Previously, opinions were entered by the Circuit Court of Fairfax County, the Circuit Court of Norfolk, and in the Circuit Court of Chesapeake that Internet Tax Freedom Act (“ITFA”) applies to the BPOL tax imposed in those localities. These opinions were written about here and here. In its prior opinion, the Circuit Court of Norfolk declined to opine on whether the Norfolk BPOL tax is grandfathered under the ITFA. By order dated July 9, 2021 in Cox Communications Hampton Rd., LLC v. City of Norfolk, the Court determined that the ITFA’s grandfathering applies to the Norfolk BPOL tax. With this grandfathering, the City of Norfolk could impose the BPOL tax on internet access. Interestingly, the Court determined in April that Cox Communications bore the burden of proving that the Norfolk BPOL tax was not grandfathered. As the Court found that Cox Communications did not carry that burden, it declined to refund portions of 2013, 2014, and 2015 Norfolk BPOL taxes and correct an assessment of 2016 Norfolk BPOL taxes.
The issue that the Court decided in this order was whether the City of Norfolk “generally collected” the BPOL tax on internet access prior to October 1, 1998. According to the Court, there were only two internet service providers with definite places of business in the City of Norfolk in 1998. Cox Communications argued that there were two other internet service providers, but the Court found these allegations unsupported without evidence. Ultimately, the Court found that the evidence demonstrated that all entities that provided internet access services in Norfolk in 1998 paid the BPOL Tax and the grandfathering applied. This order is in stark contract from the decision from the Circuit Court of Fairfax County. In this order, the burden of proving that there was no grandfathering was on the taxpayer whereas in Fairfax County the burden of proving grandfathering was placed on the locality. When a taxpayer challenges a determination by the Tax Commissioner, the burden of proving the Tax Commissioner is incorrect is placed upon the taxpayer. In that case, why challenge the determination (unless the statute of limitations is an issue) instead of contesting the assessment or refund denial?
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.