Amicus Curiae Brief — Loudoun County, Virginia, Petitioner v. Dulles Duty Free, LLC

Supreme Court briefJan 24, 2018

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NO. 17-904

In the Supreme Court of the United States

COUNTY OF LOUDOUN, VIRGINIA,

Petitioner,

DULLES DUTY FREE, LLC,

Respondent.

On Petition for a Writ of Certiorari to the

Supreme Court of Virginia

BRIEF OF INTERNATIONAL MUNICIPAL LAWYERS

ASSOCIATION AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

CHARLES W. THOMPSON, JR.

EXECUTIVE DIRECTOR

AMANDA KELLAR

INTERNATIONAL MUNICIPAL

LAWYERS ASSOCIATION

51 Monroe Street

Suite 404

Rockville, MD 20850

(202) 466-5424

SHARON E. PANDAK

Counsel of Record

MICHAEL J. CONNOLLY

GREEHAN, TAVES & PANDAK PLLC

4004 Genesee Place, Suite 201

Woodbridge, Virginia 22192

(703) 680-5543

spandak@gtpslaw.com

Counsel for Amicus Curiae

Becker Gallagher · Cincinnati, OH · Washington, D.C. · 800.890.5001

TABLE OF CONTENTS

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . ii

INTEREST OF AMICUS CURIAE . . . . . . . . . . . . . 1

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . 3

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Local Governments Need Clarification on the

Limits of the Import-Export Clause . . . . . . . 5

II.

The Virginia Supreme Court’s Decision

Unlawfully Interferes With the State and

Local Governments’ Taxation Power and

Impedes Their Sovereignty . . . . . . . . . . . . . . 9

III.

The Virginia Supreme Court’s Decision Has

Far Reaching Financial Implications That

Affect the National Economy . . . . . . . . . . . . 11

IV.

Allowing the Virginia Supreme Court’s

Ruling to Stand Would Lead to Absurd

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

TABLE OF AUTHORITIES

CASES

Auto Cargo, Inc. v. Miami Dade County,

237 F.3d 1289 (11th Cir. 2001) . . . . . . . . . . . . . . 5

Coast Pac. Trading, Inc. v. State,

719 P.2d 541 (Wash. 1986) . . . . . . . . . . . . . . . . . 5

Connell Rice & Sugar Co., Inc. v. Yolo County,

569 F.2d 514 (9th Cir. 1978) . . . . . . . . . . . . . . . . 5

Department of Revenue v. ACF Indus.,

510 U.S. 332 (1994) . . . . . . . . . . . . . . . . . . . . 9, 10

Department of Revenue v. Alaska Pulp America, Inc.,

674 P.2d 268 (Alaska 1983) . . . . . . . . . . . . . . . . . 5

Dows v. Chicago,

78 U.S. 108 (1870) . . . . . . . . . . . . . . . . . . . . . . . 10

Gregory v. Ashcroft,

501 U.S. 452 (1991) . . . . . . . . . . . . . . . . . . . . 9, 10

Louisiana Land & Exploration Co. v. Pilot Petroleum

Corp., 900 F.2d 816 (5th Cir. 1990) . . . . . . . . . . . 5

Michelin Tire Corp. v. Wages,

423 U.S. 276 (1976) . . . . . . . . . . . . . . . . . . passim

Referencing Auto Cargo, Inc. v. Miami Dade County,

237 F.3d 1289 (11th Cir. 2001) . . . . . . . . . . . . . . 5

Richfield Oil Corp. v. State Board of Equalization,

329 U.S. 69 (1946) . . . . . . . . . . . . . . . . . . . passim

Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989) . . . . . . . . . . . . 8

iii

United States Steel Mining Co., LLC v. Helton,

631 S.E.2d 559 (W. Va. 2005), cert. denied,

547 U.S. 1179 (2006) . . . . . . . . . . . . . . . . . . . . 5, 8

Virginia Indonesia Co. v. Harris County Appraisal

District, 910 S.W.2d 905 (Tex. 1995) . . . . . 5, 9, 13

Department of Revenue of Washington v. Association

of Washington Stevedoring Cos.,

435 U.S. 734 (1978) . . . . . . . . . . . . . . . . . . 6, 7, 17

CONSTITUTION, STATUTES, AND

ORDINANCES

U.S. Const. art. I, § 10, cl. 2 . . . . . . . . . . . . . . passim

Arlington County Code § 11-59 . . . . . . . . . . . . . . . . 12

Loudoun County Ordinance § 840.14 . . . . . . . . . . . . 3

Loudoun County Ordinance § 840.14(o) . . . . . . . . . . 3

RCW 82.04.610 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Va. Code § 58.1-3700 . . . . . . . . . . . . . . . . . . . . . . . . . 9

OTHER AUTHORITIES

Walter Hellerstein & John A. Swain, State Taxation

(3d ed. 2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Metropolitan Washington Airports Authority,

Dulles Air Traffic Statistics: Total Operations,

Passengers, Mail, & Freight Activities Calendar

Years 1962-2016, http://www.mwaa.com/about/

dulles-air-traffic-statistics . . . . . . . . . . . . . . . . . 15

Port Authority of New York and New Jersey “2016

Annual Airport Traffic Report” 32 (April 28,

2017) (http://www.panynj.gov/airports/pdftraffic/ATR2016.pdf) . . . . . . . . . . . . . . . . . . . . . 13

Remand Order, Dulles Duty Free, LLC v. County of

Loudoun, No. 90613, (Nov. 3, 2017) . . . . . . . . . 11

INTEREST OF AMICUS CURIAE1

Amicus curiae the International Municipal Lawyers

Association (IMLA) is a non-profit professional

organization of more than 2,500 local government

attorneys who advise towns, cities, and counties across

the country. Established in 1935, IMLA is the oldest

and largest association of attorneys representing

United States municipalities, counties, and special

districts. IMLA advises its members on legal challenges

facing local governments and advocates for more just

and effective municipal law.

This case is of particular concern for local

government attorneys across the country who advise

their jurisdictions on the ability to impose taxes to fund

government services. The Supreme Court should grant

Loudoun County’s Petition for a Writ of Certiorari (the

“Petition”) because the ability to impose certain taxes

authorized by state law is impaired by the conflicting

interpretations by state courts of last resort and federal

circuit courts of appeals regarding the Import-Export

Clause of the United States Constitution. The issues

presented in the Petition do not just concern Duty Free,

but rather all goods in transit.

The Import-Export Clause of the United States

Constitution states:

Pursuant to Supreme Court Rule 37.6, amicus curiae states that

no counsel for any party authored this brief in whole or in part,

and that no entity or person aside from counsel for amicus curiae

made any monetary contribution toward the preparation and

submission of this brief. Pursuant to Supreme Court Rule 37.2,

amicus curiae states that counsel for all parties received timely

notice and consented to the filing of this brief.

No State shall, without the Consent of the

Congress, lay any Imposts or Duties on Imports

or Exports, except what may be absolutely

necessary for executing its inspection Laws: and

the net Produce of all Duties and Imposts, laid

by any State on Imports or Exports, shall be for

the Use of the Treasury of the United States;

and all such Laws shall be subject to the

Revision and Controul of the Congress.

U.S. Const. art. I, § 10, cl. 2. The questions at issue in

this case focus on the Court’s seminal decisions in

Richfield Oil Corp. v. State Board of Equalization, 329

U.S. 69 (1946), and Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976), and the conflict amongst the federal

circuit courts and state courts of last resort concerning

those decisions. In particular, and as outlined in the

Petition, decisions of the Eleventh Circuit, Alaska

Supreme Court, and West Virginia Supreme Court of

Appeals conflict with decisions of the Fifth Circuit,

Ninth Circuit, Texas Supreme Court, the Washington

Supreme Court, and now the Virginia Supreme Court

on an important question of constitutional law. See

Petition at 16-22. The prevailing confusion and

uncertainty about the relationship of Richfield Oil and

Michelin prevent state and local government attorneys

from effectively advising their clients on the limits and

the restrictions of the Import-Export Clause.

IMLA members and local governments are

concerned with the Virginia Supreme Court’s apparent

dismissal of Michelin. They are also concerned that the

decision below deepens the divide among the lower

courts and adds further confusion. Municipalities

located in jurisdictions that have not yet ruled on this

issue need clarification on the current state of the law.

Further, the decision below creates a potential loss in

tax revenue. It also encourages litigation, as more

businesses may rely on the state court’s misapplication

to escape lawful taxation. Thus, local government

lawyers are left with two equally unpalatable options:

1) they can advise their clients to forego a source of

revenue out of fear that a court in their jurisdiction will

follow the Virginia Supreme Court’s flawed rationale;

or 2) they can advise their clients to assess the tax, but

face the risk of litigation. IMLA members require this

Court’s guidance concerning the Import-Export Clause

so that members can confidently advise their clients

about the lawfulness of their respective taxing

schemes.

SUMMARY OF ARGUMENT

For years Loudoun County has lawfully imposed a

nondiscriminatory Business, Professional and

Occupational License (“BPOL”) tax on businesses,

including several Duty Free stores in Dulles

International Airport. See Petition at Appendix (“App.”)

24a. The Duty Free stores, in the instant case owned by

Dulles Duty Free, sell alcohol, tobacco, fragrances,

luxury goods, and other products purchased by persons

frequenting the airport. Id. at App. 24a-25a. The BPOL

tax on retail merchants requires persons “with gross

receipts of more than two hundred thousand dollars

($200,000.00)” to pay “an annual license tax of

seventeen cents ($0.17) per one hundred dollars

($100.00) of gross receipts.” See id. at App. 49a (citing

Loudoun County Ordinance §§ 840.14, 840.14(o)). The

County assessed this tax uniformly on all County

businesses, including the gross receipt purchases from

Duty Free stores at Dulles, which included purchases

made by international travelers. Petition at 13. Based

on this Court’s longstanding precedent in Michelin, this

nondiscriminatory tax is lawful because it does not

offend the three policies underlying the Framers’

creation of the Import-Export Clause.

The Virginia Supreme Court’s ruling, in conflict

with the Eleventh Circuit, the Alaska Supreme Court,

and the West Virginia Supreme Court of Appeals, casts

aside Michelin to focus on the outdated ruling in

Richfield. Although not explicitly overruled by this

Court, the Richfield test should have no application to

the modern day Import-Export Clause analysis.2

Permitting the conflict among the lower courts to

continue would create unwarranted confusion for both

states and local governments and impact their taxing

power.

The Court should grant the Petition for four

reasons: (1) local governments require clarification on

the parameters of the Import-Export Clause and in

particular, the intersection, if any, between Richfield

and Michelin; (2) the Virginia Supreme Court’s ruling

implicates federalism issues by unduly restricting

states and local governments’ taxation power; (3) the

Virginia Supreme Court’s misapplication of the law

could have far-reaching financial implications that

negatively impact states and localities; and

A treatise has concluded that “[T]he weight of reason and

authority support the view that nondiscriminatory sales and use

taxes may be imposed on goods in import or export transit and that

Richfield is no longer good law.” Walter Hellerstein & John A.

Swain, State Taxation ¶ 5.05[2][a] (3d ed. 2017).

(4) sustaining the ruling would lead to absurd results

because potentially every good purchased by an

international passenger in transit, or that is ultimately

exported, would escape taxation. The clear split

between the federal courts of appeals and state courts

of last resort exacerbates the lack of clarity for

thousands of local governments outside those

jurisdictions. The Petition should be granted.

ARGUMENT

Local Governments Need Clarification on

the Limits of the Import-Export Clause.

The Court should grant this petition to clarify the

conflicting and apparent irreconcilable holdings in

Richfield Oil Corp. v. State Board of Equalization, 329

U.S. 69 (1946), and Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976), and the ensuing split between the

lower courts. See Petition at 16-22.3 In 1946, the

Richfield Court ruled that oil delivered to a hold of a

docked vessel and intended for export could not be

taxed because such “delivery marked the

commencement of the movement of the oil abroad.” 329

U.S. at 71-72, 82-83, 86. Further, the Court held: “The

Referencing Auto Cargo, Inc. v. Miami Dade County, 237 F.3d

1289 (11th Cir. 2001); Department of Revenue v. Alaska Pulp

America, Inc., 674 P.2d 268 (Alaska 1983); United States Steel

Mining Co., LLC v. Helton, 631 S.E.2d 559 (W. Va. 2005), cert.

denied, 547 U.S. 1179 (2006); Louisiana Land & Exploration Co.

v. Pilot Petroleum Corp., 900 F.2d 816 (5th Cir. 1990); Connell Rice

& Sugar Co., Inc. v. Yolo County, 569 F.2d 514, 518 (9th Cir. 1978);

Virginia Indonesia Co. v. Harris County Appraisal District, 910

S.W.2d 905 (Tex. 1995); Coast Pac. Trading, Inc. v. State, 719 P.2d

541, 544 (Wash. 1986).

means of the shipment are unimportant so long as the

certainty of the foreign destination is plain.” Id. at 83.

Nearly 30 years later, in Michelin, the Court held

that an ad valorem property tax on an “inventory of

imported tires and tubes”4 did not violate the ImportExport Clause. 423 U.S. at 278-279; 302. The Court’s

analysis hinged on three concerns:

The Framers of the Constitution thus sought to

alleviate three main concerns by committing sole

power to lay imposts and duties on imports in

the Federal Government, with no concurrent

state power: [1] the Federal Government must

speak with one voice when regulating

commercial relations with foreign governments,

and tariffs, which might affect foreign relations,

could not be implemented by the States

consistently with that exclusive power; [2]

import revenues were to be the major source of

revenue of the Federal Government and should

not be diverted to the States; and [3] harmony

among the States might be disturbed unless

seaboard States, with their crucial ports of

entry, were prohibited from levying taxes on

citizens of other States by taxing goods merely

flowing through their ports to the other States

not situated as favorably geographically.

Id. at 285-86 (footnotes omitted). [Emphasis added.]. As

the Court noted in Department of Revenue of

“[W]ith the exception of certain passenger tubes that had been

removed from the original shipping cartons.” Id. at 278.

Washington v. Association of Washington Stevedoring

Cos.:

Michelin initiated a different approach to

Import-Export Clause cases . . . it analyzed the

nature of the tax to determine whether it was an

‘Impost or Duty.’ Specifically, the analysis

examined whether the exaction offended any of

the three policy considerations leading to the

presence of the Clause . . .

435 U.S. 734, 752 (1978) (citation omitted). In

Stevedoring Cos., this Court officially recognized that

Michelin explicitly changed the Import-Export Clause

approach that had been used in the past.5 Therefore,

a current analysis of the Clause should focus on the

three policy considerations as held in Michelin.

The Richfield and Michelin approaches are at odds.

It is essential that this Court provide clear and

consistent direction about the limits of taxation power

under the Import-Export Clause. The Richfield test

presumes that “all taxes on imports and exports and on

the importing and exporting processes were banned by

the Clause” if “the certainty of the foreign destination

is plain.” See Stevedoring, 435 U.S. at 752; Richfield,

329 U.S. at 83. Conversely, the Michelin test focuses on

whether the tax implicates three policy concerns:

Id. at 752-54 (citations omitted) (In interpreting Michelin, the

Stevedoring Cos. Court noted that as long as a tax did not offend

the three policies underlying the Import-Export Clause by

“usurp[ing] the Federal Government’s authority to regulate foreign

relations”; “depriv[ing] the Federal Government of [] revenues to

which it was entitled”; or “disturb[ing] harmony among the states,”

it does not violate the Import-Export Clause.).

(1) the Federal Government’s sole power to regulate

commercial relations with foreign governments;

(2) import revenues “should not be diverted to the

States”; and (3) promoting harmony among states. 423

U.S. at 285-86.

Courts have acknowledged the murky area in

Import-Export Clause jurisprudence and the need for

clarification. In finding Richfield controlling precedent,

the Virginia Supreme Court also recognized that the

Supreme Court may “provide additional guidance.”6

Similarly, in his dissent, Justice Benjamin of the West

Virginia Supreme Court stated: “one might

understandably hope that the United States Supreme

Court would take the opportunity to bring a new clarity

to this area of constitutional law in the near future.”

Petition at 18-19 (citing Helton, 631 S.E.2d at 580).

This Court should oblige.7

If judges are confused by the Michelin and Richfield

approaches, then it is unsurprising that state and local

government attorneys are as well. Granting the

Petition is extremely important for the numerous

localities that have international airports, border

See Petition at App. 22a (“It may be that the Supreme Court will

provide additional guidance concerning the applicability of the

Import-Export Clause to nondiscriminatory taxes like the BPOL

tax that would be imposed upon on export goods in transit. Until

then, Richfield Oil compels the conclusion . . .”).

Implicit in this Court’s holding, that only it has the power to

overrule its decisions, is the Court’s obligation to clarify its

jurisprudence when a later decision of this Court suggests an

earlier holding is no longer applicable. See Rodriguez de Quijas v.

Shearson/American Express, Inc., 490 U.S. 477, 484 (1989).

crossings, or any businesses that sell goods in transit.

As shown by the state court’s broad interpretation of

Richfield, the County’s Petition does not simply

concern duty free stores in an international airport in

Virginia. Rather, it concerns any goods in transit that

may ultimately be exported. This issue affects all

transportation areas, as well as taxes based on gross

receipts8 or those based on the value of personal

property.9 Only this Court can restore the law’s clarity

and ensure uniformity on this important question of

federal law.

II.

The Virginia Supreme Court’s Decision

Unlawfully Interferes With the State and

Local Governments’ Taxation Power and

Impedes Their Sovereignty.

The Court should grant the Petition because the

lower court’s ruling would impose a substantial burden

on state and local governments’ taxation power. The

BPOL tax at issue in this case was authorized by state

law. See Va. Code § 58.1-3700. Therefore, the lower

court’s ruling not only attacks local governments’

taxation power but also states’ rights in authorizing

taxes.

Longstanding case law illustrates that a state’s

taxation power is a fundamental attribute of its

sovereignty. See Department of Revenue v. ACF Indus.,

510 U.S. 332, 345 (1994); see also Gregory v. Ashcroft,

The tax at issue in Richfield dealt with the “gross receipts of

retail sales . . . levied on retailers.” Richfield, 329 U.S. at 83

(citation omitted).

See Harris County Appraisal District, 910 S.W.2d 905 (Tex. 1995).

501 U.S. 452, 461 (1991) (“States retain substantial

sovereign powers under our constitutional

scheme . . .”). The Court has acknowledged that “the

taxation authority of state government . . . [is] central

to state sovereignty.” ACF Indus., 510 U.S. at 345

(citations omitted). The Court has also stated:

It is upon taxation that the several States

chiefly rely to obtain the means to carry on their

respective governments, and it is of the utmost

importance to all of them that the modes

adopted to enforce the taxes levied should be

interfered with as little as possible.

Dows v. Chicago, 78 U.S. 108, 110 (1870). The Court’s

recognition of the importance of state sovereignty

indicates that central powers, such as the taxation

power, cannot just be stripped away without process.

However, the Virginia Supreme Court did not

consider taxation power or the purpose of the ImportExport Clause. Rather, it seemed to rest its entire

opinion on the fact that “the Supreme Court has not

[explicitly] overruled Richfield Oil” even though “it has

significantly revised its Import-Export Clause

jurisprudence. . .” Petition at App. 19a (citations

omitted). The lower court’s flawed ruling improperly

interfered with the state’s authority to legislate on

taxes and local governments’ imposition of such taxes.

Consequently, the Court should grant the Petition

because the state court’s decision improperly interferes

with states and local governments’ taxation power as

well as their sovereignty.

III.

The Virginia Supreme Court’s Decision Has

Far Reaching Financial Implications That

Affect the National Economy.

The Virginia Supreme Court’s decision has farreaching financial implications across the country.

Respondent alone has close to 100 locations across

19 states and the District of Columbia. See Petition at

26, n.13, n.14 (stores located in Arizona, California,

District of Columbia, Florida, Georgia, Idaho,

Kentucky, Maine, Maryland, Michigan, Minnesota,

Montana, New Mexico, New York, North Dakota,

Texas, Utah, Vermont, Virginia, and Washington).10

The Virginia Supreme Court noted: “International

sales represent over ninety percent of Duty Free’s

Sales.” Petition at App. 3a. In Loudoun County alone,

between 2009-2013, the export sales exceeded $85

million. Petition at 26 (citing App. 3a). The aggregate

annual sales from these stores is estimated at $4

billion dollars with that number expected to increase to

$5 billion by 2020. See Petition at 27 n.15. The tax

revenue at issue for Loudoun County alone is over

$270,000 simply for tax years 2009-2013.11

Although Duty Free America’s site lists two duty free store

locations in the District of Columbia, these stores are located in

Reagan National Airport, which is situated in Arlington County,

Virginia.

See Remand Order, Dulles Duty Free, LLC v. County of Loudoun,

No. 90613, (Nov. 3, 2017). Further, sustaining the Virginia

Supreme Court’s ruling will force Loudoun County to return tax

revenue to a private business instead of putting those funds

towards important public use projects that all citizens and

businesses in the County enjoy, including Duty Free. These

Further, the Virginia Supreme Court’s decision

enables any businesses engaged in the sale of goods in

transit that are ultimately exported to attempt to

escape tax liability. Thus, the issue concerns billions of

dollars that could potentially be taxed.

Local government lawyers need clarity in the law to

advise their clients as to the validity of these tax

schemes. Without such clarity, localities risk losing a

source of revenue and/or risk increased litigation. This

Hobson’s choice greatly interferes with the state’s

authority to enact legislation on taxes and the local

governments’ ability to financially provide services for

their jurisdictions.

Just a few miles from Loudoun County, Arlington

County, Virginia, also imposes a BPOL tax.12 The tax

had been imposed on two Duty Free shops at National

Airport until the state court’s decision.

But the Petition is not just about Virginia. In Texas,

there are 25 Duty Free locations, many of which are

services include “County roads, and benefits from the protection of

County fire and rescue, law enforcement, the court system, and

other County services.” See Petition at App. 3a. However, this loss

of over a quarter million dollars would be a drop in the proverbial

bucket, compared to the total loss in potential tax revenue in the

additional jurisdictions. The localities combined would lose the

possibility of millions of dollars that could be used to help their

local economies.

See Arlington County Code § 11-59 “Every person engaging in

any of the following business services shall pay an annual license

tax of thirty-five cents ($0.35) for each one hundred dollars

($100.00) of gross receipts from the business during the preceding

calendar year.”

not located in airports, but border cities.13 These border

cities inevitably have stores that sell goods to

international passengers. The Texas Supreme Court

has stated”[t]he United States Supreme Court has yet

to announce whether the new approach set forth in

Michelin should be applied to a direct tax on imports or

exports in transit.” See Petition at App. 17a (citing

Harris County Appraisal District, 910 S.W.2d at 910). The

lack of clarity in the law interferes with the ability of

local governments as authorized by their state law to

tax purchases made by international travelers.14

In the wake of this uncertainty, many local

government attorneys may advise their clients not to

assess a perfectly lawful tax that their jurisdiction

could use for much needed services out of fear that

their tax scheme will be challenged and potentially

struck down.15

See Petition at 26 n.13.

To this point, Clayton County, Georgia, advised Amicus that it

has duty free shops at Hartsfield-Jackson International Airport,

the world’s busiest international airport. It has forgone assessing

its BPOL tax on these entities, because it has assumed that they

are exempt. See Port Authority of New York and New Jersey “2016

Annual Airport Traffic Report” 32 (April 28, 2017)

(http://www.panynj.gov/airports/pdf-traffic/ATR2016.pdf) (list of

the world’s busiest airports).

The revised Code of Washington State recognizes the ambiguity

faced by legislators in attempting to codify the current law

concerning the Import-Export Clause. In RCW 82.04.610

“Exemptions –Import or export commerce,” the Notes section

states: “Because of the uncertainty regarding the constitutional

limitations on the taxation of import and export sales of tangible

personal property, the legislature recognizes the need to provide

Accordingly, the Court should grant the Petition

because the lower court’s decision has far-reaching

financial implications that negatively impact states’

taxation authority and the taxation revenue for local

governments around the country.

IV.

Allowing the Virginia Supreme Court’s

Ruling to Stand Would Lead to Absurd

Results.

Notwithstanding the financial implications of the

state court’s decision, if allowed to stand, this ruling

would lead to absurdity concerning taxation of goods

purchased by international travelers.

The Virginia Supreme Court focused on Richfield

Oil without considering the practical effects of

removing a locality’s right to tax goods and the tax’s

relationship to the Clause’s actual purpose. The lower

court stated:

Under Richfield Oil, a tax that falls directly on

export goods in transit violates the clause . . .

Richfield Oil compels the conclusion that the

BPOL tax is unconstitutionally applied to Duty

Free’s international export sales.

Petition at App. 20a-22a. This is particularly

problematic because this broad interpretation can be

extrapolated to any good in transit. From the

clarity in the taxation of imports and exports. It is the legislature’s

intent to provide a statutory tax exemption for the sale of tangible

personal property in import or export commerce, which is not

dependent on future interpretation of the constitutional limitations

on the taxation of imports and exports by the courts. . .” [Emphasis

added.].

standpoint of Import-Export Clause analysis, goods

sold at Duty Free stores are not materially different

than goods sold at other stores in international travel

stations. Under the lower court’s ruling, a locality

would be prohibited from taxing any good if it was

purchased for use on an international flight because

this would be an unconstitutional tax on export sales.

See id. at App. 22a.

In 2016, Dulles had close to 7.5 million

international passengers.16 Arguably, every good/item

that these passengers purchased at the airport, at a

duty free store or not, prior to embarking on an

international flight is an export good because they are

exporting/taking those goods out of the United States.

The approach of the decision below creates confusion

concerning the purchase of food and/or liquids that are

purchased in a U.S. international port but consumed at

the port or in transit.

Examining a few common situations provides a

picture of the legal chaos that the Virginia Supreme

Court’s decision would produce.

For instance, a restaurant in an international

airport that provides food to an international passenger

to consume on a plane would not have to pay a BPOL

tax because such tax would “fall directly on export

goods in transit.” Petition at App. 20a-21a. However,

that same restaurant would be required to pay a BPOL

tax for purchases consumed by international

Metropolitan Washington Airports Authority, Dulles Air Traffic

Statistics: Total Operations, Passengers, Mail, & Freight Activities

Calendar Years 1962-2016, http://www.mwaa.com/about/dulles-airtraffic-statistics (last viewed January 18, 2018).

passengers, prior to boarding their flights. Therefore,

in order to properly assess the tax, the restaurant

would need to determine: (1) if the passenger had an

international flight or domestic flight; and (2) if the

international passenger planned to eat the food in the

airport or on the plane. This two-step analysis for each

passenger is just not practical.

Moreover, if an apparel store sells clothing to an

international passenger in transit, such clothing could

not be taxed because those goods would be defined as

export goods in transit.

Lastly, if a passenger purchases a good from a

domestic airport, takes a connecting flight to an

international airport where he/she has an international

flight, would the original store at the domestic airport

have to pay a BPOL tax? Technically, the good would

be an international export in transit, and thus that

good would escape taxation.

The common thread among the foregoing scenarios

is not whether the good is an actual import or export,

but simply whether the good is purchased by an

international traveler. As such, goods made, sold,

stored, consumed/used, and purchased in the United

States by international passengers, including citizens,

would not be taxed, simply because the passenger at

some later point travelled internationally.

This approach does not line up and is a far cry from

the Court’s ruling in Michelin. As the Petition correctly

observes:

Under [the Virginia Supreme Court’s] logic,

almost any tax for which the calculation depends

in part on sales of actually-exported goods would

violate the Import-Export Clause—depriving

state and local governments of revenue used to

fund services enjoyed by all taxpayers.

Petition at 33. Instead of concentrating on whether the

tax implicates any of the three policy concerns

underlying the Import-Export Clause, the lower court

takes an extreme approach that rejects the wholesale

taxing of goods purchased by international passengers

in transit. This method not only defies this Court’s

jurisprudence, as articulated in Michelin and

Stevedoring Cos., but negatively impacts localities.

Consequently, the conflict among numerous federal

courts of appeals and state courts of last resort will

lead to even more confusion for local governments and

their ability to tax not only duty free stores, but all

stores that sell or export goods to international

passengers in transit.

CONCLUSION

For these reasons, and those set forth in the

Petition, the Court should grant the petition for a writ

of certiorari.

Respectfully submitted,