Present: All the Justices 

CITY OF WINCHESTER 

OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. 

v. Record No. 951621 June 7, 1996 

AMERICAN WOODMARK CORPORATION 

 FROM THE CIRCUIT COURT OF THE CITY OF WINCHESTER 

John E. Wetsel, Jr., Judge 

 In this appeal, we consider whether a municipal government's 

assessment of a business, professional, and occupational license 

("BPOL") tax comported with the requirements of the Commerce 

Clause of the United States Constitution.1

 Under the specific 

facts of this case, we agree with the trial court's judgment that 

the assessment was not constitutional. 

 I. 

 Factual Background

 The case was decided on motion for summary judgment upon the 

pleadings and stipulations of fact. American Woodmark 

Corporation (American Woodmark), a Virginia corporation, 

maintains its corporate headquarters in the City of Winchester 

(the City). American Woodmark operates a number of 

manufacturing, storage, and distribution facilities throughout 

the United States, though none of these facilities is located 

within the City.2

 

 

 1U.S. Const. art. I, § 8, cl. 3 ("Congress shall have 

Power . . . [t]o regulate Commerce . . . among the several States 

. . ."). When construed to limit state taxation where Congress 

has not expressly legislated, the provision is generally referred 

to as the "dormant" Commerce Clause. See Oklahoma Tax Comm'n v. 

Jefferson Lines, Inc., ___ U.S. ___, 115 S.Ct. 1331, 1335 (1995). 

 Here, for brevity, we will simply refer to the Commerce Clause. 

 2We have previously addressed the nature of American 

Woodmark's business operations and its relationship with the City 

in American Woodmark v. City of Winchester, 250 Va. 451, 464 
 On April 20, 1993, the Commissioner of Revenue for the City 

assessed BPOL taxes against American Woodmark for the years 1990 

and 1991 in the amount of $374,636.91 and $343,918.42, 

respectively. On April 14, 1994, American Woodmark filed in the 

Circuit Court of the City of Winchester an application to correct 

these assessments of local taxes. American Woodmark alleged that 

these assessments were not fairly apportioned and, thus, 

constituted an improper local restraint on interstate commerce in 

violation of the Commerce Clause. 

 On March 17, 1995, American Woodmark filed a motion for 

summary judgment with a supporting memorandum. Stipulations of 

fact and additional supporting memoranda were filed by the 

parties. On May 12, 1995, the trial court filed a written 

opinion in which it found that the assessments against American 

Woodmark failed to satisfy the requirements of the Commerce 

Clause because the City had not fairly apportioned the 

assessments to tax only those gross receipts attributable to 

American Woodmark's business activities within the City. After 

receiving the City's objections to its written opinion, the trial 

court entered a final order on June 5, 1995, granting summary 

judgment to American Woodmark and declaring the BPOL assessments 

made by the City invalid. We awarded the City this appeal. 

 II. 

Constitutional Restrictions on Taxation 

of Businesses Conducting Interstate Commerce

 The United States Supreme Court has long construed the 

 

S.E.2d 148 (1995). 
Commerce Clause as a restraint on state and local taxing power. 

See, e.g., Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824). Modern 

jurisprudence regarding state and local taxation under the 

Commerce Clause emerged in the late 1930s, when the Court began 

to eschew formalistic distinctions that lacked substance and 

focused more on the practical effect of the tax imposed, or its 

effect despite any distinctions in form. See, e.g., Western Live 

Stock v. Bureau of Revenue, 303 U.S. 250 (1938). In prior 

decisions, the Court had merely held that a state or locality 

could regulate "local," but not "national," commerce. Cooley v. 

Board of Wardens, 53 U.S. (12 How.) 299, 316-19 (1851). 

 After 1938, the apportionment of a local tax to cover those 

activities rationally related to a taxing authority's power and 

interest became the central inquiry. The Court announced that 

for a tax to be valid under the Commerce Clause, the tax cannot, 

in effect, reach revenue generated by activities lacking this 

nexus. See, e.g., Central Greyhound Lines, Inc. v. Mealey, 334 

U.S. 653, 663 (1948). 

 In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 

(1977), the Court spelled out this apportionment rule, announcing 

a four-part test to assess the validity of a local tax under the 

Commerce Clause. The tax must be (1) applied to an activity with 

a substantial nexus with the taxing authority, (2) fairly 

apportioned, (3) nondiscriminatory to interstate commerce, and 

(4) fairly related to the services provided by the state or 

locality. Id. at 279. The Court also restated the realist 

approach, noting that the focus is not on the tax statute's 
formal language, but rather on its practical effect. Id.; see 

also Oklahoma Tax Comm'n v. Jefferson Lines, Inc., ___ U.S. ___, 

___, 115 S.Ct. 1331, 1336 (1995). 

 III. 

 Application of the Commerce Clause to the Assessment

 The dispute in this case is whether the assessments in 

question satisfy the "fairly apportioned" prong of the 

constitutional test enunciated in Complete Auto. This prong 

requires that an assessment be both internally and externally 

consistent. Goldberg v. Sweet, 488 U.S. 252, 261 (1989). An 

assessment is internally consistent if applying the text of the 

taxing statute, and assuming that every other jurisdiction 

applied the same statute, the taxpayer would not be subjected to 

a risk of double taxation. Id. at 261. An assessment is 

externally consistent if the assessment applies only to the 

"portion of the revenues from the interstate activity which 

reasonably reflects the in-state component of the activity being 

taxed." Id. at 262 (citation omitted). 

 In this case, the trial court held that the assessments 

were internally consistent because if every taxing jurisdiction 

applied the tax as set out in the City's ordinance the taxpayer 

would be allowed to deduct amounts paid to other taxing 

jurisdictions and therefore would not be subject to multiple 

taxation. That holding is not challenged on appeal.3 Thus, we 

 

 3 American Woodmark argues on brief that this holding was 

erroneous; however, cross-error was not assigned to the trial 

court's holding and we will not consider this argument. Rule 

5:18(b). 
need consider only whether the assessments comply with the 

requirements of external consistency. 

 To prevail in a claim that a tax assessment fails the 

external consistency test, a taxpayer must "'demonstrate that 

there is no rational relationship between the income attributable 

to the State and the intrastate values of the enterprise.'" 

Amerada Hess Corp. v. Director, Division of Taxation, New Jersey 

Department of the Treasury, 490 U.S. 66, 75 (1989)(quoting 

Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 

180 (1983)). There is no specific formula which must be adopted 

by a taxing jurisdiction to satisfy the external consistency 

test, but "an objecting taxpayer has the burden to demonstrate by 

clear and cogent evidence that the income attributed to the State 

is in fact out of all appropriate proportions to the business 

transacted . . . in that State, or has led to a grossly distorted 

result." Jefferson Lines, ___ U.S. at ___, 115 S.Ct. at 1343 

(citations and internal quotation marks omitted). 

 The City argues that the trial court's determination that 

the assessments were not externally consistent was erroneous 

because American Woodmark failed to meet its burden of proof. 

The City contends that the record shows that American Woodmark is 

a highly centralized, unitary business and its corporate 

headquarters contributes value to its business. According to the 

City, all the taxpayer's gross receipts are in some way 

attributable to the headquarters office and presumably could all 

be used as the basis for the assessments. Thus, in the absence 

of quantified evidence of the specific value of the numerous 
functions performed by the headquarters in Winchester, the 

taxpayer did not carry its burden of proof and, the City 

concludes, the trial court erred in holding that the assessments 

were invalid. 

 We disagree. In the circumstances here, where the City 

based its assessments on 100% of the taxpayer's revenues, 

American Woodmark was not required to produce evidence of a 

specific level of value attributable to its Winchester operation 

to prevail in its assertion that the assessments were not 

externally consistent and, thus, were in violation of the 

Commerce Clause. American Woodmark presented uncontested 

evidence that, during the years in question, it operated 24 

facilities in 13 different states. These facilities included 

manufacturing and distribution centers as well as service and 

sales offices. Common sense compels the conclusion that these 

operations added value to American Woodmark's business product 

and were revenue producing activities. By definition, 

assessments based on 100% of American Woodmark's revenues 

included revenues realized from value produced in locations other 

than in the taxing jurisdiction. Given the number of facilities 

and operations outside Winchester, it is equally axiomatic that 

the value added to the product by the Winchester operations could 

not possibly produce 100% of the revenues. Therefore, we 

conclude that American Woodmark has met its burden of proof by 

presenting clear and cogent evidence that the income which the 

City through its assessments attributed to operations conducted 

in Winchester is "out of all appropriate proportions to" and has 
"no rational relationship" to the business transacted in 

Winchester. Accordingly, the trial court properly held that the 

City's assessments of its BPOL tax against American Woodmark for 

1990 and 1991 were invalid. 

 Contrary to the City's assertion, this conclusion is 

consistent with our analysis in Short Brothers, Inc. v. Arlington 

County, 244 Va. 520, 423 S.E.2d 172 (1992). In that case we 

upheld Arlington County's assessment for a business license tax 

based on the taxpayer's total gross receipts because the evidence 

showed that the taxpayer's sole business facility in the United 

States was in Arlington County and that it conducted all of its 

revenue-generating operations from that facility. We concluded 

that "[i]f there was any legitimate basis on which to allocate 

those receipts to another taxing jurisdiction, Short had the 

burden to produce such evidence. It has not carried that 

burden." Id. at 527, 423 S.E.2d at 176; see also Ryder Truck 

Rental, Inc. v. County of Chesterfield, 248 Va. 575, 579-80, 449 

S.E.2d 813, 816 (1994). The only difference between the result 

in Short Brothers and the instant case is that here the 

stipulated facts showed a "legitimate basis on which to allocate 

[American Woodmark's] gross receipts to another taxing 

jurisdiction." 

 IV. 

 Summary Judgment

 Finally, we turn to the City's assertion that summary 

judgment was improper. The City argues that it should have been 

permitted to develop a more complete record in order to 
demonstrate that its assessments were proportionate to the 

activity conducted by American Woodmark within the City. We 

disagree. No material facts were in dispute. The stipulations 

of fact fairly and completely outline the nature of American 

Woodmark's business operations and the function of the 

headquarters unit within those operations. While the City might 

have been able to establish with a full evidentiary hearing the 

portion of gross receipts attributable to the operations of the 

headquarters unit, as we noted above, it is beyond the realm of 

conception that it could have established all gross receipts as 

attributable to such operations, thus justifying the failure to 

make an apportionment in the original assessments. 

 V. 

 Conclusion

 In short, we hold that under the specific facts of this 

case, the City failed to apportion the BPOL tax assessments as 

required by the Commerce Clause. Accordingly, the judgment of 

the circuit court will be affirmed. 

Affirmed.