Rulings of the Tax Commissioner

March 16, 2023

Re:    Appeal of Final Local Determination
         Taxpayer:  *****
         Locality Assessing Tax:  ***** 
         Business, Professional and Occupational License (BPOL) tax

Dear *****:

This notice of jurisdiction is issued upon the application for correction filed by ***** (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals an assessment of BPOL tax issued by ***** (the “County”) for the 2021 tax year.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.

FACTS

The Taxpayer filed a federal Form 1040 Schedule C using the County code on his joint Virginia individual tax return for the 2020 taxable year. As a result, the County determined that he was operating a business in the County and that a business license was required. Because the Taxpayer had not obtained a County business license or paid any BPOL tax, an assessment of BPOL tax was issued.  

The Taxpayer appealed to the County, contending that he was an employee of a trucking company and therefore did not need to obtain a business license. He also argued that the County had not informed him of the appeals process. In its letter of February 9, 2022, the County upheld the assessment, stating that the Taxpayer had not provided any evidence showing that he was an employee rather than the operator of a business or that he had filed income tax returns in other states in order to allow him to deduct gross receipts attributable to business conducted out of state. The Taxpayer appealed to the Department, repeating his contentions that the County failed to inform him of his appeal rights and that he was an employee of a trucking company and, as such, was not required to obtain a business license or pay BPOL tax. 

ANALYSIS

Jurisdiction

The Code of Virginia creates a review process designed to encourage resolution of local license tax issues through an appeals process that includes review by the local assessing officer and appeal to the Department. Through this process, a taxpayer who disagrees with an audit assessment may apply to the local assessing officer for review. If the taxpayer is dissatisfied with the results of the local review, the taxpayer may appeal the local decision to the Department, who will make a determination of the issues raised by the taxpayer. See Title 23 of the Virginia Administrative Code (VAC) 10-500-640. 

Specifically, Virginia Code § 58.1-3703.1 A 5 provides that any person assessed with a local license tax as a result of an appealable event may file an administrative appeal of the assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of the appealable event, whichever is later, with the commissioner of the revenue or other local assessing official. An appealable event is an increase in the assessment of a local license tax payable by the taxpayer, the denial of a refund, or the assessment of a local license tax where none previously was assessed. In addition, an appealable event includes a taxpayer’s appeal of a classification, regardless of whether it is in conjunction with an assessment, examination, audit, or any other action taken by the locality. 

This statute also provides the procedure that a taxpayer must follow to appeal a final local license tax assessment. A taxpayer must file an appeal with the locality in which the appealable event occurred. Once an appeal is filed, the locality’s assessing officer will fully review the taxpayer’s claim and issue a final determination letter setting forth the facts and arguments in support of its decision. See Virginia Code      § 58.1-3703.1 A 5 b.    

Under Virginia Code § 58.1-3703.1 A 6 a, a taxpayer may file an appeal with the Department only after a final determination has been issued by a locality. See Public Document (P.D.) 11-124 (7/1/2011). Virginia Code § 58.1-3703.1 A 5 e, however, does allow a taxpayer to appeal directly to the Department if an appeal filed with a locality has been pending for more than one year. Under such circumstances, the taxpayer can elect to consider the local appeal to have been denied. The taxpayer is required to give a locality 30 days written notice of such an election.  

The Taxpayer contends that the County did not provide the required notice of his appeal rights. The County’s purported final local determination cited Virginia Code § 58.1-3983.1, which addresses the procedure for appealing local business tax assessments other than the BPOL tax. Virginia Code § 58.1-3703.1, however, is the statute governing the BPOL tax appeals process. Further, Title 23 VAC 10-500-710 contains specific language that must be included in any final written determination for a BPOL tax appeal. This language was not included in the County’s final local determination.  

Income Tax Statutes and Regulations

The Taxpayer cites certain income tax statutes and regulations in support of his contention that he was not subject to the BPOL tax. The BPOL tax, however, is a separate and distinct tax, and the income tax statutes and regulations cited do not apply to BPOL tax. The amount, if any, of a taxpayer’s gross receipts that are subject to the BPOL tax must be addressed with reference to the applicable BPOL statutes and regulations found in Chapter 37 of Title 58.1 of the Code of Virginia (Virginia Code § 58.1-3700 et seq.) and Title 23 VAC 10-500-10 et seq., respectively.

Truck Drivers

It appears that the Taxpayer reported income from trucking services on a Schedule C. Normally, reporting such income on a Schedule C, rather than as wages reportable on a Form W-2, would be indicative of operating a business. See P.D. 15-16 (2/3/2015). In fact, receiving income reportable on a Schedule C creates a rebuttable presumption that a business is being operated. See Virginia Code § 58.1-3700.1 and P.D. 18-204 (12/10/2018). The trucking industry, however, also presents some unique issues with respect to local taxation. The Department has previously addressed some of these issues. See, e.g., P.D. 97-125 (3/11/1997), P.D. 99-84 (4/22/1999), P.D. 11-42 (3/16/2011), P.D. 12-172 (11/2/2012), P.D. 13-214 (11/22/2013) and P.D. 14-94 (6/24/2014).

DETERMINATION

The County’s letter dated February 9, 2022, claimed to be a final determination, but that letter failed to cite the governing BPOL statute and did not include the required language to notify the Taxpayer of his appeal rights as prescribed under Title 23 VAC 10-500-710. The Taxpayer, however, has not provided the County with certain information that it requested. On appeal, a BPOL tax assessment is deemed prima facie correct, i.e., the local assessment will stand unless the taxpayer proves that it is incorrect.

In light of these circumstances, this case will be returned to the County so that the Commissioner of the Revenue can issue a valid final local determination. The Taxpayer must provide any information that the County may request as a part of its review. The Taxpayer should also review the analysis set forth above and submit any further information to the County he believes is relevant to its review. Once a new final local determination is issued, the Taxpayer will have 90 days to file an appeal with the Department if he disagrees with the outcome of that determination. If the case has been pending with the County for more than one year, the Taxpayer may also appeal to the Department after giving the County the requisite notice. I also recommend that the Taxpayer and County review the BPOL tax appeals procedures described in Title 23 VAC 10-500-640 et seq. 

If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/4174.B