       IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA


                            September 2016 Term
                                                               FILED
                                                          November 16, 2016
                                 No. 15-0935                    released at 3:00 p.m.
                                                              RORY L. PERRY, II CLERK

                                                            SUPREME COURT OF APPEALS

                                                                 OF WEST VIRGINIA



                       MARK W. MATKOVICH,

              WEST VIRGINIA STATE TAX COMMISSIONER,

                      Petitioner Below, Petitioner


                                     V.

                       CSX TRANSPORTATION, INC.,

                        Respondent Below, Respondent



               Appeal from the Circuit Court of Kanawha County

                       Honorable Louis H. Bloom, Judge

                          Civil Action No. 15-AA-36


                                 AFFIRMED



                         Submitted: October 25, 2016

                          Filed: November 16, 2016



Patrick Morrisey                          James W. McBride, pro hac vice
Attorney General                          Baker, Donelson, Bearman, Caldwell
Katherine A. Schultz                      & Berkowitz, PC
Senior Deputy Attorney General            Washington, District of Columbia
Charleston, West Virginia                 Michael P. Markins
Attorneys for the Petitioner              Cipriani & Werner PC
                                          Charleston, West Virginia
                                          Attorneys for the Respondent


JUSTICE DAVIS delivered the Opinion of the Court.
                              SYLLABUS BY THE COURT




              1.      “In an administrative appeal from the decision of the West Virginia

Office of Tax Appeals, this Court will review the final order of the circuit court pursuant to

the standards of review in the State Administrative Procedures Act set forth in W. Va. Code,

29A-5-4(g) [1988]. Findings of fact of the administrative law judge will not be set aside or

vacated unless clearly wrong, and, although administrative interpretation of State tax

provisions will be afforded sound consideration, this Court will review questions of law de

novo.” Syllabus point 1, Griffith v. ConAgra Brands, Inc., 229 W. Va. 190, 728 S.E.2d 74

(2012).



              2.      “A state tax on interstate commerce will not be sustained unless it: ‘(1)

has a substantial nexus with the State; (2) is fairly apportioned; (3) does not discriminate; and

(4) is fairly related to the services provided by the State.’ Maryland v. Louisiana, 451 U.S.

725, [754], 101 S. Ct. 2114, 2133, 68 L. Ed. 2d 576 (1981).” Syllabus point 1, Western

Maryland Railway Co. v. Goodwin, 167 W. Va. 804, 282 S.E.2d 240 (1981).



              3.      The sales tax credit granted by W. Va. Code § 11-15A-10a(a) (2003)

(Repl. Vol. 2010) provides a credit for sales taxes paid both to other states and to the

subdivisions and municipalities of other states.


                                                i
Davis, Justice:

              The petitioner herein and petitioner below, Mark W. Matkovich, West Virginia

State Tax Commissioner (“Tax Commissioner”), appeals from an order entered August 24,

2015, by the Circuit Court of Kanawha County. By that order, the circuit court affirmed a

January 23, 2015, decision by the Office of Tax Appeals, which found that the respondent

herein and respondent below, CSX Transportation, Inc. (“CSX”), is entitled to a credit under

W. Va. Code § 11-15A-10a (2003) (Repl. Vol. 2010) for the sales taxes it paid to other

states’ subdivisions on its purchases of motor fuel therein. On appeal to this Court, the Tax

Commissioner argues that the circuit court erred by allowing CSX a tax credit for all sales

taxes it paid to other states’ cities, counties, and other municipalities on the purchase of

motor fuel therein rather than limiting the credit to sales taxes paid only to other states upon

such purchases. Upon a review of the parties’ arguments, the appendix record, and the

pertinent authorities, we affirm the ruling of the circuit court. In summary, we conclude that

the sales tax credit afforded by W. Va. Code § 11-15A-10a applies both to sales taxes paid

to other states and to sales taxes paid to the municipalities of other states.




                                               1

                                                 I.


                         FACTUAL AND PROCEDURAL HISTORY


               The facts giving rise to the case sub judice are not disputed by the parties. CSX

operates an interstate rail transportation system. Although CSX is a Virginia corporation

with its principal place of business in Jacksonville, Florida, CSX also operates trains and

maintains rail yards throughout the State of West Virginia. In 2010, an auditor from the West

Virginia State Tax Department (“Tax Department”) met with a representative of CSX at one

of its West Virginia rail yards to conduct a field audit. As a result of this meeting, the auditor

determined that CSX imports fuel that it uses in West Virginia, and, thus, CSX was directed

to begin paying the West Virginia Motor Fuel Use Tax (“use tax”), imposed by W. Va. Code

§ 11-15A-13a (2003) (Repl. Vol. 2010),1 on the fuel it uses in West Virginia.



               W. Va. Code § 11-15A-10a (2003) (Repl. Vol. 2010)2 affords taxpayers a credit

for sales taxes paid to other states, which, with respect to the case sub judice, offsets the use

tax a fuel importer must pay under W. Va. Code § 11-15A-13a.                     Following the

aforementioned assessment, CSX filed amended use tax returns seeking a refund of the sales

taxes it had paid on its motor fuel purchases to cities, counties, and localities of other states

               1
               For the relevant statutory language, see Section III, infra. It also should be
noted that the Legislature amended this statute in 2013; therefore, we will apply the prior
version of the statute that was in effect at the time of the events giving rise to the instant
proceeding.
               2
                   See infra Section III for the pertinent statutory language.

                                                  2

pursuant to W. Va. Code § 11-15A-10a. The Tax Commissioner rejected CSX’s refund

request. During the evaluation of CSX’s refund request, auditors with the Tax Department

concluded that CSX had been improperly calculating the sales tax credit it was entitled to

claim under W. Va. Code § 11-15A-10a. This inquiry led the Tax Department to issue a

Notice of Assessment against CSX in June 2013, as well as the Tax Department’s adoption

of a new methodology, for most of tax year 2012, of determining how many gallons of motor

fuel CSX was deemed to have used in West Virginia and how many of those gallons were

purchased in other states.



              Thereafter, CSX timely filed a petition for refund with the Office of Tax

Appeals (“OTA”), challenging the denial of its refund request, and a petition for

reassessment, contesting the June 2013 Notice of Assessment.             Both petitions were

consolidated, and, by final decision rendered January 23, 2015, the OTA granted CSX’s

refund request and vacated the 2013 assessment. In summary, the OTA determined that,

under the dormant Commerce Clause,3 CSX was entitled to a credit under W. Va. Code § 11­

15A-10a for the sales taxes it had paid on motor fuel purchased from the cities, counties, and

other municipalities of other states. Otherwise, the OTA opined, a denial of such credit

would unconstitutionally discriminate against interstate commerce in violation of the dormant

Commerce Clause.


              3
                  For further treatment of the dormant Commerce Clause, see Section III, infra.

                                                3

              The Tax Commissioner then appealed to the Circuit Court of Kanawha County.

By order entered August 24, 2015, the circuit court affirmed the OTA’s final decision. In

so ruling, the circuit court agreed that the Tax Commissioner’s allowance of a credit, to be

applied to the use tax due from CSX, for sales taxes CSX paid to other states upon its

purchases of motor fuel therein, coupled with a denial of such a credit for the sales taxes

CSX paid to the cities, counties, and other localities of such states, unfairly discriminates

against interstate commerce in violation of the dormant Commerce Clause. The circuit court

further concluded that denying the credit for sales taxes paid to municipalities results in

taxpayers potentially paying greater taxes on interstate purchases of motor fuel than on

similar intrastate purchases.4 From this adverse ruling, the Tax Commissioner appeals to this

Court.



                                             II.


                               STANDARD OF REVIEW


              The sole issue presented by the case sub judice concerns the proper

interpretation and application of the use tax credit provided by W. Va. Code § 11-15A-10a.

Procedurally, the instant matter comes to this Court as an appeal from the Office of Tax

Appeals that was affirmed by the circuit court. We previously have explained the standard


              4
              The circuit court additionally ordered the parties to submit calculations of the
refund requested and the proper assessment of the subject taxes CSX is required to pay for
2012.

                                              4

of review applicable to such a proceeding as follows:

                      In an administrative appeal from the decision of the West
              Virginia Office of Tax Appeals, this Court will review the final
              order of the circuit court pursuant to the standards of review in
              the State Administrative Procedures Act set forth in W. Va.
              Code, 29A-5-4(g) [1988].[5]          Findings of fact of the
              administrative law judge will not be set aside or vacated unless
              clearly wrong, and, although administrative interpretation of
              State tax provisions will be afforded sound consideration, this
              Court will review questions of law de novo.

Syl. pt. 1, Griffith v. ConAgra Brands, Inc., 229 W. Va. 190, 728 S.E.2d 74 (2012) (footnote


              5
               W. Va. Code § 29A-5-4(g) (1998) (Repl. Vol. 2015) defines the scope of
judicial review of contested cases as follows:

                     The court may affirm the order or decision of the agency
              or remand the case for further proceedings. It shall reverse,
              vacate or modify the order or decision of the agency if the
              substantial rights of the petitioner or petitioners have been
              prejudiced because the administrative findings, inferences,
              conclusions, decision or order are:

                     (1) In violation of constitutional or statutory provisions;
              or

                     (2) In excess of the statutory authority or jurisdiction of
              the agency; or

                     (3) Made upon unlawful procedures; or

                     (4) Affected by other error of law; or

                     (5) Clearly wrong in view of the reliable, probative and
              substantial evidence on the whole record; or

                     (6) Arbitrary or capricious or characterized by abuse of
              discretion or clearly unwarranted exercise of discretion.

                                              5

added). Moreover, we previously have held that “[i]nterpreting a statute or an administrative

rule or regulation presents a purely legal question subject to de novo review.” Syl. pt. 1,

Appalachian Power Co. v. State Tax Dep’t of West Virginia, 195 W. Va. 573, 466 S.E.2d 424

(1995). Accord Syl. pt. 1, Chrystal R.M. v. Charlie A.L., 194 W. Va. 138, 459 S.E.2d 415

(1995) (“Where the issue on an appeal from the circuit court is clearly a question of law or

involving an interpretation of a statute, we apply a de novo standard of review.”). In keeping

with these standards, we proceed to consider the parties’ arguments.



                                              III.


                                       DISCUSSION


              Despite the numerous errors assigned in this case, the crux of the Tax

Commissioner’s argument can be distilled into a single issue: is a taxpayer, who is required

to pay the motor fuel use tax imposed by W. Va. Code § 11-15A-13a, entitled to a sales tax

credit, under W. Va. Code § 11-15A-10a, for sales taxes paid both to other states and to the

municipalities of other states? Both the OTA and the circuit court determined that, to be

constitutional under the dormant Commerce Clause, said credit must be granted for both

sales taxes paid to other states and for sales taxes paid to the municipalities of other states.

We reach the same conclusion.




                                               6

              The specific tax at issue in this proceeding is a use tax. Simply stated, “[a] use

tax is collected when a good is sold from an out-of-state supplier for use within a state.” J.C.

Penney Co., Inc. v. Hardesty, 164 W. Va. 525, 530, 264 S.E.2d 604, 608 (1979). Pursuant

to W. Va. Code § 11-15A-13a (2003) (Repl. Vol. 2010), a use tax is imposed upon taxpayers

who purchase motor fuel outside of West Virginia but who use such fuel within this State.6


              6
             In pertinent part, W. Va. Code § 11-15A-13a(a) (2003) (Repl. Vol. 2010)
imposes the motor fuel use tax as follows:

                      (2) On purchases out-of-state subject to motor fuel tax. –
              Effective the first day of January, two thousand four, an excise
              tax is imposed on the importation into this state of motor fuel
              purchased outside this state when the purchase is subject to the
              flat rate of the tax imposed by section five [§ 11-14C-5], article
              fourteen-c of this chapter: Provided, That the rate of the tax due
              under this article shall in no event be less than five percent of
              the average wholesale price of the motor fuel, as determined in
              accordance with said section five, article fourteen-c: Provided,
              however, That the motor fuel subject to the tax imposed by this
              article shall comprise the variable component of the tax imposed
              by the said section five, article fourteen-c, and shall be collected
              and remitted by the seller at the time the seller remits the tax
              imposed by the said section five, article fourteen-c.

                      (3) On other purchases out-of-state. – An excise tax is
              hereby imposed on the use or consumption in this state of motor
              fuel purchased outside this state at the rate of five percent of the
              average wholesale price of the motor fuel, as determined in
              accordance with section five [§ 11-14C-5], article fourteen-c of
              this chapter: Provided, That motor fuel contained in the fuel
              supply tank of a motor vehicle that is not a motor carrier shall
              not be taxable, except that motor fuel imported in the fuel supply
              tank or auxiliary tank of construction equipment, mining
              equipment, track maintenance equipment or other similar
                                                                                     (continued...)

                                               7

This motor fuel use tax is calculated pursuant to W. Va. Code § 11-15A-13a(c)(1):

                    (c) Computation of tax due from motor carriers. – Every
             person who operates or causes to be operated a motor carrier in
             this state shall pay the tax imposed by this section on the
             average wholesale price of all gallons of motor fuel used in the
             operation of any motor carrier within this state, under the
             following rules:

                    (1) The total amount of motor fuel used in the operation
             of the motor carrier within this state is that proportion of the
             total amount of motor fuel used in a motor carrier’s operations
             within and without this state, that the total number of miles
             traveled within this state bears to the total number of miles
             traveled within and without this state.[7]

(Footnote added).



             Also at issue herein is the sales tax credit afforded to taxpayers for sales taxes

they have paid to another state. Pursuant to W. Va. Code § 11-15A-10a (2003) (Repl. Vol.

2010),

                    (a) [a] person is entitled to a credit against the tax
             imposed by this article on the use of a particular item of tangible
             personal property, custom software or service equal to the
             amount, if any, of sales tax lawfully paid to another state for the
             acquisition of that property or service: Provided, That the

             6
              (...continued)

             equipment, is taxed in the same manner as that in the fuel supply

             tank of a motor carrier.


See supra note 1.
             7
               Additional subsections of W. Va. Code § 11-15A-13a(c) regarding the
calculation of the subject tax are not at issue in this proceeding.

                                             8

              amount of credit allowed does not exceed the amount of use tax
              imposed on the use of the property in this state.

                      (b) For purposes of this section:

                     (1) “Sales tax” includes a sales tax or compensating use
              tax imposed on the use of tangible personal property or a service
              by the state in which the sale occurred; and

                     (2) “State” includes the District of Columbia but does not
              include any of the several territories organized by Congress.

This sales tax credit operates as an offset to the motor fuel use tax with which CSX was

assessed. The controversy in this case relates to the extent of the sales tax credit allowed by

W. Va. Code § 11-15A-10a, i.e., whether such credit is limited to sales taxes paid only to

other states or whether such credit is granted for sales taxes paid both to other states and the

subdivisions of other states.



              Our consideration of this issue is guided by the Commerce Clause, the dormant

Commerce Clause, and the cases analyzing these provisions.

                      The Commerce Clause grants Congress power to
              “regulate Commerce . . . among the several States.” [U.S.
              Const.] Art. I, § 8, cl. 3. . . . Although the Clause is framed as
              a positive grant of power to Congress, “we have consistently
              held this language to contain a further, negative command,
              known as the dormant Commerce Clause, prohibiting certain
              state taxation even when Congress has failed to legislate on the
              subject.” Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514
              U.S. 175, 179, 115 S. Ct. 1331, [1335,] 131 L. Ed. 2d 261
              (1995).

                      ....

                                               9

                      Under our precedents, the dormant Commerce Clause
              precludes States from “discriminat[ing] between transactions on
              the basis of some interstate element.” Boston Stock Exchange
              v. State Tax Comm’n, 429 U.S. 318, 332, n. 12, 97 S. Ct. 599,
              [608, n. 12,] 50 L. Ed. 2d 514 (1977). This means, among other
              things, that a State “may not tax a transaction or incident more
              heavily when it crosses state lines than when it occurs entirely
              within the State.” Armco Inc. v. Hardesty, 467 U.S. 638, 642,
              104 S. Ct. 2620, [2622,] 81 L. Ed. 2d 540 (1984). “Nor may a
              State impose a tax which discriminates against interstate
              commerce either by providing a direct commercial advantage to
              local business, or by subjecting interstate commerce to the
              burden of ‘multiple taxation.’” Northwestern States Portland
              Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S. Ct. 357,
              [362,] 3 L. Ed. 2d 421 (1959) (citations omitted).

Comptroller of the Treasury of Maryland v. Wynne, ___ U.S. ___, ___, 135 S. Ct. 1787,

1794, 191 L. Ed. 2d 813 (2015).



              To determine constitutionality under the dormant Commerce Clause, the United

States Supreme Court has developed a test, known as the Complete Auto test,8 wherein the

Court “considered not the formal language of the tax statute but rather its practical effect”

and provided a list of criteria a reviewing court should consider. Complete Auto Transit, Inc.

v. Brady, 430 U.S. 274, 279, 97 S. Ct. 1076, 1079, 51 L. Ed. 2d 326 (1977). We adopted this

test in Syllabus point 1 of Western Maryland Railway Co. v. Goodwin, 167 W. Va. 804, 282

S.E.2d 240 (1981), holding:



              8
              See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S. Ct. 1076, 51
L. Ed. 2d 326 (1977).

                                             10

                      A state tax on interstate commerce will not be sustained
              unless it: “(1) has a substantial nexus with the State; (2) is fairly
              apportioned; (3) does not discriminate; and (4) is fairly related
              to the services provided by the State.” Maryland v. Louisiana,
              451 U.S. 725, [754], 101 S. Ct. 2114, 2133, 68 L. Ed. 2d 576
              (1981).

While this test is phrased in terms of a tax that is charged to a taxpayer, it has been applied

with equal force to credits afforded to taxpayers. See generally Comptroller of the Treasury

of Maryland v. Wynne, ___ U.S. ___, 135 S. Ct. 1787, 191 L. Ed. 2d 813; Arizona Dep’t of

Revenue v. Arizona Pub. Serv. Co., 188 Ariz. 232, 934 P.2d 796 (Ct. App. 1997); General

Motors Corp. v. City & Cnty. of Denver, 990 P.2d 59 (Colo. 1999) (en banc).



                                    A. Substantial Nexus

              With respect to the first factor, “substantial nexus with the State,”9 we have

recognized that

              when a direct relationship can be demonstrated between the tax
              and the cost to the State of the benefits and protections it
              affords, there is a sufficient nexus for taxation, but the opposite
              is not true, i.e., nexus may exist even if the in-state activities are
              not shown to cost the State as much as the amount of the taxes.

Western Maryland, 167 W. Va. at 809, 282 S.E.2d at 244 (citations omitted). Therefore,

“purposive, revenue generating activities in the State are sufficient to render a person liable

for taxes” and to satisfy the nexus requirement. Id.


              9
              Syl. pt. 1, in part, Western Maryland Railway Co. v. Goodwin, 167 W. Va.
804, 282 S.E.2d 240 (1981) (internal quotations and citations omitted).

                                               11

              Under the facts of the case sub judice, we conclude that both the use tax

imposed by W. Va. Code § 11-15A-13a and the sales tax credit allowed by W. Va. Code

§ 11-15A-10a satisfy this first requirement of “substantial nexus with the State.” The parties

do not dispute that CSX operates its rail service through the State of West Virginia and that

it purchases fuel outside of West Virginia which it uses in its operations in this State.



                                     B. Apportionment

              Next we consider the apportionment requirement, which “ensure[s] that each

State taxes only its fair share of an interstate transaction.” Jefferson Lines, 514 U.S. at 184,

115 S. Ct. at 1338, 131 L. Ed. 2d 261 (internal quotations and citation omitted). Accord

Japan Line, Ltd. v. Los Angeles Cnty., 441 U.S. 434, 446-47, 99 S. Ct. 1813, 1820, 60

L. Ed. 2d 336 (1979) (“In order to prevent multiple taxation of interstate commerce, this

Court has required that taxes be apportioned among taxing jurisdictions, so that no

instrumentality of commerce is subjected to more than one tax on its full value.” (internal

citations omitted)).



              To evaluate whether a tax is “fairly apportioned,” the United States Supreme

Court ascertains whether the taxing scheme in question is internally consistent and externally

consistent.

              Internal consistency is preserved when the imposition of a tax
              identical to the one in question by every other State would add

                                              12

              no burden to interstate commerce that intrastate commerce
              would not also bear. This test asks nothing about the degree of
              economic reality reflected by the tax, but simply looks to the
              structure of the tax at issue to see whether its identical
              application by every State in the Union would place interstate
              commerce at a disadvantage as compared with commerce
              intrastate. A failure of internal consistency shows as a matter of
              law that a State is attempting to take more than its fair share of
              taxes from the interstate transaction, since allowing such a tax
              in one State would place interstate commerce at the mercy of
              those remaining States that might impose an identical tax. . . .

                      External consistency, on the other hand, looks not to the
              logical consequences of cloning, but to the economic
              justification for the State’s claim upon the value taxed, to
              discover whether a State’s tax reaches beyond that portion of
              value that is fairly attributable to economic activity within the
              taxing State. . . .

Id. at 185, 115 S. Ct. at 1338, 131 L. Ed. 2d 261 (citations omitted).



              In considering the apportionment criterion, we have observed that

              [a] tax on a person involved in both wholly intrastate commerce
              and interstate commerce with in-state aspects, must be tailored
              so as to attach primarily to revenue derived from in-state
              activities. In the case of transportation, it is true most of the
              time that a tax related to cargo or passenger miles traveled in
              state or to the miles of the line in state will be valid.

Western Maryland, 167 W. Va. at 809, 282 S.E.2d at 244 (citations omitted).



              Applying these standards to the facts of the case sub judice, we conclude that

the subject use tax is fairly apportioned. Consistent with our recognition in Western


                                             13

Maryland, the use tax herein is calculated with specific reference to the amount of motor fuel

CSX uses in its West Virginia operations:

                      The total amount of motor fuel used in the operation of
               the motor carrier within this state is that proportion of the total
               amount of motor fuel used in a motor carrier’s operations within
               and without this state, that the total number of miles traveled
               within this state bears to the total number of miles traveled
               within and without this state.

W. Va. Code § 11-15A-13a(c)(1). Thus, the use tax charged to CSX directly correlates to

the fuel that it uses for the miles it travels within West Virginia; as such, the use tax is fairly

apportioned.



               However, we cannot reach the same conclusion with respect to the Tax

Commissioner’s interpretation of the corresponding sales tax credit. Pursuant to W. Va.

Code § 11-15A-10a(a),

                       [a] person is entitled to a credit against the tax imposed
               by this article on the use of a particular item of tangible personal
               property, custom software or service equal to the amount, if any,
               of sales tax lawfully paid to another state for the acquisition of
               that property or service: Provided, That the amount of credit
               allowed does not exceed the amount of use tax imposed on the
               use of the property in this state.

Other than indicating that the word “State” includes the District of Columbia but none of the

United States’ territories, the statute is silent as to the scope of the sales tax credit allowed.

See W. Va. Code § 11-15A-10a(b)(2). In his arguments to the Court, the Tax Commissioner

contends that the sales tax credit applies only to sales taxes that CSX has paid to other states

                                                14

on its motor fuel purchases. By contrast, CSX argues that it should be permitted to claim the

sales tax credit both for sales taxes it has paid to other states upon its purchases of motor fuel

and for sales taxes it has paid to the municipalities of other states upon its purchases of motor

fuel. We find CSX’s position to be most in keeping with the Supreme Court’s internal

consistency test and recent cases interpreting the same.



               For example, in Comptroller of the Treasury of Maryland v. Wynne, ___ U.S.

___, 135 S. Ct. 1787, 191 L. Ed. 2d 813, the Supreme Court reviewed a Maryland income

tax scheme that allowed a credit to taxpayers for income tax they had paid to another state

but did not allow a credit for income tax they had paid to the county of another state. Finding

this differential treatment to be invalid under the internal consistency test, the Court

considered “not the formal language of the tax statute but rather its practical effect,”10

because “[t]he Commerce Clause regulates effects, not motives.” Id. at ___ n.4, 135 S. Ct.

at 1801 n.4, 191 L. Ed. 2d 813. In reaching its decision, the Court further noted that “[t]he

critical point is that the total tax burden on interstate commerce is higher,” which contravenes

the dormant Commerce Clause. Id. at ___, 135 S. Ct. at 1805, 191 L. Ed. 2d 813.




               10
               Comptroller of the Treasury of Maryland v. Wynne, ___ U.S. ___, ___, 135
S. Ct. 1787, 1795, 191 L. Ed. 2d 813 (2015) (internal quotations and citations omitted).

                                               15

              Likewise, in General Motors Corp. v. City and County of Denver, 990 P.2d 59

(Colo. 1999) (en banc), the Colorado Supreme Court examined a use tax levied by the City

and County of Denver, Colorado. Under the applicable law, the City and County provided

an offsetting sales tax credit, but only for such taxes paid to other states’ municipalities. See

D.R.M.C. § 53-92(c). Evaluating whether the subject tax was valid under the Commerce

Clause, the Colorado court observed that

                      [a] state tax is internally consistent if it is structured so
              that if every State were to impose an identical tax, no multiple
              taxation would result. . . . To avoid multiple taxation, a tax
              upon interstate commerce must either be apportioned to relate
              the tax to the activity taking place within the taxing state or it
              must allow a credit for other similar taxes paid by the taxpayer
              in other jurisdictions.

990 P.2d at 69 (internal quotations and citations omitted). Moreover, the court noted that

              the overwhelming majority of states meet the internal
              consistency test by providing a credit for sales or use taxes paid
              to other states. However, the crediting structure must be
              designed properly. Internal consistency requires that states
              impose identical taxes when viewed in the aggregate–as a
              collection of state and sub-state taxing jurisdictions. In other
              words, the interstate taxpayer should never pay more sales or use
              tax than the intrastate taxpayer.

Id. (internal quotations, citations, and footnote omitted). Upholding the tax’s validity, the

Colorado Supreme Court ruled that

              Denver must provide GM with a credit for the sales and use
              taxes paid to other states and their subdivisions such that GM
              will pay no more tax on the automobiles than it would have paid
              by purchasing the component parts in the City and County of
              Denver, State of Colorado.

                                               16

Id. at 71.    Without such offsetting credit, however, the subject tax would not be

constitutionally valid. See id.



               Finally, in Arizona Department of Revenue v. Arizona Public Service Co., 188

Ariz. 232, 934 P.2d 796 (Ct. App. 1997), the Arizona Court of Appeals considered whether

that state’s statute affording a tax credit for sales taxes “imposed . . . under the laws of

another state of the United States,” Ariz. Rev. Stat. § 42-1409(A)(2), applied only to sales

taxes paid to other states or whether it applied also to sales taxes paid to the counties of other

states. In determining that the tax credit extends to both sales taxes paid to other states and

to the counties of other states, the court recognized that

               [c]ounties are state-created entities[;] [c]ounties have only the
               powers that a state gives them[; and] [c]ounties draw their
               taxing authority from the state constitution.

                      The derivative relationship between a state and its
               counties means that when a county imposes a tax, it does so
               pursuant to a delegation of state tax authority.

Id. at 235, 934 P.2d at 799 (citations omitted). The court then reiterated the governing

constitutional tenets:

               The Commerce Clause of the United States Constitution forbids
               discrimination against interstate commerce. A state may not
               subject a transaction to a greater tax when it crosses state lines
               than when it occurs entirely intrastate.

                     State use taxes typically apply only to the use of goods
               purchased outside the taxing state and brought into it. A use tax
               thus inherently discriminates against interstate commerce.

                                               17

              Nevertheless, such a tax is valid under the Commerce Clause as
              a “compensatory tax” if the state imposes an intrastate tax such
              that the burdens imposed on interstate and intrastate commerce
              are equal. The taxpayer’s out-of-pocket expenses determine
              whether the burdens are equal.

Id. (citations omitted). Considering the tax credit at issue in the case, the Arizona court

determined that the tax credit extends both to sales taxes paid to other states and to sales

taxes paid to the counties of other states; otherwise, it reasoned, taxpayers paying both taxes

but not receiving credit for both taxes would incur a higher tax burden than an in-state

taxpayer who had not made such out-of-state purchases. Id.



              Applying these authorities to the case sub judice, we agree with the circuit

court’s determination that the sales tax credit afforded by W. Va. Code § 11-15A-10a extends

both to sales taxes CSX has paid to other states on its purchases of motor fuel therein and to

sales taxes that CSX has paid to the subdivisions of other states when it has purchased motor

fuel in such locales. Any other construction of this statute would invariably violate the

Commerce Clause’s prohibition on subjecting interstate transactions to a greater tax burden

than that imposed on strictly intrastate dealings. The easiest way to demonstrate this

dichotomy is through a simple math analysis. If, for example, CSX is required to pay a 5%

use tax11 on all motor fuel it uses in this State and if it is allowed a corresponding sales tax


              11
               The figures used in this hypothetical example are for explanation purposes
only and are not intended to reflect the precise measure of actual taxes assessed against or
                                                                              (continued...)

                                              18

credit for all fuel it has purchased out of state, such sales tax credit serves as an offset to

CSX’s use tax liability. Thus, in this example, if CSX pays 5% sales tax to State A, it would

receive a 5% sales tax credit that completely offsets its use tax liability.



               If, however, CSX pays 3% sales tax to State A and 2% sales tax to the City of

Metropolis in State A, it still is paying 5% out-of-state sales tax but, under the Tax

Commissioner’s interpretation of the sales tax credit, CSX would pay substantially more use

tax than a taxpayer who had not paid sales taxes to another state’s subdivision. This is so

because CSX is assessed the same 5% use tax, which is offset by the 3% State A sales tax

and yields a residual 2% use tax liability. Because, in this scenario, CSX did not receive a

sales tax credit for the additional 2% sales tax it paid to the City of Metropolis, however,

CSX essentially is paying 7% in total taxes, i.e., 5% use tax (which is partially offset by 3%

credit for sales tax paid to State A) + 2% sales tax paid to City of Metropolis (for which Tax

Commissioner did not grant it a sales tax credit) = 7%, simply because CSX transacted

business interstate in a jurisdiction that allowed its subdivisions to charge a sales tax. Strictly

in-state taxpayers would not incur this additional tax liability, nor would out-of-state

taxpayers who paid sales taxes assessed only by states and not their subdivisions.




               11
              (...continued)

paid by CSX in the underlying proceedings.


                                                19

              Thus, because disallowance of the sales tax credit for sales taxes imposed by

the subdivisions of other states would produce a “total tax burden on interstate commerce

[that] is higher” than a purely intrastate transaction, Wynne, ___ U.S. at ___, 135 S. Ct. at

1805, 191 L. Ed. 2d 813, we find the Tax Commissioner’s interpretation of the W. Va. Code

§ 11-15A-10a sales tax credit to be violative of the dormant Commerce Clause. Accordingly,

we hold that the sales tax credit granted by W. Va. Code § 11-15A-10a(a) (2003) (Repl. Vol.

2010) provides a credit for sales taxes paid both to other states and to the subdivisions and

municipalities of other states. Thus, we conclude that CSX is entitled to a sales tax credit,

under W. Va. Code § 11-15A-10a, for the sales taxes it has paid both to other states and to

the subdivisions thereof. As such, we affirm the rulings of the circuit court and the OTA

reaching the same conclusion.



                                    C. Discrimination

              The third factor examines whether the subject tax scheme discriminates or

treats taxpayers differently. See generally Syl. pt. 1, Western Maryland, 167 W. Va. 804, 282

S.E.2d 240. “Essentially this criterion requires equal treatment of interstate and local

commerce[.] No state may impose a tax which discriminates against interstate commerce by

providing a direct commercial advantage to local business.” Western Maryland, 167 W. Va.

at 809, 282 S.E.2d at 244 (internal quotations and citations omitted). In other words, “[a]

State may not impose a tax which discriminates against interstate commerce by providing a


                                             20

direct commercial advantage to local business. Thus, States are barred from discriminating

against foreign enterprises competing with local businesses, and from discriminating against

commercial activity occurring outside the taxing State.” Jefferson Lines, 514 U.S. at 197,

115 S. Ct. at 1344, 131 L. Ed. 2d 261 (internal quotations and citations omitted).



                Applying this query to the facts of the case sub judice, we find, as we did with

the apportionment requirement, that the use tax imposed by W. Va. Code § 11-15A-13a is

properly constructed so as to tax only the motor fuel that a motor carrier actually uses within

the boundaries of this State. However, as with our foregoing analysis of the corresponding

sales tax credit, we conclude that, under the interpretation afforded to W. Va. Code § 11­

15A-10a by the Tax Commissioner, allowing the sales tax credit only for sales taxes paid to

other states unfairly discriminates against interstate commerce. Therefore, we again

determine that the proper, and constitutionally sound, construction to be afforded to this

provision requires that it apply with equal force to grant a credit for sales taxes paid both to

other states and to sales taxes paid to the municipalities of other states on purchases of motor

fuel therein.




                                               21

                                       D. Relationship

              The fourth and final inquiry examines whether the tax on interstate commerce

is “fairly related to the services provided by the State.” Syl. pt. 1, in part, Western Maryland,

167 W. Va. 804, 282 S.E.2d 240. Accord Jefferson Lines, 514 U.S. at 199, 115 S. Ct. at

1345, 131 L. Ed. 2d 261 (“Finally, the Commerce Clause demands a fair relation between

a tax and the benefits conferred upon the taxpayer by the State.” (citations omitted)). In this

regard, we have noted that

              there need not be any direct correlation between the value of
              benefits afforded the taxpayer by the State and the cost of the
              tax to the taxpayer. Once the nexus requirement has been met,
              the fourth criterion imposes the additional limitation that the
              measure of the tax must be reasonably related to the extent of
              the contact [and] the activities or presence of the taxpayer in the
              State. Therefore, when the measure of a tax is reasonably
              related to the taxpayer’s activities or presence in the State[,] the
              taxpayer will realize, in proper proportion to the taxes it pays,
              the only benefit to which it is constitutionally entitled[:] that
              derived from his enjoyment of the privileges of living in an
              organized society, established and safeguarded by the devotion
              of taxes to public purposes.

Western Maryland, 167 W. Va. at 810, 282 S.E.2d at 245 (internal quotations and citations

omitted). See also Jefferson Lines, 514 U.S. at 200, 115 S. Ct. at 1346, 131 L. Ed. 2d 261

(“Complete Auto’s fourth criterion asks only that the measure of the tax be reasonably related

to the taxpayer’s presence or activities in the State.” (citation omitted)).




                                               22

              As with our review of the substantial nexus requirement, we likewise conclude

that the subject use tax and corresponding sales tax credit are fairly related to the services

provided to CSX by this State as well as to CSX’s presence and activities herein. In short,

CSX maintains an extensive system of railway lines in this State, and West Virginia, in turn,

provides emergency services and other infrastructure related to CSX’s operations.



              Having considered each of the factors of the Complete Auto test, we are left

with the definite and firm conclusion that both the OTA and the circuit court ruled correctly

in determining that the sales tax credit granted by W. Va. Code § 11-15A-10a extends both

to sales taxes paid to other states and to sales taxes paid to the subdivisions of other states.

Accordingly, we affirm the circuit court’s order.



                                              IV.


                                      CONCLUSION


              For the foregoing reasons, the August 24, 2015, order of the Circuit Court of

Kanawha County is hereby affirmed.



                                                                                     Affirmed.




                                              23

