City of Norfolk, VA Loses Bid to Tax Cox for Internet Services

Judge David W Lannetti of the Fourth Judicial Circuit of Virginia dismissed the City of Norfolk’s case against Cox Communications with prejudice on January 27, 2023. Norfolk had been trying to correct a 2017 tax self- assessment where Cox Communications calculated the tax liability owed based off only receipts that were not related to the sale of internet access services.

In this case, Cox Communications argued that under the Internet Tax Freedom Act (ITFA), the services related to internet service should be excluded from the gross receipts tax. The telecommunications provider had tried to make this argument in 2016 as well. In 2016 however, the Virginia tax collector issued an additional assessment which was upheld by the Fourth District Circuit. In this case, Blythe A Scott, the Commissioner of the Revenue for Norfolk, could have issued an additional assessment within three years of the 2017 tax year but, such an assessment was not issued, and any further assessment would be untimely, Judge Lannetti ruled.

In the end, the case was dismissed with prejudice, and both parties agreed it was too late for an administrative appeal. Further, though the judge did note the Commonwealth of Virginia laws would permit the City of Norfolk to directly petition the court, he also announced he would not grant a direct petition.

This case is related to previous litigation between Cox and the City of Norfolk from tax years 2013-2015, where Cox requested a partial refund on the payment of business, professional and occupational license (BPOL), which is a gross receipts tax levied by Virginia. Again, under the Internet Tax Freedom Act, Cox Communications argued tax should not be charged on sales of internet access services. Though this initially was denied by the courts and no refunds were offered at the time, the case was re-litigated in front of the Virginia Supreme Court, which rules the ITFA precludes the BPOL tax and returned the case to a trial court to determine refund amounts.

Though the most recent case did not rely on the ITFA while determining Cox would not be taxed, the two cases both show Cox is looking to argue the US law—the Internet Tax Freedom Act— should preclude locally taxing something that is federally exempt from tax. While Virginia is one of the first states to see challenges under this structure, it is likely the first of many. This area of taxation in relation to the ITFA will likely continue to be challenged. It is important for Internet service providers to keep current on any court cases or tax law at a state and local level. Users of the internet services should also inspect their invoices to see if they are being billed in relation to their local laws.

(Re: Blythe A Scott, Commissioner of Revenue for the City of Norfolk, Virginia v. Cox Communications Hampton Roads, LLC. Civil Docket no CL21-4635, Opinion Dated January 27, 2023 and signed by Chief Judge David W Lannetti)

Posted on February 24, 2023