Title: Level 3 Communications, L.L.C. v. State Corp. Comm'n
Citation: N/A
Docket Number: 102043
State: Virginia
Issuer: Virginia Supreme Court
Date: June 9, 2011

Present:  Kinser, C.J., Lemons, Goodwyn, Millette, and Mims, 
JJ., and Russell and Lacy, S.JJ. 
 
LEVEL 3 COMMUNICATIONS, LLC 
 
 
 
 
 
 
 
 
     OPINION BY 
v.     Record Nos. 102043, 
       JUSTICE S. BERNARD GOODWYN 
 
  102044, 102045, and 102046  
    June 9, 2011  
                            
STATE CORPORATION COMMISSION, ET AL. 
 
FROM THE STATE CORPORATION COMMISSION 
 
In this appeal, we consider whether the State Corporation 
Commission (SCC) has the authority to deduct a 
telecommunications company’s Internet-related revenues when 
determining the gross receipts it certifies to the Virginia 
Department of Taxation (Department) pursuant to Code § 58.1-
400.1. 
Background 
 
Level 3 Communications, LLC (Level 3) filed several 
applications with the SCC for “review and correction of 
determination of gross receipts certified to the Department” 
(applications) regarding calendar year 2002 and several years 
thereafter.  The applications sought correction of the SCC’s 
certifications of Level 3’s gross receipts for those years 
because the certified amounts included Internet-related 
revenues.  The SCC concluded it did not have the authority to 
exclude such revenues from Level 3’s certified gross receipts, 
and dismissed Level 3’s applications as they related to the 
 
 
inclusion of Internet-related revenues in Level 3’s gross 
receipts.1  Level 3 appeals. 
Level 3 is a telecommunications company with a network in 
Virginia providing wholesale Internet services to major Internet 
service providers.  This appeal consolidates four proceedings 
initiated by Level 3 in applications filed, pursuant to Code 
§ 58.1-2674.1, to correct the amount of its gross receipts 
certified by the SCC to the Department.  In each of its 
applications, Level 3 asserted that the federal Internet Tax 
Freedom Act (ITFA), Pub. L. No. 105-277, §§ 1100 et seq., 112 
Stat. 2681 (1998), reproduced at note to 47 U.S.C. § 151,2 
                     
1 Level 3 and the SCC reached a settlement with respect to 
correcting the certifications for each year to reflect 
recalculation of the deductions from gross receipts provided by 
Code § 58.1-400.1(D)(2)(i)-(iii).  The recalculated deductions 
reduced the amounts of gross receipts certified to the 
Department for all four years.  The settlement did not extend to 
gross receipts related to Internet services. 
2 Section 1101 of the ITFA states:  
 
(a) Moratorium.– No state or political subdivision thereof 
shall impose any of the following taxes during the period 
beginning October 1, 1998, and ending 3 years after the date of 
the enactment of this Act– 
(1) taxes on Internet access, unless such tax was 
generally imposed and actually enforced prior to 
October 1, 1998; and  
(2) multiple or discriminatory taxes on electronic 
commerce. 
Pub. L. No. 105-277, 112 Stat. 2681-719 (1998).  Congress 
has extended the sunset provision on the ITFA to include all 
tax years relevant to this appeal. See Internet Tax 
Nondiscrimination Act, Pub. L. No. 107-75, 115 Stat. 703 
(2001) (extending ITFA to November 1, 2003), Internet Tax 
Nondiscrimination Act, Pub. L. No. 108-435, 118 Stat. 2615 
(2004) (extending ITFA to November 1, 2007), Internet Tax 
 
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proscribes state taxation of its Internet-related revenues.  As 
a result, Level 3 argued that the SCC must exclude Internet-
related revenues from its gross receipts certified to the 
Department for purposes of the Department computing the 
company’s potential minimum tax liability.  
The SCC assigned Level 3’s applications to a hearing 
examiner.  The SCC Staff (Staff) filed a motion to dismiss in 
part, contending that the SCC did not have jurisdiction to 
determine the issues raised in Level 3’s applications.   
The Department filed a motion to join the Staff’s motion to 
dismiss Level 3’s applications.  The Department asserted that 
the SCC is part of the “remedial scheme” envisioned by the 
applicable law and is an “indispensable party” with exclusive 
authority to calculate gross receipts.  The Department also 
sought dismissal, with prejudice, claiming the ITFA does not 
require the exclusion of Internet-related revenues from gross 
receipts,  and that the Department has no “independent authority 
to audit or modify the ‘gross receipts’ amount certified to it” 
by the SCC. 
After hearing oral argument, the hearing examiner agreed to 
suspend the proceeding to allow Level 3 to pursue a ruling by 
the Department regarding whether revenue generated by providing 
                                                                  
Freedom Act Amendments Act of 2007, Pub. L. No. 110-108, 121 
Stat. 1024 (2007) (extending ITFA to November 1, 2014). 
 
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Internet access should be included in gross receipts subject to 
a minimum tax.  However, the Department declined to issue a 
ruling prior to “the conclusion of the case pending with the SCC 
regarding calendar years 2002 [tax years 2003] and thereafter.”  
After the Department declined to issue a ruling, on 
September 3, 2008 the hearing examiner filed a report 
determining that the SCC has no authority to exclude Internet-
related revenues from gross receipts it is statutorily obligated 
to report to the Department. 
The SCC issued an opinion after considering the hearing 
examiner’s recommendation, noting that its relevant role, as 
defined by statute, is limited to certifying the 
telecommunications company’s gross receipts to the Department.  
The SCC concluded that because the relevant statutes define 
gross receipts and do not empower the SCC to establish 
deductions from gross receipts not enumerated in the statutes, 
the ITFA does not reach the SCC’s function under Virginia law, 
and the ITFA does not impact the SCC’s duties because the SCC 
makes no determination of tax liability and imposes no tax.   
The SCC entered a final order dismissing Level 3’s 
applications to the extent it sought exclusion of Internet-
related revenues from the SCC gross receipts certifications sent 
to the Department.  The SCC specifically stated that it did not 
reach any issue regarding the Department’s exercise of its power 
 
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to collect taxes or remedies available to a taxpayer that seeks 
to challenge the levy of such taxes.   
Analysis 
Level 3 argues that the SCC incorrectly determined that it 
does not have authority to determine whether its Internet-
related revenues should be excluded from the gross receipts 
certified to the Department.  Specifically, Level 3 argues that 
the SCC misconstrued the scope of its duty under Virginia law 
and, as a result, incorrectly determined that the ITFA does not 
reach the SCC’s function.  
The SCC responds that its “duty under Virginia law [is] to 
collect information on gross receipts; to determine that the 
deductions provided by Virginia law have been properly taken; 
and to provide that information to the Department of Taxation.”  
Therefore, because the ITFA limits state and local taxation, and 
taxation is outside the scope of the SCC’s duty, the SCC argues 
that the ITFA does not address the SCC’s duty.  We agree. 
Because the issues in this appeal involve strictly 
questions of law, this Court reviews de novo whether the SCC 
properly construed the applicable statutes.  Piedmont Envtl. 
Council v. Virginia Elec. & Power Co., 278 Va. 553, 563, 684 
S.E.2d 805, 810 (2009).  Under Virginia tax law, 
telecommunications companies are subject to either a corporate 
income tax on income from Virginia sources or to a minimum tax 
 
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on gross receipts.  Code §§ 58.1-400, -400.1.  A 
telecommunications company pays the minimum tax only when its 
regular corporate income tax liability is less than the minimum 
tax.  Code § 58.1-400.1(A).  The minimum tax is imposed at a 
rate of 0.5% of the telecommunications company’s gross receipts.  
Id.  The Department determines whether a telecommunications 
company is subject to the minimum tax.  See Virginia Cellular 
LLC v. Virginia Dep’t of Taxation, 276 Va. 486, 489, 666 S.E.2d 
374, 375 (2008). 
Code § 58.1-400.1 assigns the SCC the limited function of 
certifying telecommunications companies’ gross receipts to the 
Department for the purpose of determining the minimum tax.  
Pursuant to Code § 58.1-2628(A), telecommunications companies 
file a statement of their gross receipts with the SCC.  The SCC 
then certifies to the Department the names, addresses and gross 
receipts for each telecommunications company.  Code § 58.1-
400.1(C).   
The General Assembly has defined “gross receipts” as “all 
revenue from business done within the Commonwealth, including 
the proportionate part of interstate revenue attributable to the 
Commonwealth if such inclusion will result in annual gross 
receipts exceeding $5 million.”  Code § 58.1-400.1(D).  Code 
§ 58.1-400.1 specifies what the SCC must include in, and what 
the SCC may exclude from, the certified gross receipts.  Code 
 
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§ 58.1-400.1 enumerates two specific deductions, but it does not 
authorize the SCC to deduct Internet-related revenues from gross 
receipts.  After allowing the two specified deductions, if 
applicable, the SCC is required by statute to certify the 
remaining revenue amount as the company’s gross receipts.  The 
SCC has no other relevant function aside from providing copies 
of the certifications to the telecommunications companies. 
If a telecommunications company disagrees with the SCC’s 
certification of gross receipts, the company may apply to the 
SCC for review and correction of the certification within 18 
months of the date of the certification to the Department.  Code 
§ 58.1-2674.1.  If the SCC finds that the certification is 
incorrect, it shall correct the certification sent to the 
Department.  Id.  Level 3 timely filed its applications with the 
SCC to contest certifications for the relevant tax years.  
Level 3 maintains that the gross receipts the SCC certified 
to the Department are incorrect because the SCC erroneously 
included Level 3’s Internet-related revenues in its gross 
receipts.  Level 3 argues that although the calculation and 
imposition of tax is the Department’s responsibility, the amount 
of minimum tax liability depends entirely on the amount of gross 
receipts certified by the SCC. Level 3 contends that the ITFA 
reaches the SCC’s function and the SCC must consider its impact 
because the SCC’s actions in performing the certification have a 
 
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proximate, direct and substantive impact on the taxability of 
reported gross receipts. 
“The Constitution of Virginia and statutes enacted by the 
General Assembly thereunder give the [SCC] broad, general and 
extensive powers in the control and regulation of a public 
service corporation.”  Northern Virginia Elec. Coop. v. Virginia 
Elec. & Power Co., 265 Va. 363, 368, 576 S.E.2d 741, 743 (2003).  
However, “[t]he SCC’s regulatory jurisdiction is not plenary.”  
Potomac Elec. Power Co. v. State Corp. Comm’n, 221 Va. 632, 636, 
272 S.E.2d 214, 216 (1980).  “The [SCC] is the creation of the 
Constitution and has no inherent power.  All of its jurisdiction 
is [either] conferred . . . by the Constitution or is derived 
from statutes which do not contravene the Constitution.”  City 
of Richmond v. Chesapeake & Potomac Telephone Co., 127 Va. 612, 
619, 105 S.E. 127, 129 (1920).  The SCC must adhere to statutory 
language and cannot allow a deduction not recognized in the 
Code.  Commonwealth v. Washington Gas Light Co., 221 Va. 315, 
323, 269 S.E.2d 820, 825 (1980) (“Had the General Assembly 
intended to grant such authority, it could have done so 
expressly.”). 
The SCC is bound by the plain meaning of Code § 58.1-400.1.  
See VYVX of Va., Inc. v. Cassell, 258 Va. 276, 292, 519 S.E.2d 
124, 132 (1999).  “ ‘Where the legislature has used words of a 
plain and definite import the courts cannot put upon them a 
 
8
construction which amounts to holding the legislature did not 
mean what it has actually expressed.’ ” Halifax Corp. v. First 
Union Nat’l Bank, 262 Va. 91, 100, 546 S.E.2d 696, 702 (2001) 
(quoting Watkins v. Hall, 161 Va. 924, 930, 172 S.E. 445, 447 
(1934)); see also Arogas, Inc. v. Frederick Cnty. Bd. of Zoning 
Appeals, 280 Va. 221, 228, 698 S.E.2d 908, 912 (2010). 
The General Assembly has expressly indicated what is to be 
included in a telecommunications company’s gross receipts 
certified to the Department, and the SCC’s function in this 
regard is limited to providing certifications to the Department 
and to the telecommunications companies.  The SCC cannot rewrite 
tax statutes; the SCC must administer the tax statutes as 
enacted.  See Washington Gas Light Co., 221 Va. at 323, 269 
S.E.2d at 825 (finding SCC not authorized to exempt particular 
receipts from gross receipts taxes).  The SCC does not have the 
authority to create additional categories of deductions for 
Internet-related revenues.   
The ITFA prevents states from imposing a tax on Internet 
access revenues or applying multiple or discriminatory taxes on 
electronic commerce.  The General Assembly has assigned the 
responsibility for imposing the relevant taxes to the 
Department, not the SCC.  The SCC does not impose or apply any 
tax liability under the income tax or minimum tax structures for 
telecommunications companies.  Because the SCC does not impose 
 
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any tax, the ITFA does not reach the SCC’s function under 
Virginia law.   
As a result, the SCC properly declined to allow a deduction 
for Internet-related revenues that the General Assembly did not 
provide in the gross receipts statute.  To allow for such a 
deduction would have required the SCC to exceed its statutory 
authority.3 
Accordingly, for the reasons stated, we will affirm the 
SCC’s order. 
Affirmed.  
                     
3 Level 3 also assigns error to the fact that the SCC’s 
rulings inappropriately deny Level 3 any remedy with respect to 
its applications to exclude Internet-related revenues.  Level 3 
argues that if this Court accepts the SCC’s rulings then Level 3 
will have no state agency forum from which to obtain a 
determination of its liability for a tax imposed by Virginia 
law.  Level 3’s argument ignores the statutory remedies provided 
by Code § 58.1-1821 (permitting a taxpayer assessed with tax 
administered by the Department to apply for relief to the 
Commissioner within 90 days of the assessment) and Code § 58.1-
1825 (allowing any taxpayer aggrieved with a tax administered by 
the Department to apply to a circuit court for relief).  Second, 
assuming arguendo that Level 3 is correct and the statutory 
scheme does not provide Level 3 a remedy, this Court cannot 
rewrite the Code to provide a remedy.  See Virginia Cellular, 
276 Va. at 490, 666 S.E.2d at 376 (“It is the Court’s duty to 
construe the law as written in the Virginia Code.”). 
 
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