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
2
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).
3
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
4
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
5
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
6
§ 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
7
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
9
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.”).
10