Dulles Duty Free, LLC v. Cnty. of Loudoun

PRESENT: All the Justices

DULLES DUTY FREE, LLC
OPINION BY
v. Record No. 160939 JUSTICE STEPHEN R. McCULLOUGH
August 24, 2017
COUNTY OF LOUDOUN

FROM THE CIRCUIT COURT OF LOUDOUN COUNTY
Burke F. McCahill, Judge

Dulles Duty Free, LLC, challenges Loudoun County’s imposition of a Business,

Professional, and Occupational License (“BPOL”) tax on a substantial portion of its sales. It

argues that the Import-Export Clause of the Constitution of the United States, U.S. Const. art. I, §

10, cl. 2, bars the County from imposing the tax. The circuit court ruled in favor of the County.

For the reasons noted below, we reverse the judgment of the circuit court and remand this action

for a computation of the refunds for the relevant tax years that are due to the taxpayer.

BACKGROUND

Duty Free is a retailer of duty free merchandise at Dulles Airport in Loudoun County,

where it operates several stores. 1 Every aspect of the duty free business is highly regulated. As

required by federal law, Duty Free holds the alcohol, tobacco, fragrances, luxury goods, bags,

watches, and other products it sells in bonded warehouses in Florida and Texas. Bonded carriers

transport the goods to a secure warehouse at Dulles Airport which, in turn, distributes the

merchandise to retail stores inside the airport.

The merchandise is sold in a restricted area of the airport. Only passengers with boarding

passes may enter and these passengers must first go through security. Duty Free can sell items to

both domestic and international passengers. For domestic travelers, Duty Free charges a

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19 U.S.C. § 1555 authorizes bonded duty free sales of merchandise for export.
Virginia sales tax and the purchaser takes immediate possession of the item. When the sale

involves a bonded imported item, the domestic passenger pays an import duty. Duty Free does

not challenge the imposition of the BPOL tax to such domestic sales.

International travelers, on the other hand, must present a passport and boarding pass to

the cashier in the Duty Free shop. The cashier will swipe the boarding pass on the register to

record the information that is on the boarding pass. Duty Free does not charge a Virginia sales

tax for international export sales and does not collect any import duty, i.e. the sales are “duty

free.” Instead of receiving the item immediately, the traveler is given a receipt or ticket. A duty

free runner delivers the item to the buyer at the jetway immediately prior to boarding and the

customer hands the ticket to the runner. See 19 U.S.C. § 1555(b)(3)(F)(i)(II). If a passenger

does not appear to collect the item, Duty Free voids the sale and returns the merchandise to the

store.

Duty Free is able to track which sales are domestic and which sales are international.

International sales represent over ninety percent of Duty Free’s sales. Duty Free established that

the following gross receipts were attributable to international travelers: for tax year 2009,

$18,827,494; for tax year 2010, $13,747,954; for tax year 2011, $15,162,747; for tax year 2012,

$18,203,469; and for tax year 2013, $20,151,691.

Duty Free does not dispute that it owns inventory and other personal property in Loudoun

County. There is also no question that it employs a large number of personnel in the County to

run its retail operations. Duty Free uses County roads, and benefits from the protection of

County fire and rescue, law enforcement, the court system, and other County services.

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 Loudoun County requires every person “engag[ed] in a business” in Loudoun County to

obtain a business license. Loudoun County Ordinance § 840.03(a). Accordingly, Duty Free has

obtained a business license to operate in Loudoun County. Code § 58.1-3702 permits “the

governing body of every county, city and town” to impose a “tax on the gross receipts or the

Virginia taxable income of the business.” Code § 58.1-3703.1(A)(3)(a) provides that

“[w]henever the tax imposed by this ordinance is measured by gross receipts, the gross receipts

included in the taxable measure shall be only those gross receipts attributed to the exercise of a

privilege subject to licensure.” The tax does not target imports or exports; it applies across the

board to all sales.

Loudoun County has chosen to collect the tax based on the measure of gross receipts.

See Loudoun County Ordinance § 840.14(o). Loudoun County defines “gross receipts” as “the

whole, entire, total receipts attributable to the licensed privilege, without deduction.” Id.;

Loudoun County Ordinance § 840.01(k). The tax is calculated based on the prior year’s gross

receipts. Id.; see also Loudoun County Ordinance §§ 840.01(m); 840.03(d); 840.04(a);

840.14(o). For businesses with sales not more than $200,000 per year, the County levies a flat

$30 fee. Loudoun County Ordinance § 840.13(c). For businesses with sales above the $200,000

threshold, the County collects 17 cents for every $100 in retail sales for all sales, not just those

above $200,000. Loudoun County Ordinance § 840.14(o).

In 2014, Duty Free filed an application for correction of its BPOL taxes for the years

2009, 2010, 2011, 2012, and 2013. Duty Free does not challenge the imposition of the BPOL tax

on its domestic sales. It argues, however, that applying the BPOL tax on the gross receipts of its

international sales violates the Import-Export Clause of the Constitution of the United States.

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 Following a hearing, the circuit court issued a detailed memorandum opinion. The court

canvassed the cases from the United States Supreme Court and concluded that “[t]he BPOL tax

of Loudoun County does not violate the Import Export Clause of the U.S. Constitution.”

Consequently, the court held that Duty Free “is not entitled to relief from the assessments

complained of in its Application.” Duty Free appeals from this ruling.

ANALYSIS

“Arguments challenging the constitutionality of a statute or regulation are questions of

law that this Court reviews de novo on appeal.” DiGiacinto v. Rector & Visitors of George

Mason Univ., 281 Va. 127, 133, 704 S.E.2d 365, 368 (2011).

This case presents an “as applied” challenge rather than a challenge to the facial

constitutionality of the BPOL tax. Volkswagen of Am., Inc. v. Smit, 279 Va. 327, 336, 689

S.E.2d 679, 684 (2010) (“Because our jurisprudence favors upholding the constitutionality of

properly enacted laws, we have recognized that it is possible for a statute or ordinance to be

facially valid, and yet unconstitutional as applied in a particular case.”). We accord every

legislative act a presumption of constitutionality, including laws subject to an as applied

challenge. Id. A party which alleges a statute is being unconstitutionally applied bears the

burden of proving that the statute is unconstitutional under a particular set of facts. See FFW

Enters. v. Fairfax County, 280 Va. 583, 590, 701 S.E.2d 795, 800 (2010).

The Import-Export Clause provides, in relevant part, that “[n]o 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.” U.S. Const. art. I, § 10, cl. 2.

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 The problems that led to the inclusion of this Clause in the Constitution are well known.

“One of the major defects of the Articles of Confederation, and a compelling reason for the

calling of the Constitutional Convention of 1787, was the fact that the Articles essentially left the

individual States free to burden commerce both among themselves and with foreign countries

very much as they pleased.” Michelin Tire Corp. v. Wages, 423 U.S. 276, 283 (1976). In an

introduction to the Debates of the Constitutional Convention, James Madison noted that New

Jersey was likened to a “cask tapped at both ends” by New York and Philadelphia; and North

Carolina as the “patient bleeding at both arms” – with Virginia and South Carolina happily

serving as phlebotomists. 2 The Papers of James Madison 691-92 (Henry D. Gilpin, ed.,

Washington, D.C.: Langtree & O’Sullivan, 1840). These taxes on imported and exported goods

“nourish[ed] unceasing animosities” and, if left unchecked, Madison thought, would likely end

“in serious interruptions of the public tranquility.” The Federalist No. 42, at 264 (J. Madison)

(Clinton Rossiter ed., 2003). The Import-Export Clause, along with the Commerce Clause and

the Export Clause, was designed to suppress fratricidal trade policies and thus “provide for the

harmony and proper intercourse among the States.” Id. at 263.

I. OVERVIEW OF THE UNITED STATES SUPREME COURT’S IMPORT-EXPORT CLAUSE
JURISPRUDENCE.

Resolution of the constitutional propriety of the BPOL tax to Duty Free’s in-transit

export sales hinges on the applicability, and ongoing validity, of the decision in Richfield Oil

Corp. v. State Bd. of Equalization, 329 U.S. 69 (1946). Duty Free argues that Richfield Oil

controls. The County asserts that the case is distinguishable or superseded by later decisions.

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 A. The decision in Richfield Oil.

Richfield Oil entered into a contract with the government of New Zealand for the sale of

oil. Id. at 71. None of the oil was to be used or consumed in the United States; all of it was for

export. 2 Id. California assessed a retail sales tax against Richfield Oil that was “measured by

the gross receipts from the transaction.” Id. at 71-72. Richfield Oil argued that the tax violated

the Import-Export Clause and the Supreme Court agreed.

The Court examined whether the oil was an “export.” Id. at 78. Surveying its precedent,

the Court noted that goods intended for export were not exempt from the “ordinary burdens of

taxation.” Id. at 78-80. But once goods have been placed with a common carrier for export, “or

have been started upon such transportation in a continuous route or journey” (i.e. the goods are in

transit), they are exports for purposes of the Import-Export Clause and may not be taxed. Id. at

79. The Court concluded that the oil was an export because it had been delivered “into the hold

of the vessel,” and this delivery “marked the commencement of the movement of the oil abroad.”

Id. at 82-83.

The Court found unpersuasive California’s argument that the tax in question was “not an

impost within the meaning of the Import-Export Clause.” Id. at 83. The Court accepted the

California Supreme Court’s characterization of the tax as “an excise tax for the privilege of

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Richfield Oil carried the oil by pipeline from its refinery in California to storage tanks at
the Los Angeles harbor, where a New Zealand naval vessel appeared to receive it. The price was
free on board (“F.O.B.”) Los Angeles, with payment made in London, England, and delivery was
“to the order of the Naval Secretary” of New Zealand. When the vessel had docked, Richfield
Oil pumped the oil from the storage tanks into the vessel. Customary shipping documents were
given to the master, including a bill of lading which designated Richfield Oil as the shipper and
consigned the oil to a designated Naval-Officer-In Charge in Auckland, New Zealand. 329 U.S.
at 71.
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conducting a retail business measured by the gross receipts from sales; that it is not laid upon the

consumer and does not become a tax on the sale or because of the sale.” Id. at 83-84. California

pointed out that the tax did not directly target exports, that it instead was “measured by the gross

receipts of retail sales” and was “levied on retailers ‘For the privilege of selling tangible personal

property at retail.’” Id. at 83. “[W]hether the tax deprives the taxpayer of a federal right,” the

Court reasoned, turns not on the characterization of the tax under state law but, rather, on “its

operation and effect.” Id. at 84. The Court explained that the Import-Export Clause prohibits

more than “taxes laid specifically upon the exported goods themselves.” Id. at 85. Were it

otherwise, the Court observed, states would easily impose taxes “nominally conforming to the

constitutional restriction but in effect overriding it.” Id. The Court noted, quoting Chief Justice

John Marshall, that a tax measured by the gross receipts of sales is effectively a tax on the article

itself. Id. at 84 (“[A] tax on the sale of an article . . . is a tax on the article itself.”) (quoting

Brown v. Maryland, 25 U.S. (12 Wheat) 419, 444 (1827)). A tax that effectively “add[s] to the

price of the article, and [is] paid by the consumer, or by the importer himself,” such as a tax “on

the occupation of an importer” is in practical effect no different from “a direct duty on the article

itself.” Id. at 85. The Court concluded that California’s tax was “an impost upon an export

within the meaning of Article I, Section 10, Clause 2, and is therefore unconstitutional.” Id. at

86.

B. Developments since Richfield Oil.

In Low v. Austin, 80 U.S. 29 (1872), the Supreme Court interpreted the Import-Export

Clause to prohibit a State “from imposing a nondiscriminatory ad valorem property tax on

imported goods until they lose their character as imports and become incorporated into the mass

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of property in the State.” Michelin, 423 U.S. at 282 (describing the test in Low v. Austin). This

test was known as the “original package doctrine.” Boris I. Bittker & Brannon P. Denning, The

Import-Export Clause, 68 Miss. L.J. 521, 531 (1998). Following extensive scholarly criticism of

Low v. Austin, the Court revisited its approach in 1976 in Michelin, where the tax at issue was an

ad valorem inventory tax Georgia imposed on automobile and truck tires and tubes that were

imported from France and Nova Scotia. 423 U.S. at 279. The tax was “nondiscriminatory” – it

did not single out imports for taxation. Id. at 281.

The Court surveyed the history that led to the adoption of the Import-Export Clause and

identified “three main concerns” the Clause sought to alleviate:

[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.

The Court observed that “[n]othing in the history of the Import-Export Clause even

remotely suggests that a nondiscriminatory ad valorem property tax which is also imposed on

imported goods that are no longer in import transit was the type of exaction that was regarded as

objectionable by the Framers of the Constitution.” Id. at 286 (emphasis added). The Court

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overruled Low v. Austin and fashioned a new three-part test based on the three goals that led to

the adoption of the Import-Export Clause. Id. at 301, 286-89.

Applying the three-part test, the Court held that the Georgia ad valorem tax at issue did

not violate the Import-Export Clause. Id. at 286-89. The Court found that the tax had no impact

on the Federal Government’s exclusive regulation of foreign commerce because, “[b]y

definition, such a tax does not fall on imports as such because of their place of origin.” Id. at

286. In addition, a non-discriminatory ad valorem tax does not “deprive the Federal Government

of the exclusive right to all revenues from imposts and duties on imports and exports.” Id.

Finally, such a tax does “not interfere with the free flow of imported goods among the States.”

Id. at 288. On this point, the Court explained that “the Clause was fashioned to prevent the

imposition of exactions which were no more than transit fees on the privilege of moving through

a State.” Id. at 290. The Court suggested that “to the extent there is any conflict whatsoever

with this purpose of the Clause, it may be secured merely by prohibiting the assessment of even

nondiscriminatory property taxes on goods which are merely in transit through the State when

the tax is assessed.” Id.

In holding that Georgia’s ad valorem tax was not an “impost” or “duty” under the

Import-Export Clause, the Court stressed its “nondiscriminatory” nature. Id. at 279, 281, 282,

283, 286, 287, 288. The Court observed that

[u]nlike imposts and duties, which are essentially taxes on the
commercial privilege of bringing goods into a country,
[nondiscriminatory ad valorem taxes] are taxes by which a State
apportions the cost of such services as police and fire protection
among the beneficiaries according to their respective wealth; there
is no reason why an importer should not bear his share of these
costs along with his competitors handling only domestic goods.

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Id. at 287.

The Court summarized the new approach in Department of Revenue of Wash. v.

Association of Wash. Stevedoring Cos., 435 U.S. 734 (1978). It explained that “[p]revious cases

had assumed that all taxes on imports and exports and on the importing and exporting processes

were banned by the Clause.” Id. at 752. “Before Michelin, the primary consideration was

whether the tax under review reached imports or exports.” Id. For imports, “the analysis applied

the original-package doctrine.” Id. “So long as the goods retained their status as imports by

remaining in their import packages, they enjoyed immunity from state taxation.” Id. “With

respect to exports, the dispositive question was whether the goods had entered the ‘export

stream,’ the final, continuous journey out of the country.” Id. “As soon as the journey began,

tax immunity attached.” Id. “Michelin initiated a different approach to Import-Export Clause

cases.” Id. at 752. Rather than focus on whether the goods were imports, the Court “analyzed

the nature of the tax to determine whether it was an ‘Impost or Duty,’” and it did so by applying

the three-part test mentioned above. Id.

Michelin dealt with imports. Washington Stevedoring Cos., decided two years after

Michelin, examined whether Michelin’s three-part test for assessing the constitutionality of

non-discriminatory taxes on imports should also apply to exports. Washington State imposed a

business and occupation tax upon stevedoring, “the business of loading and unloading cargo

from ships.” Id. at 737. After its overview of the change wrought by the Michelin decision, the

Court adopted what it described as a “similar” approach to exports. Id. at 754. With respect to

the second policy identified in Michelin, protecting the Federal Government’s revenue from

taxes on imports, the Court noted that, in contrast to imports, the Constitution forbids the Federal

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Government from taxing exports. Id. at 758. See U.S. Const., Art. I § 9, cl. 5. Despite this

difference, a “tax relating to exports can be tested for its conformance with the first and third

policies” identified in Michelin. Id.

Applying this test, the Court concluded, first, that the tax did not “restrain the ability of

the Federal Government to conduct foreign policy.” Id. at 754. The tax applies “to virtually all

businesses in the State,” and it is not a “special protective tariff. . . . No foreign business or

vessel is taxed.” Id. As in Michelin, “[t]he tax merely compensates the State for services and

protection” it provides to businesses. Id. Second, the tax “falls upon a taxpayer with [a]

reasonable nexus to the State, is properly apportioned, does not discriminate, and relates

reasonably to services provided by the State.” Id. at 754-55.

The Court added a caveat: “Because the goods [in Michelin] were no longer in transit,

however, the Court did not have to face the question whether a tax relating to goods in transit

would be an ‘Impost or Duty’ even if it offended none of the policies behind the Clause.” Id. at

755. In Washington Stevedoring, “the tax [did] not fall on the goods themselves.” Id. Instead,

the tax fell on the activity of moving the goods. Id. Thus, although the tax related to goods in

transit, the fact that it did not fall upon the goods themselves “leads to the conclusion that the

Washington tax is not a prohibited ‘Impost or Duty’ when it violates none of the policies”

animating the Clause. Id. The Court expressly declined to reach the question of whether the

Michelin approach should be employed “when a State directly taxes imports or exports in

transit.” Id. at 757 n.23.

The Court also repudiated what it characterized as dicta in Richfield Oil, the proposition

“that the Import-Export Clause effects an absolute prohibition on all taxation of imports and

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exports.” Id. at 759. The Court reaffirmed “the central holding of Michelin that the absolute ban

is only of ‘Imposts or Duties’ and not of all taxes.” Id.

The Court concluded as follows:

The Washington business and occupation tax, as applied to
stevedoring, reaches services provided wholly within the State of
Washington to imports, exports, and other goods. The application
violates none of the constitutional policies identified in Michelin.
It is, therefore, not among the “Imposts or Duties” within the
prohibition of the Import-Export Clause.

Id. at 761.

Later, in United States v. International Bus. Mach. Corp., 517 U.S. 843, 862 (1996), the

Court indicated in dicta that it has not overruled the core holding in Richfield Oil with respect to

a state tax that is assessed directly on goods in import or export transit. Although that case

addressed the Export Clause rather than the Import-Export Clause, the Court stated that it had

“never upheld a state tax assessed directly on goods in import or export transit.” Id. The Court

further indicated that compliance with the Import-Export Clause may be secured “‘by prohibiting

the assessment of even nondiscriminatory property taxes on [import or export] goods which are

merely in transit through the State when the tax is assessed.’” Id. (alteration in original) (quoting

Michelin, 423 U.S. at 290).

Finally, in Itel Containers Int’l Corp. v. Huddleston, 507 U.S. 60, 78 (1993), the Court

upheld a sales tax on leases of containers used in international shipping. The Court rejected the

argument that Richfield Oil was controlling, noting with regard to the prohibition on direct

taxation of imports and exports “in transit” that “[e]ven assuming that rule has not been altered

by the approach we adopted in Michelin, it is inapplicable here.” Id. at 77. As in Washington

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Stevedoring, the tax at issue in Itel fell “upon a service distinct from [import] goods and their

value.” Id. at 78 (alteration in original) (quoting Washington Stevedoring, 435 U.S. at 757).

C. The bright line Richfield Oil test, rather than the policy based Michelin test,
supplies the rule of decision on the present facts.

It is fair to say that courts have struggled to determine which test to apply when it comes

to assessing the constitutionality of taxes that fall on export goods in transit. In Louisiana Land

& Exploration Co. v. Pilot Petroleum Corp., 900 F.2d 816 (5th Cir. 1990), the United States

Court of Appeals for the Fifth Circuit invalidated a state tax on jet fuel sold for export to a

foreign country. Id. at 821. While noting that Richfield Oil has “never been overruled by the

United States Supreme Court,” id. at 819, that court relied on both Richfield Oil and Michelin to

conclude that the Alabama tax at issue violated the Import-Export Clause. Id. at 820-21.

In Virginia Indonesia Co. v. Harris Cnty. Appraisal Dist., 910 S.W.2d 905 (Tex. 1995),

the majority of a divided Texas Supreme Court observed that “[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.” Id. at 910. The Court noted that “[a]lthough the Michelin

court rejected the original package doctrine, it did not overrule . . . any of the stream of export

cases, and the two doctrines are different enough that the rejection of one does not, of itself,

signify the demise of the other.” Id. at 910-11. The Court concluded that a county’s ad valorem

tax on goods in “the export stream” violated the Import-Export Clause. Id. at 915. Two justices

dissented, arguing that the Michelin test was the right one to apply and that the tax was valid

under that test. Id. at 915-16, 925.

Similarly, in U.S. Steel Mining Co. v. Helton, 631 S.E.2d 559 (W. Va. 2005), a divided

Supreme Court of Appeals of West Virginia accepted Richfield Oil as binding, but held that the

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goods were not placed in export at the time a coal severance tax applied (when the coal was

extracted from the natural resources of the state) and, therefore, there was no violation of the

Import-Export Clause. Id. at 567. See also Ammex, Inc. v. Dep’t of Treasury, 603 N.W.2d 308,

313 (Mich. Ct. App. 1999) (concluding that Richfield Oil retains “precedential value,” but that

the tax in question did not fall upon oil that was an “export” within the intendment of the

Import-Export Clause, since it was sold at retail on the United States side of a bridge connecting

to Canada, and would have been at least partly used in the United States, even by customers who

drove directly over the bridge. 3

In contrast, a United States District Court in Guam applied the Michelin test to a direct

tax on goods in export. See Duty Free Shoppers, Ltd. v. Tax Commissioner, 464 F. Supp. 730,

735-36 (D. Guam 1979) (finding that duty free goods as sold only to passengers leaving the

Territory for foreign countries have clearly embarked on their final, continuous journey out of

the country, since their movement to foreign shores has “started (or) been committed,” and

commenting that “[a]pplying either phraseology, we are satisfied that when liquor and tobacco

3
The court in Ammex, Inc. summarized the exportation concept, 603 N.W.2d at 463-64,
as follows:

The word “export” means the transportation of goods from the United States to a
foreign country. Swan & Finch Co. v. United States, 190 U.S. 143, 145 (1903).
“Exportation is a severance of goods from the mass of things belonging to this
country with an intention of uniting them to the mass of things belonging to some
foreign country.” Id. Thus, an article does not constitute an “export” if there
exists a practical possibility of diversion to domestic markets. See Joy Oil Co. v.
State Tax Comm’n of Michigan, 337 U.S. 286, 288 (1949) (citing Richfield Oil,
[329 U.S.] at 82). Similarly, an article cannot be considered an “export” within
the meaning of the Import-Export Clause if “it will be used in this country for its
designed purpose, before being shipped abroad.” See Itel Containers, 507 U.S. at
82 (Scalia, J., concurring).
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products are delivered to a departing passenger en route to foreign shores in the ‘sterile area’ of

the airport, such goods, having entered the export stream, constitute exports;” concluding,

however, that no policy of the Import-Export Clause is thereby violated).

Our review of this mass of precedent yields two conclusions that guide our resolution of

this case. First, the Supreme Court has not overruled Richfield Oil and, while it has significantly

revised its Import-Export Clause jurisprudence, the Court has carefully carved out for future

disposition the issue whether the Michelin test would apply to a non-discriminatory tax that falls

on export goods in transit. See Itel Containers, 507 U.S. at 77; Washington Stevedoring, 435

U.S. at 757 n.23; Michelin, 423 U.S. at 290. We cannot ignore the Court’s repeated signals to

that effect. Consequently, we conclude that Richfield Oil supplies the rule of decision. As the

Supreme Court has noted

If a precedent of this Court has direct application in a case, yet
appears to rest on reasons rejected in some other line of decisions,
the [lower courts] should follow the case which directly controls,
leaving to this Court the prerogative of overruling its own
decisions.

Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989).

Second, the Court has not retreated from its method of assessing the constitutionality of a

state tax based on its operation and effect. Richfield Oil, 329 U.S. at 84. A State’s

characterization of the tax does not control. Id.

II. THE BPOL TAX IS INDISTINGUISHABLE FROM THE PROHIBITED GROSS RECEIPTS TAX
IN RICHFIELD OIL.

The County attempts to distinguish the BPOL tax from the tax the Court invalidated in

Richfield Oil. We find the County’s arguments unpersuasive. As a threshold matter, we need

not confront the often vexatious problem of whether the goods are in export transit. There is no

15
dispute that the merchandise Duty Free sells to international travelers constitutes export goods in

transit: these travelers, who are leaving the country, have passed through security checks and

they must present their passports and an airline boarding pass to complete the purchase.

The County argues that the BPOL tax is not a “direct tax” and does not resemble the tax

the Court invalidated in Richfield Oil. The County takes the view that the tax is placed on “the

privilege to engage in a business activity, and that is not the same as a tax on goods.” We

disagree. The characterization of the tax for purposes of state law does not control whether the

tax violates the Import-Export Clause. Richfield Oil, 329 U.S. at 84 (state’s characterization of a

tax “is not determinative of the question whether the tax deprives the taxpayer of a federal

right.”). Under Richfield Oil, a tax that falls directly on export goods in transit violates the

Clause. Id. (constitutionality of a tax on export goods in transit hinges on “its operation and

effect.”). The BPOL tax is imposed on a percentage of gross sales, just like California’s tax in

Richfield Oil. For every $100 worth of sales, Duty Free must pay 17 cents in tax. Although the

tax is imposed on the gross receipts of a business, it is in its “operation and effect” a direct tax on

the export goods in transit. Richfield Oil, 329 U.S. at 84; see also Crew Levick Co. v.

Pennsylvania, 245 U.S. 292, 295-96 (1917) (“[I]mposition of a percentage upon each dollar of

the gross transactions in foreign commerce … [is] in effect an impost or duty upon exports.”).

The BPOL tax is imposed on “the gross receipts . . . of the business.” Code § 58.1-3702.

The California tax invalidated in Richfield Oil was based on “the gross receipts of retail sales and

is levied on retailers ‘[f]or the privilege of selling tangible personal property at retail.’” Richfield

Oil, 329 U.S. at 83. We are hard pressed to see a difference of constitutional magnitude between

16
the BPOL tax and the tax at issue in Richfield Oil. Indeed, the parallels between the BPOL tax

and the tax under review in Richfield Oil are striking.

We also perceive no constitutional significance in the fact that retailers in California were

authorized to collect the tax from the consumers, as opposed to the BPOL tax, for which liability

lies with the business. The California tax at issue in Richfield Oil was ultimately the

responsibility of retailers. See Richfield Oil, 329 U.S. at 84 (“[The tax] is not laid upon the

consumer.”); see also Western Lithograph Co. v. State Bd. of Equalization, 78 P.2d 731, 734-35

(Cal. 1938) (“The provisions of the [retail sales tax] act itself specifically are that the tax is laid

upon and is a direct obligation of the retailer” and the tax should not be “considered as a tax on

the consumer.”).

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 that the BPOL tax is unconstitutionally applied to Duty Free’s international export

sales.

CONCLUSION

The BPOL tax as applied to Duty Free’s export goods in transit constitutes an

impermissible impost upon an export in violation of the Import-Export Clause of the

Constitution of the United States. Consequently, we will reverse the judgment of the circuit

court and remand this matter for a determination of the refund due to Duty Free.

Reversed and remanded.

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