Tax Type
BPOL Tax
Local Taxes
Description
Contractors; Situs rules and license requirements
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
06-27-2000
June 27, 2000
Re: Taxpayer: ****
Locality Assessing Tax:
Final State Determination
Appeal of Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This final state determination is issued upon an application for correction of
BPOL taxes filed by you on behalf of **** (the "Taxpayer"). The assessment contested was made by the Commissioner of the Revenue of the City of **** (the "City"). I apologize for the delay in responding to your application for correction.
The BPOL tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to issue determinations on taxpayer appeals of certain BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, 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 by the Taxpayer and the City as summarized below. Copies of cited sources are enclosed.
FACTS
The Taxpayer is a general contractor. After a review of the Taxpayer's 1995-97 federal income tax returns, the City determined that the gross receipts reported each year by the Taxpayer on its federal income tax returns exceeded the combined gross receipts reported to the City and other localities in which the Taxpayer obtained business licenses. The City assessed additional license taxes on account of these unreported receipts. The Taxpayer filed an application for correction of this assessment with the City and filed this appeal when the City rejected its arguments.
The Taxpayer states that its gross receipts for federal income tax purposes exceed its combined gross receipts for local license tax purposes because it excludes certain land sales from its local license tax gross receipts.
As a part of its business, the Taxpayer builds homes on land owned by its customers. However, the Taxpayer's bank will not provide the Taxpayer with construction financing for these homes unless the Taxpayer owns the land. In order to comply with this requirement, the Taxpayer purchases the land from its customers and resells the improved real estate to its customers after construction is completed.
The Taxpayer argues that gross receipts attributable to these land sales should be excluded from its gross receipts because it purchased the land solely to obtain construction financing and not to make a profit from the sale of the land.
ANALYSIS
Gross Receipts
Section 1 of the 2000 BPOL Guidelines defines "gross receipts" to be:
-
- the whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law.
- the whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law.
Situs Rule and License Requirements for Contractors
Although the Taxpayer is not entitled to an exclusion for the gross receipts in question, the facts presented are not sufficient to determine whether these gross receipts are subject to license taxation in the City or another locality.
Code of Virginia § 58.1-3703.1(A)(3) provides that the gross receipts of a contractor shall be attributed to the definite place of business at which his services are performed, or if his services are not performed at any definite place of business, then to the definite place of business from which his services are directed or controlled. Gross receipts attributable to localities other than the City would not be subject to tax in the City. Code of Virginia § 58.1-3708 (B).
This situs rule does not apply to contractors who are subject to Code of Virginia § 58.1-3715, which provides that a contractor who earns gross receipts of $25,000 or more in a year in a locality may be subject to a license fee or tax on those gross receipts in the locality regardless of the duration of the business activity. Gross receipts subject to tax under Code of Virginia § 58.1-3715 are not subject to tax in any other Virginia locality.
CONCLUSION
The facts presented are not sufficient to determine whether or not the receipts in question are attributable to the City under Code of Virginia § 58.1-3703.1(A)(3) or subject to tax by the City under Code of Virginia § 58.1-3715. Accordingly, I am returning this matter to the City for a factual redetermination regarding this issue. The Taxpayer may appeal the City's redetermination to the department within 90 days of the redetermination. Otherwise, as the Taxpayer has not shown sufficient proof that the assessment made by the City is incorrect on any other grounds, the assessment stands as is. If you have other questions, please do not hesitate to contact ****, Tax Policy Analyst, in my Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26276D
Rulings of the Tax Commissioner