Case Title: Nielsen County v. Bd. of Arlington County

Citation: 

Docket Number: 140422

State: virginia

Court: Virginia Supreme Court

Date: 2015-01-08T00:00:00Z

Document:
Present: Lemons, C.J, Millette, Mims, McClanahan, and Powell, 
JJ., and Russell and Lacy, S.JJ. 
 
THE NIELSEN COMPANY (US), LLC 
 
 
 
 
 
 
 
 
  OPINION BY 
v.  Record No. 140422 
 
   JUSTICE LEROY F. MILLETTE, JR.
 
                                  January 8, 2015 
COUNTY BOARD OF ARLINGTON 
COUNTY, ET AL. 
 
 
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY 
Louise DiMatteo Megaree, Judge 
 
In this appeal we consider whether the Tax Commissioner 
employed a permissible methodology – a payroll percentage 
calculation – to determine the amount of certain receipts that, 
pursuant to Code § 58.1-3732(B)(2), may be deducted from the 
pool of taxable gross receipts upon which a locality may levy a 
business license tax. 
I. 
Facts And Proceedings 
The Nielsen Company (US), LLC promotes itself as "a global 
information and measurement company that provides clients with 
a comprehensive understanding of consumers and consumer 
behavior."  In the 2007 tax year, Claritas, Inc. was doing 
business in Arlington County, Virginia.  Claritas was a wholly 
owned subsidiary of Nielsen throughout the 2007 tax year, and 
continued as an independent entity until Claritas merged into 
Nielsen in October 2008.  For purposes of this appeal, the 
activities of Claritas are attributed to Nielsen. 
 
2 
During the 2007 tax year, Nielsen had offices in 18 
states, including Virginia.  Nielsen's only Virginia office was 
located in Arlington County.  Nielsen's Arlington County office 
engaged in client relationship and customer support, 
statistical and data collection, data development, product 
fulfillment, and the solicitation of sales.  To engage in these 
business activities for the 2007 tax year, Nielsen acquired a 
business license from Arlington County as required under the 
Code and Arlington County's ordinances. 
In 2010, Ingrid Morroy, the Commissioner of Revenue of 
Arlington County, audited Nielsen for several of the previous 
tax years.  After that audit, Commissioner Morroy issued an 
additional tax assessment on Nielsen for the 2007 tax year on 
the basis that Nielsen failed to pay sufficient tax on its 
business license.  Nielsen took exception to Commissioner 
Morroy's additional assessment, and the dispute over that 
assessment has worked its way through multiple levels of 
review. 
Nielsen first appealed to Commissioner Morroy herself 
pursuant to Code § 58.1-3703.1(A)(5)(b).  In response, 
Commissioner Morroy issued a final determination confirming her 
additional assessment, subject to some modifications.  Pursuant 
to Code § 58.1-3703.1(A)(6)(a), Nielsen then filed an appeal 
with the Virginia Tax Commissioner.  The Tax Commissioner 
 
3 
subsequently issued an opinion in this matter, with the 
parties' names redacted, published as a Public Document titled 
PD 12-146.  The Tax Commissioner held that Commissioner Morroy 
used an incorrect methodology in the 2007 tax year assessment, 
and instead permitted a payroll percentage methodology to be 
used to calculate the Code § 58.1-3732(B)(2) deduction to 
Arlington County's tax on Nielsen's business license.  The Tax 
Commissioner subsequently remanded the case back to the County 
so that Commissioner Morroy could adjust the additional 
assessment for the 2007 tax year in accordance with the Tax 
Commissioner's opinion. 
It was then Arlington County's and Commissioner Morroy's 
turn to appeal, as they disagreed with the Tax Commissioner's 
payroll percentage methodology.  Pursuant to Code §§ 58.1-
3703.1(A)(7)(a) and 58.1-3984, Arlington County and 
Commissioner Morroy appealed to the Circuit Court of the County 
of Arlington to correct the Tax Commissioner's allegedly 
erroneous ruling.  After a day-long bench trial, a subsequent 
hearing for oral arguments, and consideration of the parties' 
briefs and several of the Tax Commissioner's prior opinions 
issued as Public Documents, the circuit court issued its 
opinion in this matter.  The court rejected the Tax 
Commissioner's methodology for calculating the relevant tax 
deduction as erroneous, contrary to law and precedent, and 
 
4 
arbitrary and capricious in its application.  The court entered 
a final order which memorialized that opinion, confirmed 
Commissioner Morroy's assessment against Nielsen for the 2007 
tax year, and directed Nielsen to pay such assessment. 
Nielsen timely filed a petition for appeal with this 
Court.  We granted three of Nielsen's assignments of error: 
1. The trial court erred in reversing the State Tax 
Commissioner's decision, and reinstating the County's 
assessment, because the trial court misinterpreted and 
misapplied Code § 58.1-3732(B)(2). 
2. The trial court erred in reversing the State Tax 
Commissioner's decision, and reinstating the County's 
erroneous assessment, because the trial court should 
have deferred to the State Tax Commissioner's 
interpretation of Code § 58.1-3732(B)(2). 
3. The trial court erred in reversing the State Tax 
Commissioner's decision, and reinstating the County's 
erroneous assessment, because the trial court 
erroneously placed the burden of proof on Nielsen 
rather than on the County. 
II. Discussion 
A. 
Standard Of Review 
Whether tax deductions properly comply with the relevant 
statutory provisions is a mixed question of law and fact.  See 
Ford Motor Credit Co. v. Chesterfield Cnty., 281 Va. 321, 333-
34, 707 S.E.2d 311, 317 (2011).  "Therefore, while we give 
deference to the trial court's factual findings and view the 
facts in the light most favorable to the prevailing party, we 
review the trial court's application of the law to those facts 
 
5 
de novo."  Bailey v. Loudoun County Sheriff's Office, 288 Va. 
159, 169, 762 S.E.2d 763, 766 (2014) (internal quotation marks 
and citation omitted). 
B. 
Whether The Tax Commissioner's Interpretation Of The 
Relevant Statutes Was Due Deference Or Great Weight 
Nielsen assigned error to the circuit court's refusal to 
defer to the Tax Commissioner's ruling.  We address this issue 
first because if the circuit court was required to defer to, or 
give great weight to, the Tax Commissioner's ruling, then such 
deference or weight would also be required on appeal. 
1. 
Courts Do Not Defer To Administrative Agencies When 
Interpreting Statutes, And Do Not Give Weight To 
Administrative Interpretation Of Unambiguous Statutes 
The circuit court refused to defer to the Tax Commissioner 
on the basis that the Tax Commissioner's ruling was not 
supported by the statutory language of Code § 58.1-3732(B)(2).  
The circuit court correctly refused to defer to the Tax 
Commissioner, but not for the rationale stated by that court. 
We recognize that our decisions have been less than clear 
about a distinction in terminology, as we have sometimes 
conflated "deference" with "weight."  See, e.g., Commonwealth 
v. Barker, 275 Va. 529, 536-37, 659 S.E.2d 502, 505 (2008).  
Indeed, courts more generally have used these terms 
interchangeably.  See, e.g., Good Samaritan Hosp. v. Shalala, 
508 U.S. 402, 417 (1993).  However, a review of our precedent 
 
6 
underscores that we have distinguished "deference" from 
"weight."1  "Deference" refers to a court's acquiescence to an 
agency's position without stringent, independent evaluation of 
the issue.  See Alliance to Save the Mattaponi v. Commonwealth, 
270 Va. 423, 441-42, 621 S.E.2d 78, 88 (2005).  "Weight" refers 
to the degree of consideration a court will give an agency's 
position in the course of the court's wholly independent 
assessment of an issue.  See Southern Spring Bed Co. v. State 
Corp. Comm'n, 205 Va. 272, 275, 136 S.E.2d 900, 902 (1964). 
We have consistently held that courts do not defer to an 
agency's construction of a statute because the interpretation 
of statutory language always falls within a court's judicial 
expertise.  Virginia Marine Res. Comm'n v. Chincoteague Inn, 
287 Va. 371, 380, 757 S.E.2d 1, 5 (2014).  Though a court never 
defers to an administrative interpretation, in certain 
situations a court may afford greater weight than normal to an 
agency's position.  When "the statute is obscure or its meaning 
doubtful, [a court] will give great weight to and sometimes 
                     
 
1 We are not the only court to have wrestled with this 
distinction.  See, e.g., Public Water Supply Co. v. DiPasquale, 
735 A.2d 378, 382 (Del. 1999) ("We view the standard of 
judicial review of agency determinations of issues of statutory 
construction articulated in [a previous Delaware opinion] as 
overly deferential and confusing.  Accordingly, it is 
overruled.  Statutory interpretation is ultimately the 
responsibility of the courts.  A reviewing court may accord due 
weight, but not defer, to an agency interpretation of a statute 
administered by it."). 
 
7 
follow the interpretation which those whose duty it has been to 
administer it have placed upon it."  Superior Steel Corp. v. 
Commonwealth, 147 Va. 202, 206, 136 S.E. 666, 667 (1927).  But 
even when great weight is afforded to an administrative 
interpretation of a statute, such an interpretation does not 
bind a court in deciding the statutory issue.  Webster Brick 
Co. v. Department of Taxation, 219 Va. 81, 84-85 & n.4, 245 
S.E.2d 252, 255 & n.4 (1978).  In any event, absent ambiguity, 
the plain language controls and the agency's interpretation is 
afforded no weight beyond that of a typical litigant.  See 
Davenport v. Little-Bowser, 269 Va. 546, 555, 611 S.E.2d 366, 
371 (2005). 
The Department of Taxation and the Tax Commissioner 
administer and enforce the Commonwealth's tax laws.  Code 
§ 58.1-202; LZM, Inc. v. Virginia Dep't of Taxation, 269 Va. 
105, 109, 606 S.E.2d 797, 799 (2005); Commonwealth of Virginia 
v. Lucky Stores, Inc., 217 Va. 121, 127, 225 S.E.2d 870, 874 
(1976).  Thus, their "interpretation of a tax statute is 
entitled to great weight" – if, of course, the statute is 
ambiguous.  LZM, Inc., 269 Va. at 109, 606 S.E.2d at 799; see 
also Davenport, 269 Va. at 555, 611 S.E.2d at 371; Department 
of Taxation v. Delta Air Lines, Inc., 257 Va. 419, 426-27, 513 
S.E.2d 130, 133-34 (1999) (rejecting the Department of 
Taxation's interpretation of an unambiguous tax statute). 
 
8 
Applying these principles to this case, the circuit court 
did not err in refusing to defer to the Tax Commissioner's 
interpretation of Code § 58.1-3732(B)(2).  A court never defers 
to the Tax Commissioner's interpretation of a statute.  
Moreover, Code § 58.1-3732(B)(2) is unambiguous.  Thus, the Tax 
Commissioner's interpretation of that statute is not entitled 
to great weight. 
2. 
Courts Do Not Defer To Or Give Great Weight To An 
Administrative Agency's Prior Rulings 
The circuit court refused to defer to the Tax Commissioner 
on the basis that the Tax Commissioner's ruling did not conform 
to the Tax Commissioner's prior rulings previously issued as 
Public Documents.  Once again, the circuit court was right to 
refuse to defer to the Tax Commissioner, but not for the 
particular rationale stated by that court. 
For purposes of giving weight to the positions of 
administrative agencies, it does not matter whether an agency 
has been consistent in its rulings.  This is because an 
agency's "prior rulings and policies themselves are not 
entitled to great weight, unless expressed in regulations."  
Chesapeake Hosp. Auth. v. Commonwealth, 262 Va. 551, 560, 554 
S.E.2d 55, 59 (2001).  Indeed, the Tax Commissioner's 
"[r]ulings issued in conformity with [Code] § 58.1-203" are 
only required to be "accorded judicial notice," and "nothing 
 
9 
more."  Code § 58.1-205(3); Chesapeake Hosp., 262 Va. at 560, 
554 S.E.2d at 59.  Chesapeake Hospital is particularly on 
point, because in that case we specifically rejected the 
Department of Taxation's claim that its prior rulings in Public 
Documents, which encompassed "the Department's long-standing 
administrative interpretation," were to be afforded great 
weight when deciding an issue addressed by those prior rulings.  
Id. at 556-57, 560, 554 S.E.2d at 57, 59.  Thus, the 
consistency or inconsistency of the Tax Commissioner's prior 
rulings is irrelevant, because the prior rulings themselves are 
not afforded great weight unless and until they are expressed 
in regulations.  And if prior rulings are not entitled to great 
weight, then a court certainly shall not defer to such rulings. 
Applying these principles to this case, the circuit court 
did not err in refusing to defer to the Tax Commissioner's 
ruling in this matter simply because the Tax Commissioner had 
issued prior rulings pertaining to the issue.  These prior 
rulings are not expressed in regulations, and are therefore 
afforded no deference and entitled to no weight. 
C. 
Levying A BPOL Tax On Gross Receipts 
We now turn to the statutory scheme relevant to this 
appeal.  A "local governing body" may require a license for 
certain "businesses, trades, professions, occupations[,] and 
callings."  Code §§ 58.1-3700; 58.1-3703(A); see also Code 
 
10 
§ 58.1-3703.1(A)(1) (setting forth when a license is required).  
These licenses are referred to as Business, Professional, and 
Occupational Licenses ("BPOL").  If such a license is required 
by a local governing body, it is "unlawful to engage in such 
business, employment[,] or profession without first obtaining 
the required license."  Code § 58.1-3700.  "The governing body 
of any county, city[,] or town may . . . . levy and provide for 
the assessment and collection of . . . license taxes . . . upon 
the persons, firms[,] and corporations engaged [in the licensed 
business, trade, profession, occupation, or calling] within the 
county, city[,] or town," subject to various statutory 
limitations.  Code § 58.1-3703(A).  These license taxes are 
referred to as BPOL Taxes. 
1. 
Establishing The Pool Of Taxable Gross Receipts 
The local governing body's ability to levy, assess, and 
collect BPOL Taxes is limited solely to the authority set forth 
in Chapter 37 of Title 58.1 of the Code.  Code § 58.1-3702.  
Moreover, a locality's ordinances providing for the levying of 
a BPOL Tax must be "substantially similar" to the Code 
provisions governing the levying of a BPOL Tax.  Code § 58.1-
3703.1(A).  As Code § 58.1-3703.1 sets forth the authority for 
a local governing body to levy a BPOL Tax, its statutory 
provisions are "to be construed most strongly against the 
government and are not to be extended beyond the clear import 
 
11 
of the language used."  Commonwealth v. Carter, 198 Va. 141, 
147, 92 S.E.2d 369, 373 (1956); see also, e.g., Ford Motor 
Credit Co., 281 Va. at 334-42, 707 S.E.2d at 318-23 (addressing 
Code §§ 58.1-3703.1(A)(3)(a)(4) and 58.1-3703.1(A)(3)(b)); City 
of Lynchburg v. English Construction Co., 277 Va. 574, 583-84, 
675 S.E.2d 197, 201-02 (2009) (addressing Code § 58.1-
3703.1(A)(3)(a)(1)). 
A BPOL Tax may be levied on the licensed business's gross 
receipts.  See Code § 58.1-3705.  The General Assembly set 
forth the following "[g]eneral rule" for determining what 
constitutes the pool of a business's taxable gross receipts 
upon which the BPOL Tax may be levied: 
Whenever the [BPOL Tax is] imposed [and] 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 at a definite place of business within this 
jurisdiction.  In the case of activities conducted 
outside of a definite place of business, such as 
during a visit to a customer location, the gross 
receipts shall be attributed to the definite place of 
business from which such activities are initiated, 
directed, or controlled. 
Code § 58.1-3703.1(A)(3)(a).2 
                     
 
2 This provision goes on to specify how certain types of 
businesses – contractors, retailers, wholesalers, renters of 
tangible personal property, and performers of services – shall 
have their "situs of gross receipts . . . attributed to one or 
more definite places of business or offices."  Code § 58.1-
3703.1(A)(3)(a)(1)-(4).  This portion of the Code does not 
apply in this appeal because Nielsen is not engaged in any of 
these types of businesses. 
 
12 
This general rule specifies that the pool of taxable gross 
receipts originates from two sources.  First, the taxable gross 
receipts include all gross receipts that accrue at the licensed 
definite place of business within the licensing jurisdiction 
which can be attributed to the licensed business.  Second, the 
taxable gross receipts include the gross receipts that accrue 
outside of the licensed definite place of business, both within 
and beyond the licensing jurisdiction, which can be attributed 
to activities that are initiated, directed, or controlled by 
the licensed definite place of business. 
An alternative to this general rule exists.  If "the 
licensee has more than one definite place of business and it is 
impractical or impossible to determine to which definite place 
of business gross receipts should be attributed under the 
general rule," the General Assembly has provided for an 
alternative method, apportionment, to calculate the taxable 
gross receipts.  Code § 58.1-3703.1(A)(3)(b).  Specifically, 
"the gross receipts of the business shall be apportioned 
between the definite places of businesses on the basis of 
payroll," so long as "some activities under the applicable 
general rule occurred at, or were controlled from, such 
definite place[s] of business."  Id.  Under this alternative, 
the business's total gross receipts among all of its definite 
places of business contributing to the licensed business must 
 
13 
be apportioned between those definite places of business on the 
basis of each respective definite place of business's 
percentage of the company's total payroll.  Thus, under this 
methodology, the pool of taxable gross receipts for the 
definite place of business within the licensing jurisdiction 
will be equal to that particular definite place of business's 
percentage of the company's total payroll. 
The facts of this case illustrate how this scheme works.  
Nielsen applied for a license to engage in its business within 
Arlington County because Nielsen "has a definite place of 
business in [that] jurisdiction."  Code § 58.1-3703.1(A)(1).3  
During the 2007 tax year, Nielsen had a definite place of 
business in 18 different states with its total domestic gross 
receipts at $100,516,732.  The parties agreed that it was 
impractical or impossible to determine to which definite places 
of business these total gross receipts could be attributed 
under the general rule of Code § 58.1-3703.1(A)(3)(a).  Under 
the apportionment alternative, the taxable gross receipts for 
Nielsen's definite place of business in Arlington County for 
the 2007 tax year is equal to that definite place of business's 
percentage of Nielsen's total payroll during the same time 
                     
 
3 A "definite place of business" is "an office or a 
location at which occurs a regular and continuous course of 
dealing for thirty consecutive days or more."  Code § 58.1-
3700.1. 
 
14 
period.  Code § 58.1-3703.1(A)(3)(b).  For the 2007 tax year, 
the payroll for Nielsen's definite place of business in 
Arlington County was 23.8668 per cent of Nielsen's total 
payroll.  Thus, the pool of taxable gross receipts subject to 
the BPOL Tax for the 2007 tax year was 23.8668 per cent of 
$100,516,732, or $23,990,127.39. 
2. 
Deducting Receipts From The Pool Of Taxable Gross Receipts 
Once the pool of taxable gross receipts is created, 
certain receipts "shall be deducted" from that pool even though 
they "would otherwise be taxable."  Code § 58.1-3732(B).  These 
"deduction provisions are strictly construed against the 
taxpayer."  City of Lynchburg, 277 Va. at 583, 675 S.E.2d at 
201.  Relevant to this appeal, the General Assembly has 
provided that the following receipts are subject to deduction: 
Any receipts attributable to business conducted in 
another state or foreign country in which the 
taxpayer (or its shareholders, partners[,] or members 
in lieu of the taxpayer) is liable for an income or 
other tax based upon income. 
Code § 58.1-3732(B)(2).  This provision backs out of the pool 
of taxable gross receipts – which included receipts both within 
and outside the licensing jurisdiction that were attributable 
to the definite place of business's licensed activities under 
either Code § 58.1-3703.1(A)(3)(a) or (b) – all receipts that 
accrued from business in non-Virginia jurisdictions in which 
the taxpayer is subject to an income-based tax liability. 
 
15 
The question implicated by this appeal is what methodology 
can be used to make this deduction calculation.  That is, the 
parties dispute how a taxpayer can make a showing that gross 
receipts falling under the terms of Code § 58.1-3732(B)(2), and 
thus subject to a deduction, were captured in the pool of 
taxable gross receipts calculated under Code § 58.1-
3703.1(A)(3)(a) or (b). 
Nielsen argues that, when a taxpayer uses the payroll 
percentage apportionment alternative of Code § 58.1-
3703.1(A)(3)(b) to calculate the pool of taxable gross 
receipts, that payroll percentage must also be used to 
determine what portion of the out of state receipts captured in 
that pool is attributable to business in another state.  
Nielsen would apply the Virginia-located definite place of 
business's payroll percentage to the gross receipts accrued in 
all foreign jurisdictions where the taxpayer is subject to an 
income-based tax liability, whereby the sum of which would 
constitute the Code § 58.1-3732(B)(2) deduction. 
Conversely, Arlington County and Commissioner Morroy argue 
that, regardless of how the pool of taxable gross receipts was 
calculated under Code § 58.1-3703.1(A)(3), determining the 
deduction under Code § 58.1-3732(B)(2) requires the taxpayer to 
prove by manual accounting that the receipts attributable to 
business in a foreign jurisdiction where the taxpayer is 
 
16 
subject to an income-based tax liability were actually captured 
in the pool of taxable gross receipts. 
We reject both positions because the Code does not require 
or preclude any particular methodology to calculate the 
deduction pursuant to Code § 58.1-3732(B)(2).  This conclusion 
is compelled by applying familiar principles.  We "construe 
statutes to ascertain and give effect to the intention of the 
General Assembly."  Sheppard v. Junes, 287 Va. 397, 403, 756 
S.E.2d 409, 411 (2014) (internal quotation marks omitted).  
Because "the General Assembly's intent is usually self-evident 
from the statutory language" itself, and because Code § 58.1-
3732(B)(2) is neither ambiguous nor absurd, we only "appl[y] 
the plain meaning of the words used in the statute."  Id. 
The dispositive term in Code § 58.1-3732(B)(2) pertaining 
to methodology is "attributable."  We give this undefined term 
"its ordinary meaning, in light of the context in which it is 
used."  Bailey, 288 Va. at 175, 762 S.E.2d at 770 (internal 
quotation marks, alterations, and citation omitted).  
"Attribute," when used as a verb, has the ordinary meaning of 
"to explain as caused or brought about by" and "regard as 
occurring in consequence of or on account of."  Webster's Third 
New International Dictionary 142 (1993).  Thus, "attributable" 
as used in Code § 58.1-3732(B)(2) speaks only to cause and 
consequence:  that receipts are subject to deduction only if 
 
17 
they are created by business in a foreign jurisdiction in which 
the taxpayer is subject to an income-based tax liability.  That 
is, "attributable" does not mandate or prohibit any particular 
methodology to determine which receipts captured in the pool of 
taxable gross receipts are subject to deduction. 
D. 
The Tax Commissioner's Ruling On The Code § 58.1-
3732(B)(2) Deduction 
The Tax Commissioner held that the following analysis 
determines whether the Code § 58.1-3732(B)(2) deduction may be 
taken by a taxpayer, and, if so, how to determine what receipts 
are backed out from the pool of taxable gross receipts: 
1. Ascertain whether any employees at the Virginia 
definite place of business participated in interstate 
transactions by, for example, shipping goods to 
customers in other states, participating with 
employees in other offices in transactions, etc.  If 
there has been no participation in interstate 
transactions, then there is no deduction.  If there 
has been participation, then; 
2. Ascertain whether any of the interstate 
participation can be tied to specific receipts.  If 
so, then those receipts are deducted; however, if 
payroll apportionment had to be used to assign 
receipts to the definite place of business, then it is 
very unlikely that any of those apportioned receipts 
can be specifically []linked to interstate 
transactions.  If not, or if only some of the 
participation can be tied to specific receipts, then; 
3. The payroll factor used for the Virginia definite 
place of business would be applied to the gross 
receipts assigned to definite places of business in 
states in which the taxpayer filed an income tax 
return.  Note that payroll apportionment would 
probably be needed to assign receipts to definite 
places of business in other states. 
 
18 
This three step analysis for the Code § 58.1-3732(B)(2) 
deduction strikes a balance between the competing interests of 
the licensing jurisdiction and the taxpayer.  The first step 
serves a gatekeeping function, limiting deductions to definite 
places of business in Virginia where employees actually 
participated in some interstate transactions.  The second and 
third steps provide for alternative methodologies to calculate 
the deduction depending upon whether manual accounting is 
possible for purposes of the deduction, despite whether manual 
accounting or the payroll percentage apportionment method was 
used to create the pool of taxable gross receipts under Code 
§ 58.1-3701.1(A)(3)(a) or (b). 
The circuit court reversed the Tax Commissioner's ruling 
on the basis that it was contrary to law and that it was 
arbitrary and capricious in application.  We now address 
Nielsen's assigned error to the circuit court's reversal. 
1. 
The Tax Commissioner's Ruling Is Not Contrary To Law 
The circuit court reversed the Tax Commissioner's ruling 
in part because it was contrary to law, as it did not accord 
with the statutory language of Code § 58.1-3732(B)(2).  
However, Code § 58.1-3732(B)(2) leaves unresolved the 
permissible methodology for calculating the deduction.  Thus, 
the plain and unambiguous statutory language allows for the 
administrative agency whose duty it is to administer and 
 
19 
enforce the tax laws – that is, the Department of Taxation and 
the Tax Commissioner – to decide how such a deduction may be 
calculated.  See Elizabeth River Crossings OpCo, LLC v. Meeks, 
286 Va. 286, 311, 749 S.E.2d 176, 188 (2013) ("Government could 
not be efficiently carried on if something could not be left to 
the judgment and discretion of administrative officers to 
accomplish in detail what is authorized or required by law in 
general terms." (internal quotation marks, alterations, and 
citation omitted)).  The Tax Commissioner's ruling to require 
manual accounting, or payroll apportionment in the event that 
manual accounting is impossible to calculate the deduction, 
falls within the scope of accounting methodologies permitted by 
Code § 58.1-3732(B)(2).  The circuit court erred when it held 
to the contrary. 
2. 
The Tax Commissioner's Ruling Is Not Arbitrary And 
Capricious In Application 
The circuit court reversed the Tax Commissioner's ruling 
in part because it was arbitrary and capricious in application.  
The court believed that the arbitrary and capricious nature of 
the Tax Commissioner's ruling arose from the fact that 
"globally applying" the payroll percentage methodology removes 
the "burden to prove the deduction" from the taxpayer, and 
fails to "provide accuracy and avoids even the semblance of 
scrutiny or truth."  The circuit court also expressed concern 
 
20 
about the fact that "this methodology [does not] adequately 
account for the [amount of hours] spent in Virginia to earn 
out-of-state revenues." 
The Tax Commissioner's ruling specified that the payroll 
percentage methodology may be used only if it is impossible to 
apply the manual accounting methodology to determine the Code 
§ 58.1-3732(B)(2) deduction.  The payroll percentage 
methodology, then, is not automatically applied in the 
deduction context so as to be applied "without [a] determining 
principle" or "without consideration of or regard for [the] 
facts[ and] circumstances."  Virginia Commonwealth Univ. v. 
Zhuo Cheng Su, 283 Va. 446, 453, 722 S.E.2d 561, 564 (2012); 
Black's Law Dictionary 125 (14th ed. 2014) (defining 
"arbitrary"). 
Further, such a binary scheme in the deduction context, 
permitted but not required by the plain language of the Code, 
follows the structure of the scheme expressly set forth by the 
General Assembly when creating the pool of taxable gross 
receipts under Code § 58.1-3703.1(A)(3).  The use of an 
estimate methodology when determining a deduction, but only 
when it is impossible to determine the exact figures to 
calculate such a deduction, is neither "contrary to . . . 
established rules of law" nor a mechanism permitting an 
assessment to be "founded on prejudice or preference rather 
 
21 
than on reason or fact" when that very same methodology is used 
to determine the initial tax to be imposed, but only when it is 
impractical or impossible to determine the exact figures to 
calculate such a tax.  Black's Law Dictionary 125 (defining 
"arbitrary"); id. at 254 (defining "capricious"); see also 
Virginia Commonwealth Univ., 283 Va. at 453, 722 S.E.2d at 564.  
The circuit court erred when it held to the contrary. 
E. 
Proceedings On Remand 
Because the circuit court erred in reversing the Tax 
Commissioner's ruling, it erred in affirming Commissioner 
Morroy's assessment against Nielsen for the 2007 tax year which 
was to be reassessed pursuant to the Tax Commissioner's ruling.  
We shall therefore remand this case back to the circuit court. 
We note that the statutory scheme permitting appeals from 
the Tax Commissioner to a circuit court does not allow remand 
back to the Tax Commissioner or the local official who 
originally assessed the tax.  See Code § 58.1-3703.1(A)(7).  
Thus, "[w]hen [this] statutory procedure is invoked, the 
determination of the correctness of [the] challenged 
assessment, as well as any grant of appropriate relief, become 
matters exclusively of judicial concern."  Smith v. Board of 
Supervisors of Fairfax Cnty., 234 Va. 250, 255, 361 S.E.2d 351, 
353 (1987).  On remand to the circuit court, that court must 
grant the appropriate relief based upon the evidence before it, 
 
22 
and it may not remand the case back to the Tax Commissioner or 
Commissioner Morroy for such a determination.  Id.  Of course, 
the court "can exercise its discretion to determine whether 
additional evidence is necessary in order to make a proper 
determination" as to the appropriate relief.  Bailey, 288 Va. 
at 182, 762 S.E.2d at 774 (internal quotation marks omitted). 
Finally, it is important to address Nielsen's third 
assignment of error, as it "probably will arise upon remand."  
Velocity Express Mid-Atlantic, Inc. v. Hugen, 266 Va. 188, 203, 
585 S.E.2d 557, 566 (2003).  Nielsen assigned error to the 
court placing the burden of proof to claim the deduction upon 
the taxpayer, claiming that such a decision contravenes the 
statutory burden allocated by the General Assembly. 
When a tax determination is appealed from the Tax 
Commissioner to a circuit court, the General Assembly has 
placed "the burden . . . on the party challenging the 
determination of the Tax Commissioner, or any part thereof, to 
show that the ruling of the Tax Commissioner is erroneous with 
respect to the part challenged."  Code § 58.1-3703.1(A)(7)(a).  
This operates so that the party challenging the Tax 
Commissioner's ruling has the burden before the circuit court 
of showing why that ruling was erroneous.  Arlington County and 
Commissioner Morroy, appealing the Tax Commissioner's ruling to 
the circuit court on the basis that the Tax Commissioner's 
 
23 
payroll percentage methodology was erroneous, bore this burden.  
And for the reasons we set forth in this opinion, Arlington 
County and Commissioner Morroy failed to satisfy that burden. 
However, the Tax Commissioner's ruling did not alter the 
"familiar rule that an income tax deduction is a matter of 
legislative grace and that the burden of clearly showing the 
right to the claimed deduction is on the taxpayer."  INDOPCO, 
Inc. v. Commissioner, 503 U.S. 79, 84 (1992) (internal 
quotation marks omitted).  Thus, in appealing to the circuit 
court to challenge the Tax Commissioner's decision, Code 
§ 58.1-3703.1(A)(7)(a) does not shift the burden to Arlington 
County and Commissioner Morroy to disprove the availability or 
amount of the deduction Nielsen seeks under Code § 58.1-
3732(B)(2).  Instead, under the Tax Commissioner's three step 
analysis, Nielsen continues to bear the burden before the 
circuit court to show that it can satisfy each step of the Tax 
Commissioner's analysis in order to take and correctly 
calculate the deduction under Code § 58.1-3732(B)(2). 
III. Conclusion 
For the aforementioned reasons, we reverse the circuit 
court's judgment that the Tax Commissioner's ruling was 
erroneous, contrary to law and precedent, and arbitrary and 
capricious in its application.  We reverse the circuit court's 
 
24 
reversal of the Tax Commissioner's ruling in this matter and 
remand for further proceedings consistent with this opinion. 
Reversed and remanded.