Title: Coxcom, LLC v. Fairfax County

State: virginia

Issuer: Virginia Supreme Court

Document:

PRESENT:  Goodwyn, C.J., Powell, Kelsey, McCullough, and Chafin, JJ., and Russell and 
Millette, S.JJ. 
 
COXCOM, LLC, D/B/A COX 
COMMUNICATIONS NORTHERN VIRGINIA 
 
 
 
OPINION BY 
v.  Record No. 210568 
JUSTICE STEPHEN R. McCULLOUGH 
 
 
 
July 14, 2022 
FAIRFAX COUNTY, ET AL. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Grace Burke Carroll, Judge 
 
 
Coxcom, L.L.C. (“Cox”) seeks a refund of Business and Professional Occupational 
License (“BPOL”) taxes it paid to Fairfax County.  Cox argues that a federal statute, the Internet 
Tax Freedom Act (“ITFA”), preempts the County’s collection of BPOL taxes for the sale of 
internet access services.  The circuit court disagreed, concluding that ITFA’s grandfather clause 
permitted the County to impose the tax.  For its part, the County assigns cross-error to several of 
the court’s rulings.  We conclude that ITFA applies and the grandfather clause does not apply.  
Consequently, we reverse and remand for a determination of the refund due to Cox. 
BACKGROUND 
 
I. 
CONGRESS ENACTS THE INTERNET TAX FREEDOM ACT TO FOSTER THE GROWTH OF 
THE INTERNET. 
 
In 1998, with a view to promoting the growth of the internet and internet commerce, 
Congress enacted the Internet Tax Freedom Act.  This statute places a moratorium on state and 
local taxes on internet access services.  Internet Tax Freedom Act, Pub. L. No. 105-277, §§ 1100 
et seq., 112 Stat. 2681 (1998), codified at 47 U.S.C. § 151.  ITFA initially contained a 
grandfather clause, which has since been repealed.1  This grandfather clause provided that 
 
 
1 The Trade Facilitation and Trade Enforcement Act of 2015 set a June 30, 2020, 
expiration date for the grandfather clause.  ITFA § 1104(a)(2)(A) as amended by Pub. L. No. 
 
2 
preexisting taxes on internet access services were exempt from the moratorium if “generally 
imposed and actually enforced prior to October 1, 1998.”  ITFA § 1104(a)(1).  A tax was 
“generally imposed and actually enforced” if: 
(A) the tax was authorized by statute; and 
 
(B) either: 
 
(i) a provider of Internet access services had a reasonable 
opportunity to know, by virtue of a rule or other public proclamation 
made by the appropriate administrative agency of the State or 
political subdivision thereof, that such agency has interpreted and 
applied such tax to Internet access services; or 
 
(ii) a State or political subdivision thereof generally collected such 
tax on charges for Internet access. 
 
 Id.   ITFA thus allowed a taxing authority two possibilities to grandfather an existing tax on 
internet services: (1) a rule or other public proclamation by an appropriate agency providing that 
the agency interprets and applies the tax to internet access services, or (2) a practice of generally 
collecting the tax. 
 
II. 
COX INVOKES THE INTERNET TAX FREEDOM ACT TO SEEK A REFUND OF A PORTION 
OF ITS BPOL TAXES. 
 
In 1994, the Board of Supervisors of Fairfax County adopted a BPOL ordinance, 
currently Fairfax County Code § 4-7.2-22 (“ordinance”).  This ordinance provides that 
“[b]usiness service occupations” including, but not limited to, “[o]n[]line computer services, 
computer time share services” would be subject to the BPOL tax.  During this time, America 
Online, Inc. (“AOL”), then one of the world’s largest internet service providers (“ISPs”), was 
headquartered in the County.  While AOL moved its headquarters out of the County in 1996, it 
 
114-125 at § 922, 130 Stat. 281 (2016).  The ITFA now prohibits all state and local taxes on 
internet access. 
 
3 
continued to maintain office space in the County and provide internet access services to 
customers residing in the County.  AOL paid the BPOL tax at the rate established in the 
ordinance for businesses that provided “on[]line computer services,” classifying its internet 
access services revenue as “online service revenue.” 
Cox has provided, among other services, internet access services to customers in the 
County since 2000.  Cox paid its BPOL tax to the County based on gross receipts from internet 
access services revenue between 2013 until 2016. 
In 2016, Cox filed a request for a BPOL tax refund with the County’s Department of Tax 
Administration for the tax years of 2013, 2014, and 2015, asserting that ITFA preempts the 
County from imposing the BPOL tax on internet access service revenues.  Cox further asserted 
that the Fairfax BPOL tax did not qualify for ITFA’s grandfather clause exemption because, 
prior to October 1, 1998, the County did not give Cox a reasonable opportunity to know that the 
tax had been applied to it under ITFA § 1104(a)(1)(B)(i), or generally collect the BPOL tax 
under ITFA § 1104(a)(1)(B)(ii).  The Department of Tax Administration determined that ITFA 
did not apply to the BPOL tax because it was not a tax on internet access but rather a general tax 
on a business’ entire gross receipts, “not identified to any particular [service or] good.”  The 
Department of Tax Administration further determined that, if ITFA did apply, the BPOL tax was 
grandfathered under ITFA’s grandfather clause exemption as it was authorized by the County’s 
ordinance and the County generally imposed and actually enforced the BPOL tax prior to 
October 1, 1998.  Cox then appealed to the Virginia Tax Commissioner. 
The Commissioner found that ITFA generally prohibited the imposition of the BPOL tax 
on internet access services.  The Commissioner concluded that the case turned on whether the 
grandfather clause applied and he declined to opine on that question.  Both Cox and the County 
 
4 
appealed the Commissioner’s decision to the circuit court.  The circuit court consolidated the 
appeals. 
The parties filed cross-motions for partial summary judgment.  Cox asserted in its motion 
for partial summary judgment that the BPOL tax was a tax on internet access services and 
therefore preempted by ITFA unless grandfathered.2  Cox further asserted that the County had 
the burden of proving at trial that the BPOL tax qualified for the grandfather clause exemption as 
the County was the party seeking the grandfather clause’s protection.  The County responded in 
its motion that the ITFA did not apply to the BPOL tax because the tax was not a tax on internet 
access services under ITFA, but was instead a general tax measured by gross receipts.  It argued 
that determining who had the burden of proving whether the BPOL tax was grandfathered should 
not be resolved at the summary judgment stage. 
The circuit court granted Cox’s motion for partial summary judgment and denied the 
County’s motion for partial summary judgment.  The circuit court held that the BPOL tax was a 
tax on internet access and was preempted because ITFA was broadly drafted to prohibit taxes on 
internet access in most forms, including ones based on gross receipts.  It further held that because 
the BPOL tax violated ITFA’s moratorium on taxes on internet access, the County would bear 
the burden of proving at trial whether the BPOL tax qualified for the grandfather clause 
exemption.  The court entered an order memorializing the letter opinion, reserving for decision 
the question of whether the BPOL tax was grandfathered.  The parties stipulated that the “County 
was authorized by statute prior to October 1, 1998 to impose its BPOL tax” under ITFA 
 
2 Neither party raised the issue of whether the BPOL tax was grandfathered at the 
summary judgment stage, reserving the issue for trial. 
 
5 
§ 1104(a)(1)(A).  Thus, the narrow issue that remained was whether the BPOL tax met the 
requirements of ITFA’s grandfather clause, ITFA § 1104(a)(1)(B). 
At trial, the County’s auditor testified that multiple ISPs that were providing internet 
access services in the County prior to October 1, 1998, including Prodigy and Roadrunner, did 
not pay the BPOL tax.  However, she testified that the BPOL tax was only imposed on 
companies that had a “definite place of business” in the County.  The company’s own reporting 
of its situs determined whether a company had a definite place of business in the County.  When 
asked if she knew whether Prodigy and Roadrunner had a situs in the County, she testified that 
she believed they did not because they had not paid BPOL taxes. 
 
The circuit court concluded that the BPOL tax qualified for the grandfather clause 
exemption.  The court found that the ordinance the County adopted in 1994 constituted a rule or 
public proclamation under ITFA § 1104(a)(1)(B)(i).  The court reasoned that the ordinance’s 
language providing for the application of the BPOL tax to “on[]line computer services, computer 
time share services” gave ISPs a reasonable opportunity to know that the BPOL tax applied to 
them.  The court noted that AOL paid the BPOL tax during this time.  However, the court found 
the County failed to prove it generally collected the BPOL tax prior to October 1, 1998, as 
required by ITFA § 1104(a)(1)(B)(ii), because it only provided AOL as an example of an ISP 
paying the BPOL tax.  The evidence demonstrated other ISPs, such as Roadrunner and Prodigy, 
did not pay the BPOL tax for undetermined reasons.  The circuit court held the County did not 
need to meet both ITFA § 1104(a)(1)(B)(i) and ITFA § 1104(a)(1)(B)(ii) to be grandfathered.  
Cox appeals from this decision and the County assigns cross error to several of the circuit court’s 
rulings. 
 
 
6 
ANALYSIS 
 
I. 
A BPOL TAX THAT COLLECTS A TAX FROM SALES OF INTERNET ACCESS SERVICES IS 
COVERED BY ITFA. 
 
 
The circuit court concluded that ITFA applies to the County’s collection of BPOL taxes 
from Cox.  The County assigns cross-error to this holding.  Citing Short Bros. (USA), Inc. v. 
Arlington Cnty., 244 Va. 520, 523 (1992), the County argues that the BPOL tax does not tax 
internet access services.  Instead, it is a tax on business activity as measured by gross receipts.  
This issue is one of statutory construction, and we therefore review the circuit court’s conclusion 
de novo on appeal.  Miller & Rhoads Bldg., L.L.C. v. City of Richmond, 292 Va. 537, 541 
(2016). 
 
In this instance, the tax moratorium is imposed by a federal statute, and therefore, 
definitions in the federal statute, rather than state case law, are controlling.  ITFA imposes a 
moratorium on any “tax on Internet access.”  ITFA § 1101(A)(1).  ITFA broadly defines “tax” as 
“any charge imposed by any governmental entity for the purpose of generating revenues for 
governmental purposes.”  ITFA § 1105(8)(A).  In addition, the statute provides that “[t]he term 
‘tax on Internet access’ means a tax on Internet access, regardless of whether such tax is imposed 
on a provider of Internet access or a buyer of Internet access and regardless of the terminology 
used to describe the tax.”  ITFA § 1105(10)(A).  Finally, ITFA contains a number of exceptions 
concerning what constitutes a tax on the internet, but none of those exceptions cover a tax like 
the BPOL tax at issue here.  See, e.g., ITFA §§ 1105(8)(B), 1105(10)(C).  Given the broad 
definition contained in the federal statute, and the lack of an exception that would apply to the 
BPOL tax, we hold that the circuit court correctly found that ITFA applies to the County’s BPOL 
tax. 
 
7 
 
II. 
THE GRANDFATHER CLAUSE DOES NOT RESCUE THE COUNTY’S IMPOSITION OF A 
TAX ON INTERNET ACCESS SERVICES. 
 
 
A. 
The County’s BPOL Tax does not satisfy the requirement of a rule or public 
proclamation that an appropriate administrative agency has interpreted and 
applied the BPOL Tax to internet access services. 
 
 
ITFA’S grandfather clause allows a tax on internet access services if the tax was 
authorized by statute – the parties stipulated that it was, based on Code § 58.1-3702 – and 
a provider of Internet access services had a reasonable opportunity 
to know, by virtue of a rule or other public proclamation made by 
the appropriate administrative agency of the State or political 
subdivision thereof, that such agency has interpreted and applied 
such tax to Internet access services . . . . 
 
ITFA § 1104(a)(1)(B)(i). 
 
The County imposed a BPOL tax on “[b]usiness service occupations” including, but not 
limited to, “[o]n[]line computer services, computer time share services.”  Fairfax County Code 
§ 4-7.2-22.  “On[]line computer services” can but does not necessarily apply to internet access 
services.  Online computer services could mean internet-based sales, distance education, 
computer support, customer support, and so on.  The County’s auditor testified that the phrase 
“[o]n[]line computer services” could apply to different types of services.  Under ITFA 
§ 1104(a)(1)(B)(i), the “appropriate administrative agency of” Fairfax County was required to 
issue a “rule or other public proclamation” stating that it had “interpreted and applied its [BPOL] 
tax to Internet access services.”  The County argues that it satisfied this requirement by 
publishing the ordinance itself.  We disagree with the County. 
 
First, the County and the Board of Supervisors of Fairfax County are not an 
“administrative agency” of Fairfax County.  The Board of Supervisors is the governing body of 
the County.  Code § 15.2-604; see also Code § 15.2-602 (“The powers of the county as a body 
politic and corporate shall be vested in the board of supervisors.”).  The Board of Supervisors 
 
8 
and the County generally do not administer the County’s taxes.  An “administrative agency” is 
“[a]n official body, esp. within the government, with the authority to implement and administer 
particular legislation.”  BLACK’S LAW DICTIONARY 77 (11th ed. 2019).  Under the County Code, 
an “agency” means “all offices, departments, institutions, boards, commissions, and corporations 
of the County government . . . .”  Fairfax County Code § 1-1-2(a)(1).  The County’s Department 
of Tax Administration is the administrative agency tasked with construing and implementing the 
BPOL tax.  Fairfax County Code §§ 4-7.2-3(A), 4-7.2-5, 4-7.2-6(c), 4-7.2-9, 4-7.2-10, 4-7.2-12. 
 
Second, the publication of the ordinance itself does not satisfy the requirement that the 
County agency responsible for the interpretation and collection of taxes has interpreted and will 
apply the BPOL tax to internet access services.  There is a difference between publishing an 
ordinance and a proclamation clarifying the meaning of the ordinance.  In City of Eugene v. 
Comcast of Or. II, Inc., 333 P.3d 1051, 1067 (Ore. Ct. App. 2014), the Court rejected a similar 
argument, reasoning that 
It is not enough that the language of its ordinance, or even its rules, 
might be broad enough to encompass Internet access services. 
Rather, under the ITFA, a “rule or public proclamation” must give 
the provider of Internet access a reasonable opportunity to know that 
the “agency has interpreted and applied such tax to Internet access 
services.” ITFA § 110[4(a)(1)(B)(1)] (emphasis added). The city 
cannot point to any public proclamation that, as of October 1, 1998, 
provided notice that the city “interpreted and applied” its tax to 
Internet access services. 
 
 
“When a [tax] statute, as written, is clear on its face, this Court will look no further than 
the plain meaning of the statute’s words.”  Department of Taxation v. Delta Air Lines, Inc., 257 
Va. 419, 426 (1999).  ITFA requires an “agency” to issue a public proclamation that it “has 
interpreted and applied such tax to Internet access services.”  ITFA § 1104(a)(1)(B)(i).  The 
 
9 
Fairfax County BPOL does not satisfy these requirements.  Therefore, this option to grandfather 
in the County’s BPOL tax on internet access services is not applicable. 
B. 
Applying the standard of review, we uphold the circuit court’s determination that 
the County failed to establish that it “generally imposed and actually enforced” its 
BPOL tax on internet access services. 
 
 
ITFA’S grandfather clause provided a second avenue for a taxing authority to collect 
taxes on internet access services: when a tax was “generally imposed and actually enforced” and 
“a State or political subdivision thereof generally collected such tax on charges for Internet 
access.”  ITFA § 1104(a)(1)(B)(ii). 
 
1. 
The County, which sought to avail itself of the grandfather clause, bore the 
burden of proving its applicability. 
 
 
The circuit court concluded that the County was required to shoulder the burden of 
proving that the grandfather clause applied.  The County assigns cross-error to this ruling, 
arguing that Cox should be the party responsible for bearing the burden of proof.  It contends that 
a party challenging a tax assessment must bear the burden of proving the tax was erroneously 
assessed.  While the County is correct as a general proposition, this case involves a United States 
law that broadly prohibits taxing internet access.  ITFA § 1101(A)(1).  The County seeks to 
shelter a portion of its BPOL tax revenues from this broad prohibition by invoking the 
grandfather clause.  A party seeking to avail itself of a grandfather clause bears the burden of 
proving that it falls within that clause.  See Frank Shop, Inc., v. Crown Cent. Petroleum Corp., 
261 Va. 169, 173-74 (2001).  We conclude that the circuit court correctly imposed the burden on 
the County of establishing that it fell within the parameters of the grandfather clause. 
 
2. 
The evidence failed to establish that the County generally imposed and actually 
enforced its BPOL tax on internet service providers. 
 
 
10 
 
ITFA authorized taxing authorities to maintain a tax on internet access provided that they 
“generally imposed and actually enforced as of November 1, 2003” and “a State or political 
subdivision thereof generally collected such tax on charges for Internet access.”  ITFA 
§ 1104(a)(1)(B)(ii).  The circuit court held that the County failed to meet its burden of 
establishing that it generally collected its BPOL tax on internet service providers.  The County 
assigns cross-error to this finding, arguing that the evidence it presented established that it 
generally imposed and actually enforced its BPOL tax on internet access services.  As noted 
above, the County was required to bear the burden of proving that it could avail itself of the 
grandfather clause. 
 
“On appeal, we view the evidence and all reasonable inferences arising therefrom in the 
light most favorable to the prevailing party at trial.”  Western Refining Yorktown, Inc. v. County 
of York, 292 Va. 804, 815 (2016).  In a bench trial such as this, the trial court determines the 
credibility of the witnesses’ testimony and the weight of the evidence.  Id. 
The evidence established that multiple companies provided internet access services to 
customers in the County prior to October 1, 1998.  According to the County’s evidence, a single 
entity, AOL, paid the BPOL tax on internet access services revenue during that time.  Other 
internet service providers, such as Prodigy and Roadrunner, were not paying the BPOL tax.  The 
County’s auditor testified that Prodigy and Roadrunner were not paying the BPOL tax because 
the BPOL tax was only imposed on businesses with a “definite place of business” in the County.  
However, when asked if she knew whether ISPs Prodigy and Roadrunner had a situs in the 
County, she responded in circular fashion that she believed they did not have a situs in the 
County on the basis that they had not paid BPOL taxes.  She also was not sure if other companies 
provided internet access services during the relevant time period, but assumed that if they did not 
 
11 
pay BPOL taxes it was either because they did not provide such services or have a situs in the 
County.  The County’s auditor was not sure what canvassing activities the County may have 
engaged in at the relevant time to determine what ISPs were situated in the County.  The circuit 
court could sensibly conclude on this paucity of evidence that the County failed to meet its 
burden of proving that the County generally collected the BPOL tax prior to October 1, 1998. 
CONCLUSION 
 
For the foregoing reasons, we will reverse the judgment of the circuit court and remand 
the case for a determination of the refund due to Cox. 
Reversed and remanded.