Case Title: City of Virginia Beach v. International Family Ent

Citation: 

Docket Number: 011307

State: virginia

Court: Virginia Supreme Court

Date: 2002-04-19T00:00:00Z

Document:
Present:  All the Justices 
 
CITY OF VIRGINIA BEACH 
OPINION BY JUSTICE LEROY R. HASSELL, SR. 
v.  Record No. 011307 
April 19, 2002 
 
INTERNATIONAL FAMILY ENTERTAINMENT, INC. 
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
Thomas S. Shadrick, Judge 
 
 
In this appeal, we consider whether a city has the 
authority to tax satellite transponders that are located on 
satellites that orbit the earth, but are owned and used by a 
corporation that had offices in that city. 
 
International Family Entertainment, Inc. (International), 
filed its first amended petition for correction of erroneous 
assessment of personal property against the City of Virginia 
Beach (the City).  International sought a correction of 
assessments for personal property it owned for the tax years 
1993 through 1998, and it sought a refund of all taxes paid on 
the basis of those assessments.  The City filed responsive 
pleadings and disputed International's claims. 
 
The following facts were either stipulated by the 
litigants or adduced during an ore tenus hearing.  
International was at all relevant times a corporation 
organized under the laws of the State of Delaware.  
International is a cable television network that produces and 
distributes family-oriented entertainment, including "made-
for-television" movies and informational programming.  
International's corporate offices, as well as its corporate 
books and records, were located in Virginia Beach.  
International's income tax records and its filings with the 
federal Securities Exchange Commission identified Virginia 
Beach as the address of the corporation. 
 
International owns three transponders that are 
permanently affixed to communications satellites that orbit 
the earth.  The satellites are physically located 
approximately 22,300 miles above the earth's equator in an 
assigned geostationary orbit.  A transponder is a device that 
amplifies and relays transmissions between transmitting and 
receiving stations.  The transponders receive audio and video 
program signals from an "uplink" and transmit the signals to 
satellite dishes on the earth.  Cable television companies and 
home satellite dishes receive these signals.  The cable 
television companies transmit these signals to cable 
subscribers throughout the United States. 
 
The transponders have never had a physical presence in 
Virginia Beach.  They were not constructed or assembled in 
Virginia Beach or anywhere else in Virginia. 
 
During the tax years 1993 through 1998, International was 
assessed and paid personal property taxes to the City on the 
transponders in the amount of $120,169.12 per year.  No other 
 
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jurisdiction taxed or asserted the right to tax the value of 
the transponders for those tax years.  International 
identified the transponders as machinery and tools on its tax 
returns.  International excluded the transponders on its 1998 
tax return, and ultimately, it paid the City's assessed tax 
bill under protest.  International filed amended returns for 
1993 through 1997, seeking to delete the transponders from its 
tax returns for those years.   
 
The circuit court ruled that the City lacked the 
statutory authority to assess a tax on the transponders.  The 
court entered a judgment that awarded International a refund 
of taxes assessed and paid with respect to the transponders in 
the amount of $480,676.48.  The City appeals.  
 
Code § 58.1-3507(A) states in relevant part: 
 
"Machinery and tools . . . used in a 
manufacturing, mining, water well drilling, 
processing or reprocessing, radio or television 
broadcasting . . . business shall be listed and are 
hereby segregated as a class of tangible personal 
property separate from all other classes of property 
and shall be subject to local taxation only." 
 
Code § 58.1-3511(A) states in relevant part: 
 
"The situs for the assessment and taxation of 
tangible personal property, merchants' capital and 
machinery and tools shall in all cases be the 
county, district, town or city in which such 
property may be physically located on the tax day.  
However, the situs for purposes of assessment of 
motor vehicles, travel trailers, boats and airplanes 
as personal property shall be the county, district, 
town or city where the vehicle is normally garaged, 
 
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docked or parked; however, the situs for vehicles 
with a weight of 10,000 pounds or less registered in 
Virginia but normally garaged, docked or parked in 
another state shall be the locality in Virginia 
where registered.  Any person domiciled in another 
state, whose motor vehicle is principally garaged or 
parked in this Commonwealth during the tax year, 
shall not be subject to a personal property tax on 
such vehicle upon a showing of sufficient evidence 
that such person has paid a personal property tax on 
the vehicle in the state in which he is domiciled.  
In the event it cannot be determined where such 
personal property, described herein, is normally 
garaged, stored or parked, the situs shall be the 
domicile of the owner of such personal property." 
 
 
The City argues that the transponders were properly 
identified by International as machinery and that this 
category of property is taxable pursuant to Code § 58.1-3507.  
The City also asserts that Code § 58.1-3511 is not applicable 
to a determination whether the City may assess a personal 
property tax on the transponders.  Rather, the City argues 
that Code § 58.1-3511 applies only when there is a dispute 
between potentially competing localities about which locality 
may tax specific items of taxable personal property.  
Continuing, the City contends that when "no taxable situs can 
otherwise be determined, [Code § 58.1-3511] calls for the 
application of the pre-existing common law rule of mobilia 
sequuntur personam, – 'movables follow the person' – by 
providing that 'the situs shall be the domicile of the owner 
of such personal property.' " 
 
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Responding, International asserts that Code § 58.1-
3511(A) is controlling in this appeal and that the General 
Assembly has not authorized the City to tax the transponders 
that are located in space.  Continuing, International argues 
that even though the General Assembly has authorized 
localities to impose taxes on certain items of tangible 
personal property including machinery and tools, the "property 
must also meet the requirements of § 58.1-3511(A) . . . which 
imposes statutory limits relating to the situs for 
assessment."  International also contends that the City's 
reliance upon the common law doctrine of mobilia sequuntur 
personam is misplaced because of this Court's decision in 
Hogan v. County of Norfolk, 198 Va. 733, 96 S.E.2d 744 (1957).  
We agree with International. 
 
Certain well-established principles govern our resolution 
of this appeal.  We have stated: 
"[P]roperty can only be taxed in the mode prescribed 
by law, and . . . the Constitution [of Virginia] 
imposes upon the legislature the duty of passing 
such laws as are necessary to carry into effect its 
provisions relating to taxation, and unless it does 
so the tax cannot be collected; . . . taxes can only 
be assessed, levied and collected in the mode 
pointed out by express statutory enactment.  
Statutes imposing taxes are construed most strongly 
in favor of the taxpayer, and will not be extended 
by implication to the prejudice of the taxpayer 
beyond the clear import of the language used. 
 
"Taxes are imposed by the State in the exercise 
of its sovereign power.  This power is exerted 
through the legislature, and an executive officer 
 
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who seeks to enforce a tax must always be able to 
put his finger upon the statute which confers such 
authority.  Taxes can only be assessed, levied and 
collected in the manner prescribed by express 
statutory authority." 
 
Hampton Nissan v. City of Hampton, 251 Va. 100, 104, 466 
S.E.2d 95, 97 (1996) (quoting Commonwealth v. P. Lorillard 
Co., Inc., 129 Va. 74, 81-82, 105 S.E. 683, 685 (1921)); 
accord Shelor Motor Co. v. Miller, 261 Va. 473, 478-79, 544 
S.E.2d 345, 348 (2001); Commonwealth v. General Electric Co., 
236 Va. 54, 64, 372 S.E.2d 599, 605 (1988). 
 
Additionally, we have held that "it is well established 
in Virginia that a municipal corporation, such as [a city], 
can only derive its taxing power through positive grants of 
authority from the General Assembly."  City of Winchester v. 
American Woodmark Corp., 250 Va. 451, 456, 464 S.E.2d 148, 151 
(1995); accord Hampton Nissan, 251 Va. at 104, 466 S.E.2d at 
97; Commonwealth v. Carter, 198 Va. 141, 147, 92 S.E.2d 369, 
373 (1956); Woodward v. City of Staunton, 161 Va. 671, 673, 
171 S.E. 590, 591 (1933); Whiting v. Town of West Point, 89 
Va. 741, 743, 17 S.E. 1, 2 (1893). 
 
Applying the aforementioned principles, we hold that the 
City does not have the statutory authority to tax 
International's transponders.  Code § 58.1-3507 segregates a 
class of tangible personal property, separate from all other 
classes of property, that shall be subject to local taxation 
 
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only.  This statute must be read in conjunction with other 
statutes contained in Title 58.1.  We have stated that Code 
§ 58.1-3511(A) "is part of a comprehensive scheme that 
authorizes local governments to assess, levy, and collect a 
tax on certain categories of property."  Shelor Motor Co., 261 
Va. at 478, 544 S.E.2d at 348. 
 
The City has the power to tax the category of property 
contained in Code § 58.1-3507(A), in this instance machinery 
and tools.  Code § 58.1-3511, which deals with the situs of 
taxation, prescribes limitations upon the City's power to tax.  
Code § 58.1-3511(A) specifically states that the "situs for 
the assessment and taxation of . . . machinery and tools shall 
in all cases be the . . . city in which such property may be 
physically located on the tax day."  It is undisputed that the 
transponders in this case, which are affixed to satellites 
22,300 miles above the earth, have never been physically 
located in Virginia Beach. 
 
Even though Code § 58.1-3511(A) creates different rules 
for the determination of a situs for certain property that is 
mobile in nature, such as motor vehicles, travel trailers, 
boats, or airplanes, the statute does not contain any rules 
for the determination of a situs for transponders or the 
satellites to which the transponders are affixed.  We note 
that had the General Assembly chosen to create a situs for 
 
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satellites, it certainly knew how to do so because the General 
Assembly made references to satellites in other statutes found 
in Title 58.1 of the Code.  See, e.g., Code § 58.1-609.3(13) 
(exempting satellites and tangible personal property placed on 
or used aboard satellites from the retail sales and use tax); 
Code § 58.1-3506(A)(19) (classifying equipment used to 
manufacture, test or operate satellites as taxable tangible 
personal property); Code § 58.1-3818.2 (referring to 
satellites in its definitions relating to video programming 
excise tax).  We also observe that the General Assembly 
specifically authorized in Code § 58.1-3506(A)(19) the 
taxation of tangible personal property used in the 
manufacture, testing, or operation of satellites in certain 
localities, but the General Assembly did not authorize the 
taxation of the satellites or the transponders affixed to 
satellites. 
 
We reject the City's argument that the common law 
doctrine of mobilia sequuntur personam permits the City to tax 
the transponders.  This doctrine is based on the common law 
principle that the rights of ownership and the transfer of 
movable property must be determined by the law of the owner's 
domicile.  In Hogan, 198 Va. at 735, 96 S.E.2d at 745, we 
stated that  
 
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"[a]t the present day, the separation of the 
situs of personal property from the domicil of the 
owner for the purposes of taxation is a familiar 
doctrine, and the maxim 'mobilia sequuntur personam' 
is no longer controlling on the question of taxation 
of personal property which has an actual situs 
elsewhere than at the owner's domicil.  It may be 
taxed where it is situated or located, although the 
domicil of the owner is elsewhere.  The test of 
situs for taxation purposes is the place of its 
location and use." 
 
We also stated in Hogan that the common law rule that the 
situs of personal property for taxation follows the owner may 
be changed by the General Assembly, and we held that this rule 
had been changed in Virginia by former Code § 58-834, which 
was a precursor to Code § 58.1-3511(A).  Id. at 735, 96 S.E.2d 
at 745-46.  Accordingly, to the extent any ambiguity exists, 
we hold that this common law rule does not apply to the taxing 
scheme at issue in this case. 
 
We find no merit in the City's argument that Article X of 
the Constitution of Virginia permits the City to impose a tax 
on the transponders.  Article X, § 1 of the Constitution of 
Virginia states in part: 
"All taxes shall be levied and collected under 
general laws and shall be uniform upon the same 
class of subjects within the territorial limits of 
the authority levying the tax . . . ." 
 
Article X, § 4 of the Constitution of Virginia states: 
 
"Real estate, coal and other mineral lands, and 
tangible personal property, except the rolling stock 
of public service corporations, are hereby 
segregated for, and made subject to, local taxation 
 
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only, and shall be assessed for local taxation in 
such manner and at such times as the General 
Assembly may prescribe by general law." 
 
Contrary to the City's assertions, these constitutional 
provisions are not self-executing, and the General Assembly 
must enact specific legislation that authorizes a taxing 
authority to enact a tax.  See Southern Railway Co. v. 
Commonwealth, 200 Va. 431, 433, 105 S.E.2d 814, 816 (1958); 
County of Prince William v. Thomason Park, 197 Va. 861, 867, 
91 S.E.2d 441, 446 (1956); Old v. City of Norfolk, 178 Va. 
378, 382, 17 S.E.2d 427, 428-29 (1941).  And, we note that the 
City does not identify a specific grant of statutory authority 
that confers such taxing power upon it. 
 
Finding no merit in the City's remaining arguments, we 
will affirm the judgment of the circuit court. 
Affirmed. 
 
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