Virginia: In the Circuit Court of the City of Richmond, John Marshall Courts Building
KOHL'S DEPARTMENT STORES, INC., Plaintiff,
v. Case No.: CL 12-1774
VIRGINIA DEPARTMENT OF TAXATION, Defendant.
OPINION AND ORDER
On August 27, 2021, the parties appeared, by Counsel, on Kohl's Department Stores, Inc. (hereinafter, "Kohl's") Motion to Reconsider this Court's May 13, 2021 Opinion and Order (hereinafter, "May 13 Opinion") granting the Virginia Department of Taxation's (the "Department") Motion for Summary Judgment and denying Kohl's Motion for Partial Summary Judgment. After oral argument on the Motion, the Court took the matter under advisement. Upon consideration of the evidence, the arguments of the parties, and the relevant law, the Court hereby DENIES Kohl's Motion for Reconsideration.
I. Background
The Virginia add back statute and its subject-to-tax exception provide, in relevant part:
B. There shall be added to the extend excluded from federal taxable income:[ ]
8.a. For taxable years beginning on and after January l, 2004, the amount of any intangible expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with one or more related members to the extent such expenses and costs were deductible or deducted in computing federal taxable income for Virginia purposes. This addition shall not be required for any portion of the intangible expenses and costs if one of the following applies:
(1) The corresponding item of income received by the related member is subject to a tax based on or measured by net income or capital imposed by Virginia, another state, or a foreign government that has entered into a comprehensive tax treaty with the United States government....
Va. Code § 58.1-402(B)(8)(a) (emphasis added).
The Supreme Court of Virginia, in interpreting the subject-to-tax exception, held that it "applies only to the extent that the royalty payments were actually taxed by another state. That is, the exception applies on a post-apportionment, rather than a pre-apportionment, basis." Kohl's Dep't Slores, Inc. v. Va. Dep 't of Taxation, 295 Va. 177, 190 (2018). Further, the Court held, "[t)o the extent that the royalties were actually taxed by the Separate Return States, Combined Return States, or Addback States, they fall within the subject-to-tax exception regardless of which entity paid the tax." Id. at 191. The parties agreed to the calculation of the addback in several of the states.
The Supreme Court of Virginia remanded the matter "for determination of what portion of the royalty payments [Kohl's paid to Kohl's Illinois] was actually taxed by another state and, therefore, exempted from [Virginia's] add back statute." Kohl's, 295 Va. at 191. As such, the issue before this Court was whether and to what extend the royalty payments were actually taxed by the Combined Return States or certain Addback States wherein Kohl's or Kohl's Illinois filed tax returns.
On May 13, 2021, this matter came before the Court on Kohl's Motion for Partial Summary Judgment and on the Department's Motion for Summary Judgment. This Court found that Kohl's failed to meet its burden to show the royalty payments were apportioned to and actually taxed in other states in order to correctly calculate and receive the exception under Va. Code § 58.1- 402(B)(8)(a). The record did not show how or in what amount the royalty payments were subjected to tax, and thus excepted from the add back statute, in the Combined Return States, Georgia, or Maryland. This Court upheld the Department's assessment as to those states because Kohl's did not show that the "assessment... complained of is erroneous or otherwise improper." Va. Code § 58.1-1825. The Court ultimately granted the Department's Motion for Summary Judgment and denied Kohls' Motion for Partial Summary Judgment.
II. Analysis
The purpose of a motion to reconsider is to "ask[] a court to reconsider a holding because, in the opinion of the movant, the holding was erroneous." Wal-Mart Stores East, LP v. State Corp. Comm 'ns, 844 S.E.2d 676,686 (2020). Generally, Virginia law disfavors motions to reconsider because "judicial economy requires that litigants have one, but only one, full and fair opportunity to argue a question of law" and "[t]he time required to hear a litigant reargue a question a second time must be taken from other litigants who are waiting to be heard." Hechler Chevrolet, Inc. v. Gen. Motors Corp., 230 Va. 396, 403 ( 1985). Further, such motions are especially disfavored when reconsideration "would accomplish nothing more than provide an opportunity for reargument of the question already decided." Id. Thus, denying a motion for reconsideration is appropriate when "[t]he court's ruling... would necessarily have been based upon the same ground as its original ruling." Id.
The Court has discretion to deny reopening the matter after an evidentiary hearing "during which each party had ample opportunity to present evidence." Morris v. Morris, 3 Va. App. 303, 307 ( 1986). A trial court's decision to grant or deny a motion to reconsider is
reviewed on an abuse of discretion standard. Wal-Mart Stores East, LP, 844 S.E.2d at 686 (citing Reyes v. Commonwealth, 297 Va. 133, 139 (2019)). Abuse of discretion can occur in any of the following three ways: "when a relevant factor that should have been given significant weight is not considered; when an irrelevant or improper factor is considered and given significant weight; and when all proper factors, and no improper ones, are considered, but the court, in weighing those factors, commits a clear error of judgment." Carr v. Sahara Motors, LLC, 2020 WL 6074150, at * I (Oct. 15, 2020) (quoting Landrum v. Chippenham & Johnson Willis Hosp., Inc., 282 Va. 346,352(2011)).
In its brief, Kohl's argued the Court erroneously denied Kohl's Motion for Partial Summary Judgment and granted the Department's Motion for Summary Judgment. Kohl's contends the findings in the May 13 Opinion and Order "are directly contrary to the record in this case." Kohl's Mot. Recons., at 1. To support this contention, Kohl's recreated the record in a manner inconsistent with and distinctly different from its presentation at the May 13 hearing. Rather, Kohl's utilized figures from various lines and/or pages of the record and claimed those numbers are sufficient to establish the amount of the royalties apportioned to and taxed by other states.
At the hearing, however, Kohl's argued they did not put forth evidence of the figures and calculations at the May 13 hearing because they believed the Court would only be deciding the methodology to be used. Kohl's provided the Court with a copy of the Minnesota tax return for the year ending on January 31, 2009, which they assert is in the record. Counsel for Kohl's walked the Court through that tax return to support its position.
The Department maintains Kohl's is seeking a "second bite at the apple," and the Court should deny the Motion for two reasons-one procedural and one substantive. Procedurally, the Department argues Virginia courts disfavor motions for reconsideration and that the appropriate avenue is for Kohl's to appeal this Court's Order. Substantively, the Department argues Kohl's is utilizing a different approach to arguments it previously made. Further, the Department contends Kohl's is merely identifying figures in the tax return, without more, through its Counsel and not a tax professional. The Department maintains that to grant Kohl's Motion would be improper because Kohl's had the opportunity to support its claims through expert testimony at the May 13 hearing.
At the May 13 hearing, Kohl's had the burden to show the royalty payments were apportioned to and actually taxed in other states to correctly calculate and receive the exception under Va. Code § 58.1-402(B)(8)(a) but failed to do so. Thus, Kohl's had a "one, full and fair opportunity to argue a question of law" at the May 13 hearing. Hechler Chevrolet, Inc., 230 Va. at 403. Granting Kohl's Motion for Reconsideration "would accomplish nothing more than provide an opportunity for reargument of the question already decided." Id.
III. Conclusion
Based on the foregoing, the Court hereby DENIES Kohl's Motion for Reconsideration. Pursuant to Rule I:13 of the Supreme Court of Virginia, the Court dispenses with the parties' endorsement of this Order.
The Clerk is directed to forward a certified copy of this Order to all parties.
It is so ORDERED.
ENTER 9/9/2021 - Jacqueline S. McClenney, Judge