## Facts

- Corporate Executive Board Company (CEB) was a multistate corporation headquartered in Arlington, Virginia, selling fixed-fee subscription advisory/research products and related services to customers largely outside Virginia.
- During tax years 2011–2013, CEB had approximately $1.76 billion in total sales; roughly $66 million was attributable to Virginia customers, and more than 95% of sales were to customers outside Virginia.
- More than half of the employees who developed and improved the content for CEB’s online subscription products worked in Virginia, and the online content was housed on servers located in Virginia (apart from certain live events and customized support).
- Virginia apportioned corporate income using a three-factor formula (property, payroll, sales) and sourced receipts from services and intangibles using a cost-of-performance rule, assigning receipts to Virginia if the greatest proportion of income-producing activity (measured by costs) occurred in Virginia.
- Applying this framework, the Department treated CEB’s subscription and related service receipts as Virginia sales, allocating nearly all receipts to Virginia for apportionment purposes.
- CEB sought administrative relief, alleging that the apportionment was unconstitutional as applied and, alternatively, that it qualified for relief under Virginia’s alternative apportionment provision for “inequitable” results; the Department denied relief.
- CEB sued in the Circuit Court of Arlington County; on cross-motions for summary judgment on a stipulated record, the circuit court ruled for the Department, and CEB appealed.

## Issues

1. Whether Virginia’s application of cost-of-performance sourcing and its statutory apportionment formula to CEB’s 2011–2013 income violated the Dormant Commerce Clause or the Due Process Clause as applied.
2. Whether CEB was entitled to alternative apportionment relief on the ground that the statutory method operated as an “inequitable method” and that CEB’s proposed alternative was better calculated to assign income to Virginia.

## Decision

- The Supreme Court of Virginia affirmed summary judgment for the Department.
- The Court held that the statutory apportionment method, including cost-of-performance sourcing, was constitutional as applied to CEB.
- The Court rejected CEB’s multiple taxation argument, reasoning that overlap arising from different state sourcing regimes did not alone establish unconstitutional apportionment.
- The Court held that CEB did not qualify for relief under the alternative apportionment regulation and, in any event, failed to prove its proposed alternative method was better calculated to fairly assign income to Virginia.

## Legal Principles

- A state may apply a UDITPA-style apportionment formula and source service/intangible receipts using a cost-of-performance test, consistent with the Dormant Commerce Clause and Due Process Clause, if the result fairly reflects in-state activity.
- In an as-applied apportionment challenge, the taxpayer must show the state’s method reaches beyond the portion of value fairly attributable to economic activity within the state.
- The possibility that other states tax the same income under different sourcing rules does not, by itself, render a state’s apportionment unconstitutional.
- Alternative apportionment relief is available only under the governing provision and regulation’s terms; the taxpayer bears the burden to show (1) the statutory method operates inequitably as applied and (2) the proposed alternative method is better calculated to assign income to the state.

## Conclusion

The court upheld Virginia’s allocation of CEB’s service receipts to Virginia under a cost-of-performance rule, finding the apportionment rationally related to CEB’s Virginia-based income-producing activities and rejecting both the constitutional challenge and the request for alternative apportionment relief.


Corp. Exec. Bd. Co. v. Va. Dep’t of Tax’n, 297 Va. 57, 822 S.E.2d 918 (2019)