TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, January 2, 2018

Dulles Airport Duty-Free Fight Moves To Supreme Court

Dulles 2Virginia's Loudoun County has filed a petition for certiorari (PDF) asking the Supreme Court to reverse a state court ruling that bars the county from imposing its gross receipts tax on duty-free sales at Dulles International Airport. From the petition:

Dulles Duty Free, LLC (“DDF”). . . operates “duty free” stores at Dulles International Airport . . . . Those stores’ sales are predominantly to travelers departing the United States . . . . Loudoun County imposes a 0.17% Business, Professional and Occupational License (“BPOL”) tax measured by the gross receipts of retail stores located in the County. Loudoun accordingly calculated the BPOL tax on DDF using gross receipts, including the portion of its total sales attributable to international travelers who purchase an item at its Dulles Airport duty free stores, and then carry that item out of the country on an international flight.

DDF argu[ed that] the County’s collection of those taxes related to “international sales” violated the Import-Export Clause. . . . The Supreme Court of Virginia . . . held that, as applied to DDF's “export goods,” the BPOL “constitutes an impermissible impost upon an export in violation of the Import-Export Clause” . . . .

This Court has repeatedly deferred “the question of applicability of the Michelin [Tire Corp. v. Wages, 423 U.S. 276 (1976)] approach when a State directly taxes imports or exports in transit,” preferring to wait “until a case with pertinent facts is presented.” . . . This Petition squarely presents the opportunity to answer this long-open question, and to resolve disagreement among federal courts of appeals and state courts of last resort about the role (if any) Richfield Oil [Corp. v. State Board of Equalization, 329 U.S. 69 (1946)] should play in analyzing whether a non-discriminatory business license tax measured on the basis of gross receipts violates the Import-Export Clause. . . .

For more on the petition, see: The Tax Battle Brewing (Just) Outside the the Capitol, Medium: Whatever Source Derived:

The case concerns the Import-Export Clause in Article I, section 10 of the Constitution. (If you don’t know that clause off the top of your head, you’re not alone: while the provision “attracted more attention at [the Constitutional Convention] than the Commerce Clause,” it’s been a long time since the Import-Export Clause made headlines. The clause reads (in relevant part):

No 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 it’s inspection Laws . . . .

(Yes, the framers had some trouble with the “it’s”-vs.-“its” distinction too.)

In an 1886 case, Coe v. Errol, the Supreme Court held that the Import-Export Clause prohibits states from taxing goods that have begun “a continuous route or journey” out of state. The Court continued to apply this rule — known as the “stream of export” doctrine — into the mid-20th century, striking down state taxes on exports even when those taxes treated exports and other goods in a nondiscriminatory manner. That “stream of export” doctrine now stands in the way of Loudoun County’s attempt to apply its gross receipts tax to duty-free sales at Dulles. . . .

It’s high time to relegate the “stream of export” doctrine to the dustbin. Whatever your view of constitutional interpretation, the doctrine offers little to love. Originalists should abhor it because it’s a judge-made rule fashioned out of whole cloth in the 19th century — not one rooted in the text or the original public meaning of the Import-Export Clause. Those with a more functionalist view of constitutional interpretation should reject the doctrine as well: There is no normative justification for applying the gross receipts tax to the “I ♡ DC” t-shirts that only tourists buy on the National Mall but not the TAG Heuer watches that they purchase at Dulles Duty Free. And as Loudoun County points out in its petition, the doctrine implicates federalism values, because it arbitrarily limits the taxing power of states and localities.

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