Court invalidated in Richfield Oil,” McCullough said. “The county takes the view that the tax is placed on 'the privilege to engage in a business activity, and that is not the same as a tax on goods.' We disagree. The characterization of the tax for purposes of state law does not control whether the tax violates the Import-Export Clause.”

But Loudoun County argued that the decision in the Richfield Oil case was superseded by later Supreme Court decisions.

“It may be that the Supreme Court will provide additional guidance concerning the applicability of the Import-Export Clause to nondiscriminatory taxes like the BPOL tax that would be imposed upon on export goods in transit,” McCullough said. “Until then, Richfield Oil compels the conclusion that the BPOL tax is unconstitutionally applied to Duty Free’s international export sales.”

Loudoun County spokesman Glen Barbour told the Times-Mirror that the county is currently reviewing the Supreme Court's opinion and has not yet made any decision on next steps.

Craig D. Bell, an attorney with McGuireWoods, which represented Dulles Duty Free in the case, told the Times-Mirror he anticipates the company will receive a full refund from Loudoun County.

“I think the Supreme Court of Virginia’s decision is probably one of the most important Import-Export Clause decisions in the last 20 years,” Bell said. “It’s not an issue that’s addressed very often, it’s very difficult factual intensive issue.”

Contact the writer at .(JavaScript must be enabled to view this email address) or on Twitter at @SydneyKashiwagi.


Yeah, you can’t do that. Any appeal is a waste of taxpayer money.

The County Attorney’s Office is taking a real beating lately.

Bet this was Zurn and Company once again….

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