Supreme Court Declines Hearing on Airport Duty Free Case

The U.S. Supreme Court will not consider Loudoun County’s challenge to the state Supreme Court’s ruling that the local government may not place a tax on duty-free items sold at Dulles Airport.

In 2014, Dulles Duty Free LLC filed suit against the county seeking a refund of more than a quarter million dollars in Business, Professional and Occupational License taxes collected on duty-free items sold at the airport from 2009 through 2013. The vendor claimed the tax violated the U.S. Constitution’s import-export clause, which reserves the right to tax imports and exports for Congress. The circuit court ruled in favor of the county government, which argued a business license tax, which is based on gross receipts and does not specifically target imports or exports, does not violate the import-export clause.

The Virginia Supreme Court, however, reversed that decision, ruling that, because the company’s goods are sold to people on a journey out of the country, it is unconstitutional to impose a tax on them. The U.S. Supreme Court declined to take up the county’s request to hear the case.

The Circuit Court and Virginia Supreme Court cited two different U.S. Supreme Court precedents in their decisions.

The International Municipal Lawyers Association and an association of tax law professors both filed amicus briefs with the Supreme Court in support of the county’s case.

The professors argue the state supreme court’s chosen case precedent, set in 1946, is outdated and part of a tax system that is “inconsistent, inefficient, and inequitable,” as court rulings on the import-export clause have evolved over time and some states no longer adhere to that precedent. Now, they argued, the rule “needlessly infringes upon the fiscal autonomy of states without advancing the Import-Export Clause’s core objectives.”

The lawyers association, a nonprofit organization of more than 2,500 local government attorneys, agreed with the professors that the court should rely on a newer precedent set in 1976, and which the Circuit Court cited in its decision. Confusion around the law, they argued, encourages litigation, as more businesses may rely on the state court’s misapplication to escape lawful taxation.”

Loudoun’s Business, Professional and Occupational License tax is assessed at 17 cents per $100 of gross receipts. Loudoun collected more than $270,000 in that tax from businesses selling duty-free good at Dulles from 2009 to 2013.

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