Level 3 Communications v. STATE CORP. COM'N

Citations: 710 S.E.2d 474; 282 Va. 41; 2011 Va. LEXIS 122Docket: 102043

Court: Supreme Court of Virginia; June 9, 2011; Virginia; State Supreme Court

Original Court Document: View Document

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The Virginia Supreme Court, led by Chief Justice Kinser and Justices Lemons, Goodwyn, Millette, Mims, Russell, and Lacy, addressed an appeal from Level 3 Communications, LLC concerning the State Corporation Commission's (SCC) authority in determining gross receipts for tax purposes. Level 3 contested the inclusion of Internet-related revenues in its certified gross receipts for the calendar year 2002 and subsequent years, arguing that the federal Internet Tax Freedom Act (ITFA) prohibits state taxation of such revenues. 

The SCC dismissed Level 3's applications, asserting it lacked the authority to exclude these revenues from gross receipts it certifies to the Virginia Department of Taxation, a stance supported by motions from both the SCC Staff and the Department, which claimed the SCC is an “indispensable party” with exclusive authority over gross receipts calculations. The hearing examiner concluded that the SCC has no jurisdiction to exclude Internet-related revenues, a position upheld by the SCC in its opinion, which emphasized that its role is limited to certifying gross receipts as defined by statute. The SCC clarified that it does not have the power to create deductions from gross receipts and that the ITFA does not alter its obligations under Virginia law.

The SCC issued a final order dismissing Level 3’s requests to exclude Internet-related revenues from gross receipts certifications to the Department of Taxation. The SCC clarified that it did not address the Department’s tax collection authority or the remedies available to taxpayers challenging tax levies. Level 3 contends that the SCC misinterpreted its authority under Virginia law regarding the exclusion of Internet-related revenues. The SCC argued that its role is limited to collecting gross receipts information and determining whether statutory deductions have been appropriately applied, thus not addressing taxation issues defined by the ITFA.

The Court reviews the SCC’s statutory interpretation de novo, and under Virginia tax law, telecommunications companies face either a corporate income tax or a minimum gross receipts tax, which is 0.5% of gross receipts. The Department assesses whether a telecommunications company is subject to the minimum tax, while the SCC is tasked with certifying gross receipts for the Department's purposes. Telecommunications companies must report their gross receipts to the SCC, which certifies this information to the Department. The definition of "gross receipts" includes all revenue from business conducted within the Commonwealth, with specific statutory exclusions.

The SCC is mandated to certify the remaining revenue after specified deductions, without the authority to exclude Internet-related revenues. If a telecommunications company disputes the SCC's certification, it can seek review and correction within 18 months. Level 3 has contested its certifications, asserting that the SCC improperly included Internet-related revenues, affecting its minimum tax liability, which is based entirely on the gross receipts certified by the SCC.

Level 3 argues that the ITFA (Internet Tax Freedom Act) impacts the Virginia State Corporation Commission's (SCC) certification process, as SCC actions directly affect the taxability of gross receipts. The Virginia Constitution and related statutes grant the SCC significant regulatory powers over public service corporations; however, these powers are not absolute. The SCC's authority is derived from the Constitution and statutes, and it cannot extend beyond the explicit language of the law. The General Assembly has specifically defined what constitutes gross receipts for telecommunications companies, limiting the SCC's role to certifying these amounts without altering tax statutes or allowing deductions not recognized in the law. The SCC lacks the authority to create new deductive categories for Internet-related revenues, as the ITFA restricts state taxation on such revenues, and the responsibility for imposing taxes rests with the Department, not the SCC. Therefore, the SCC's refusal to permit a deduction for Internet-related revenues aligns with its statutory limitations. Level 3 also claims that the SCC's decisions deny it a remedy for excluding these revenues, but this overlooks statutory provisions allowing taxpayers to seek relief from the Department and in circuit court. Even if Level 3's assertion about lacking a remedy were valid, the court cannot amend the Code to create one; its role is to interpret the law as it is written. Consequently, the SCC's order is affirmed.