Previously, the opinion entered in Bd. of Supervisors v. Caxcom, LLC, Case no. CL-2019-5800 by the Circuit Court of Fairfax County determined that the Internet Tax Freedom Act applies to the BPOL tax. This month two similar opinions have been entered in Cox Communs. Hampton Roads, LLC v. Poston, Civil Docket No.: CL19-4764 in the Circuit Court of Norfolk and Cox Communs. Hampton Roads, L.L.C. v. King, Case No. (Civil) CL19-3711 in the Circuit Court of Chesapeake. Both opinions find in favor of the taxpayer that the Internet Tax Freedom Act applies to the BPOL tax just as the Circuit Court in Fairfax found. While the issues in the applications for correction have not been examined, it is difficult to imagine that the direct result of these cases will have any effect on taxpayers who are not Internet service providers. However there could be a larger macro-effect.
It is obvious based on these opinions, that Fairfax county, the city of Norfolk, and the city of Chesapeake impose their BPOL taxes on Internet access charges. It is not difficult to imagine that other local governments do the same thing. If that is the case, other Internet service providers around Virginia are probably making refund claims to their respective local governments if they have not done so already. The amount of these refunds could be significant as it had to be for Cox Communications to initiate litigation. (Litigation is expensive.) If the Internet service providers are successful, multiple localities will lose significant revenue either due to refunds or not collecting the BPOL tax that they had budgeted to collect. This is where the macro-effect may appear. As every local government and its budget is different, it is not possible to predict how each local government will generate the revenue to pay these refunds or cover the gap in its budget. One easily conceivable way is to increase how aggressive they are in audits of all taxes, not just BPOL tax. So in addition to having the current pandemic as a reason to increase aggressiveness, there might possibly be another.
Christian Tennant is a Virginia tax attorney and former employee of the Virginia Department of Taxation. Mr. Tennant regularly speaks and writes on Virginia taxation. In his private practice he advises and represents businesses and individuals on a range of tax matters.