THE CIRCUIT COURT OF LOUDOUN COUNTY Burke F. McCahill, Judge
All the Justices
STEPHEN R. McCULLOUGH JUSTICE.
Duty Free, LLC, challenges Loudoun County's imposition of
a Business, Professional, and Occupational License
("BPOL") tax on a substantial portion of its sales.
It argues that the Import-Export Clause of the Constitution
of the United States, U.S. Const. art. I, § 10, cl. 2,
bars the County from imposing the tax. The circuit court
ruled in favor of the County. For the reasons noted below, we
reverse the judgment of the circuit court and remand this
action for a computation of the refunds for the relevant tax
years that are due to the taxpayer.
Free is a retailer of duty free merchandise at Dulles Airport
in Loudoun County, where it operates several
stores. Every aspect of the duty
free business is highly regulated. As required by federal
law, Duty Free holds the alcohol, tobacco, fragrances, luxury
goods, bags, watches, and other products it sells in bonded
warehouses in Florida and Texas. Bonded carriers transport
the goods to a secure warehouse at Dulles Airport which, in
turn, distributes the merchandise to retail stores inside the
merchandise is sold in a restricted area of the airport. Only
passengers with boarding passes may enter and these
passengers must first go through security. Duty Free can sell
items to both domestic and international passengers. For
domestic travelers, Duty Free charges a Virginia sales tax
and the purchaser takes immediate possession of the item.
When the sale involves a bonded imported item, the domestic
passenger pays an import duty. Duty Free does not challenge
the imposition of the BPOL tax to such domestic sales.
travelers, on the other hand, must present a passport and
boarding pass to the cashier in the Duty Free shop. The
cashier will swipe the boarding pass on the register to
record the information that is on the boarding pass. Duty
Free does not charge a Virginia sales tax for international
export sales and does not collect any import duty, i.e. the
sales are "duty free." Instead of receiving the
item immediately, the traveler is given a receipt or ticket.
A duty free runner delivers the item to the buyer at the
jetway immediately prior to boarding and the customer hands
the ticket to the runner. See 19 U.S.C. §
1555(b)(3)(F)(i)(II). If a passenger does not appear to
collect the item, Duty Free voids the sale and returns the
merchandise to the store.
Free is able to track which sales are domestic and which
sales are international. International sales represent over
ninety percent of Duty Free's sales. Duty Free
established that the following gross receipts were
attributable to international travelers: for tax year 2009,
$18, 827, 494; for tax year 2010, $13, 747, 954; for tax year
2011, $15, 162, 747; for tax year 2012, $18, 203, 469; and
for tax year 2013, $20, 151, 691.
Free does not dispute that it owns inventory and other
personal property in Loudoun County. There is also no
question that it employs a large number of personnel in the
County to run its retail operations. Duty Free uses County
roads, and benefits from the protection of County fire and
rescue, law enforcement, the court system, and other County
County requires every person "engag[ed] in a
business" in Loudoun County to obtain a business
license. Loudoun County Ordinance § 840.03(a).
Accordingly, Duty Free has obtained a business license to
operate in Loudoun County. Code § 58.1-3702 permits
"the governing body of every county, city and town"
to impose a "tax on the gross receipts or the Virginia
taxable income of the business." Code §
58.1-3703.1(A)(3)(a) provides that "[w]henever the tax
imposed by this ordinance is measured by gross receipts, the
gross receipts included in the taxable measure shall be only
those gross receipts attributed to the exercise of a
privilege subject to licensure." The tax does not target
imports or exports; it applies across the board to all sales.
County has chosen to collect the tax based on the measure of
gross receipts. See Loudoun County Ordinance §
840.14(o). Loudoun County defines "gross receipts"
as "the whole, entire, total receipts attributable to
the licensed privilege, without deduction."
Id.; Loudoun County Ordinance § 840.01(k). The
tax is calculated based on the prior year's gross
receipts. Id.; see also Loudoun County
Ordinance §§ 840.01(m); 840.03(d); 840.04(a);
840.14(o). For businesses with sales not more than $200, 000
per year, the County levies a flat $30 fee. Loudoun County
Ordinance § 840.13(c). For businesses with sales above
the $200, 000 threshold, the County collects 17 cents for
every $100 in retail sales for all sales, not just those
above $200, 000. Loudoun County Ordinance § 840.14(o).
2014, Duty Free filed an application for correction of its
BPOL taxes for the years 2009, 2010, 2011, 2012, and 2013.
Duty Free does not challenge the imposition of the BPOL tax
on its domestic sales. It argues, however, that applying the
BPOL tax on the gross receipts of its international sales
violates the Import-Export Clause of the Constitution of the
a hearing, the circuit court issued a detailed memorandum
opinion. The court canvassed the cases from the United States
Supreme Court and concluded that "[t]he BPOL tax of
Loudoun County does not violate the Import Export Clause of
the U.S. Constitution." Consequently, the court held
that Duty Free "is not entitled to relief from the
assessments complained of in its Application." Duty Free
appeals from this ruling.
challenging the constitutionality of a statute or regulation
are questions of law that this Court reviews de novo on
appeal." DiGiacinto v. Rector & Visitors of
George Mason Univ., 281 Va. 127, 133, 704 S.E.2d 365,
case presents an "as applied" challenge rather than
a challenge to the facial constitutionality of the BPOL tax.
Volkswagen of Am., Inc. v. Smit, 279 Va. 327, 336,
689 S.E.2d 679, 684 (2010) ("Because our jurisprudence
favors upholding the constitutionality of properly enacted
laws, we have recognized that it is possible for a statute or
ordinance to be facially valid, and yet unconstitutional as
applied in a particular case."). We accord every
legislative act a presumption of constitutionality, including
laws subject to an as applied challenge. Id. A party
which alleges a statute is being unconstitutionally applied
bears the burden of proving that the statute is
unconstitutional under a particular set of facts. See FFW
Enters. v. Fairfax County, 280 Va. 583, 590, 701 S.E.2d
795, 800 (2010).
Import-Export Clause provides, in relevant part, that
"[n]o 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 its inspection
Laws." U.S. Const. art. I, § 10, cl. 2.
problems that led to the inclusion of this Clause in the
Constitution are well known. "One of the major defects
of the Articles of Confederation, and a compelling reason for
the calling of the Constitutional Convention of 1787, was the
fact that the Articles essentially left the individual States
free to burden commerce both among themselves and with
foreign countries very much as they pleased."
Michelin Tire Corp. v. Wages, 423 U.S. 276, 283
(1976). In an introduction to the Debates of the
Constitutional Convention, James Madison noted that New
Jersey was likened to a "cask tapped at both ends"
by New York and Philadelphia; and North Carolina as the
"patient bleeding at both arms" - with Virginia and
South Carolina happily serving as phlebotomists. 2 The Papers
of James Madison 691-92 (Henry D. Gilpin, ed., Washington,
D.C.: Langtree & O'Sullivan, 1840). These taxes on
imported and exported goods "nourish[ed] unceasing
animosities" and, if left unchecked, Madison thought,
would likely end "in serious interruptions of the public
tranquility." The Federalist No. 42, at 264 (J. Madison)
(Clinton Rossiter ed., 2003). The Import-Export Clause, along
with the Commerce Clause and the Export Clause, was designed
to suppress fratricidal trade policies and thus "provide
for the harmony and proper intercourse among the
States." Id. at 263.
Overview of the United States Supreme Court's
Import-Export Clause jurisprudence.
of the constitutional propriety of the BPOL tax to Duty
Free's in-transit export sales hinges on the
applicability, and ongoing validity, of the decision in
Richfield OilCorp. v. State Bd. of
Equalization, 329 U.S. 69 (1946). Duty Free argues that
Richfield Oil controls. ...