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Sunday, August 25, 2019

Duty free stores at Dulles Airport win at Va. SC; Decision significant for Import-Export Clause

By Carrie Salls | Sep 6, 2017

RICHMOND, Va. (Legal Newsline)  – The Virginia Supreme Court on Aug. 24 reversed a circuit court ruling against Dulles Duty Free LLC in its challenge of Loudoun County’s attempt to collect a Business, Professional and Occupational License (BPOL) tax on its international sales.

The Virginia Supreme Court sent the case back to the Circuit Court of Loudoun County so the lower court can calculate the tax refunds due to Dulles Duty Free in connection with the ruling.

Craig D. Bell, a McGuireWoods LLP partner and Dulles Duty Free’s attorney, said he would suggest that Dulles Duty Free should receive a tax refund with accrued interest somewhere in the ballpark of $450,000 for the six stores located at the Dulles International Airport.

“I am very pleased with the Virginia Supreme Court’s unanimous decision holding that my client’s in-transit sales for export are not subject to the local gross receipts tax,” Bell told Legal Newsline.

“I believe the Supreme Court of Virginia’s decision represents perhaps the most significant Import-Export Clause decision issued in the last 20 years.”

Specifically, Bell said the court’s decision “reaffirmed the vitality of the prohibition on taxation of goods in export transit, and rejected Loudoun County’s calls to depart from that clear constitutional line of demarcation. 

"The Supreme Court of Virginia sent a clear signal that it will not hesitate to police local taxing authorities who attempt to overstep their constitutional bounds and order refunds of taxes wrongly assessed and collected.”

Loudoun County taxes businesses operating within it based on the measure of gross receipts. Duty Free did not challenge collection of taxes on sales to passengers on domestic flights, but it did argue that applying Loudoun's tax on its sales to international flyers violated the Import-Export Clause of the U.S. Constitution.

The Loudoun County Circuit Court ruled against Dulles Duty Free, but the Supreme Court did not agree.

"The BPOL tax as applied to Duty Free's export goods in transit constitutes an impermissible impost upon an export in violation of the Import-Export Clause of the Constitution of the United States," the Supreme Court ruled.

In addition, Bell said he thinks the commonwealth’s highest court “enjoyed the unique federal constitutional issue presented in the context of a nondiscriminatory local gross receipts tax.”

“The court’s discussion of the Federalist Papers and the court’s quote from Virginia’s beloved former U.S. Supreme Court Chief Justice John Marshall, in a key Import-Export Clause decision by the Supreme Court in Brown v. Maryland (a decision from 1827), seems to indicate their enjoyment of having an intellectually interesting case,” Bell said.

Bell said the Dulles v. Loudoun ruling will affect the entire U.S. duty-free industry.

“As this case looked at the federal constitutional effect on a local tax on export sales, the reasoning of the Virginia Supreme Court will be of interest to other state and federal courts throughout the United States, as well as taxing authorities who seek to apply their taxes on export sales, who are called upon to determine the tax effect imposed on in-transit export sales,” he said.

The company has other airport locations in Virginia, and they will also be subject to refund claims for years upon which the statute of limitations is open, according to Bell.

Bell said the Virginia Supreme Court’s decision will also permit an exclusion from gross receipts for future years on in-transit export sales at Dulles and other locations the company has within Virginia.

“The local gross receipts tax is an annual tax, so this will be continuing relief for my client where export sales represent over 90 percent of its total sales,” he said.

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McGuireWoods LLP Virginia Supreme Court