Tax Type
BPOL Tax
Local Taxes
Description
Specific Types of Local License Taxes
Topic
Local Power to Tax
Date Issued
07-06-2000
July 6, 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 the application for correction filed by you with the Department of Taxation pursuant to Code of Virginia §58.1-3703.1(A)(5). You appeal a final local determination upholding an assessment of BPOL taxes to you ("the Taxpayer") by the Commissioner of the Revenue of the County of ****** ("the County"). I apologize for the delay in responding to your application for correction.
The local license tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. The following determination is based on the facts presented to the department by the Taxpayer and the County as summarized below.
This determination addresses (1) whether or not the assessment in question is an audit assessment which can be appealed to the department, (2) whether or not the locality may combine the gross receipts earned by the Taxpayer under different licenses in order to meet the threshold for imposition of a license tax rather than a fee, and (3) whether or not the Taxpayer may use an accounting method for license tax purposes which differs from that used on his federal income tax return. Copies of cited sources are enclosed.
Code of Virginia § 58.1-3703.1(A)(5)(a) provides that, 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.
FACTS
The Taxpayer, an individual, engages in business at a definite place of business in the County. In 1998, the Taxpayer obtained two business licenses from the County, authorizing the Taxpayer to engage in business at that place of business as a wholesale merchant and as a provider of personal services.
The County requires taxpayers to pay a single license fee per place of business, regardless of the number of business licenses the taxpayer must obtain for the place of business. This fee is calculated using the combined gross receipts or, in the case of wholesale merchants, gross purchases, derived from all business licenses obtained by the taxpayer for that place of business. Accordingly, the Taxpayer paid a license fee for license year 1998 which was based on his reported combined volume at that place of business from his wholesale merchant's and personal service's licenses for the base year (1997).
The County subsequently reviewed the Taxpayer's 1997 federal tax return and determined that the Taxpayer had under-reported his 1997 gross purchases on his 1998 license tax application. Using the gross purchases reported on the Taxpayer's federal income tax return, the Taxpayer's combined volume from his wholesale merchant's and personal service's licenses exceeded the $100,000.00 threshold for license taxation in the County. Accordingly, the County determined that the Taxpayer, was subject to a license tax rather than a license fee and assessed additional taxes, penalties and interest for license year 1998.
The Taxpayer sought correction of this assessment, arguing that (1) the locality may not combine the gross receipts earned by the Taxpayer under different licenses in order to meet the threshold for imposition of a license tax rather than a fee, and (2) the Taxpayer is entitled to use an accounting method to determine his taxable volume which differs from that used on his federal income tax return. The Taxpayer filed this appeal after the County rejected his arguments. It is the County's position that the department does not have jurisdiction to hear this appeal, as this assessment, based on a review of the Taxpayer's federal income tax return, was not an audit assessment.
ANALYSIS
Appeals of Local License Tax Assessments to the Department
Code of Virginia § 3703.1(A)(5)(c) provides that "(a)ny person assessed with a local license tax as a result of an audit may apply . . . to the Tax Commissioner for a correction of such assessment (emphasis added)." 2000 BPOL Guidelines § 7.4 defines an "audit" as "an examination of records, financial statements, books of accounts, and other information to evaluate the correctness of a local license tax. An audit shall include . . . examinations resulting in adjustments made to gross receipts. . ."
The review of a taxpayer's federal income tax return to verify the volume reported on the taxpayer's license tax return is, as contemplated by the Guidelines, an audit. It is my determination that this assessment resulted from an audit, and therefore, can be appealed to the department.
License Tax Thresholds
The County argues that, in order to determine whether a taxpayer has met the threshold for license taxation, it may combine the gross receipts derived from all licenses held by the taxpayer. The County argues that it may do so because § 6-4 of the County's business license ordinance requires such a combination of gross receipts for determining the taxpayer's liability for the license fee:
[a]n annual license fee shall be paid for each definite place of business provided that the business shall not pay more than a single license fee per place of business regardless of the number of licenses the business must obtain.
§ 6-4 provides that this fee is determined by applying the combined gross receipts or, in the case of wholesale merchants, gross purchases, attributable to the place of business to a fee schedule.
I disagree with the County's argument. The provisions of the ordinance which impose the license tax do not contain any provision requiring the combination of gross receipts. Furthermore, any such interpretation of the ordinance is contrary to state law. In general, each licensable business undertaken at a definite place of business must be separately licensed. Code of Virginia § 58.1-3703.1(A)(1). Under this general rule, a taxpayer can be charged a fee for each business license issued by a locality. The issuance of a license, however, carries with it license tax threshold protection. Please see Public Document 97-69, copy enclosed, for a discussion of this issue.
It is my determination that the Taxpayer is entitled to the benefit of a $100,000.00 threshold for each license issued by the County. As the Taxpayer's base year volume derived from each license was less than the $100,000.00 threshold, the Taxpayer was not subject to a license tax on either license in 1998.
Accounting Methods
§ 6-2 of the local business license ordinance provides that gross receipts shall be computed using the same method of accounting as is used by the taxpayer for federal income tax purposes. The lawfulness of such a provision is supported by Virginia case law. See Monument Associates, et al. v Arlington County Board, et al., 242 Va. 145 (1991). It is my determination that the County did not err when it required the Taxpayer to use the same method of accounting used by the Taxpayer for federal income tax purposes.
I am returning this matter to the County for correction of the assessment consistent with this determination. If you have any other questions about this final determination, please do not hesitate to contact **************, Tax Policy Analyst, in my Office of Tax Policy at *****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21342D
Related Documents
Rulings of the Tax Commissioner