April 5, 2023
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) tax
Dear *****:
This final state determination is issued upon the application for correction filed by ***** (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals the assessment of Business, Professional and Occupational License (BPOL) tax by ***** (City A) for the 2019 tax year.
The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. 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.
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations, and public document 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 provided counseling services at definite places of business in both City A and the ***** (City B), among other localities. The Taxpayer divided up its Virginia offices into regions for certain administrative purposes. The City A and City B offices were both located in the same region. The Taxpayer filed and paid BPOL taxes to City A and City B for the 2019 tax year, situsing all gross receipts related to that region between the two localities. The Taxpayer was audited by City A. Based on the Taxpayer’s regional profit and loss statement, City A attributed all of that region’s gross receipts to City A, resulting in an assessment.
The Taxpayer appealed to City A, asserting that a portion of the gross receipts should have been sitused to City B and provided its calculation of the attribution between the two localities. In its final determination, City A upheld its assessment, concluding that gross receipts were properly sitused to City A based on the profit and loss statement. The Taxpayer filed an appeal with the Department, contending it should be permitted to situs gross receipts using the payroll apportionment method. It also requests that the interest assessed be waived.
ANALYSIS
Situs
In determining the situs of gross receipts, Virginia Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
As indicated above, the Taxpayer had more than one definite place of business. When a taxpayer has more than one definite place of business, gross receipts attributable to services performed at each definite place of business would be sitused to that particular locality. Only to the extent that services were not performed at a definite place of business would they be sitused to the place from which they were directed or controlled.
The Taxpayer had a definite place of business in both City A and City B. Because they were located in the same region, and, thus, included in the same regional profit and loss statements, gross receipts for the region would have to be divided between the two localities based on the office at which the services were performed.
As indicated above, not all services were performed at Taxpayer’s offices. Services were also provided in client homes, schools, and the community at large. Further, the Taxpayer explains that each counselor was assigned a supervisor and that each supervisor generally worked out of an office location. Supervisors reported to site managers, who generally only managed one location. In this case, however, one site manager was responsible for managing both the City A and City B offices. These facts raise questions as to the place or places from which the services occurred or were directed or controlled.
In addition, pursuant to Virginia Code § 58.1-3703.1 A 4 b, payroll apportionment is only to be used as a last resort when it is impossible or impractical to situs gross receipts from services to where the service is performed or directed and controlled. A taxpayer must show that payroll apportionment is necessary to situs gross receipts. See Public Document (P.D.) 14-121 (7/24/2014).
Interest
The Taxpayer has requested that the interest assessed by City A be waived. Unlike a penalty, interest assessed for the underpayment of the BPOL tax cannot be waived. See Title 23 of the Virginia Administrative Code (VAC) 10-500-570.
DETERMINATION
City A relied on one profit and loss statement that assigned all of the respective region’s gross receipts to City A. Based on the available information, however, it is questionable whether all such gross receipts should have been sitused to City A under the statutory situs rules.
Further, the Taxpayer has not demonstrated to the Department’s satisfaction that situsing gross receipts under the general rule is impossible or impractical such that payroll apportionment is necessary. While the Department reaches no definite conclusion as to this issue at this time, it seems at least possible that a business such as the one described would reasonably be able to attribute gross receipts to an office if services were provided there or to an office from which services provided outside the office were directed or controlled.
Accordingly, I am remanding the case in order for City A to evaluate the situsing of the Taxpayer’s gross receipts. The Taxpayer should provide information indicating what amount of gross receipts were attributable to services performed at the definite place of business in City A. Further, to the extent any services were not performed at a definite place of business, the Taxpayer should provide City A with information indicating the extent which services were directed or controlled from the City A office, if any. Only if the Taxpayer can demonstrate that it is impossible or impractical to situs gross receipts under these methods may payroll apportionment be used.
City A should work with the Taxpayer regarding the additional information required and set deadlines for the production of documents. Based on its review of all the additional information, the City must make the appropriate adjustments and either abate the assessment or issue a new final determination for the 2019 tax year. If the Taxpayer disagrees with City A’s new final determination, it may appeal pursuant to Title 23 VAC 10-500-720. Interest cannot be waived from any resulting assessment.
Alternatively, City A may consider entering into an agreement with City B pursuant to Virginia Code § 58.1-3703.1 A 3 c concerning the manner in which gross receipts are to be apportioned between the definite places of business in those jurisdictions. Because the sum of gross receipts apportioned by such agreement may not exceed the total gross receipts attributable to definite places of business covered by the agreement, such an agreement would protect the Taxpayer from being subject to tax on the same receipts in both locations.
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/4219.B