Tax Type
BPOL Tax
Local Taxes
Description
Audit vs. license application request; "Audit" defined
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
05-23-2001
May 23, 2001
Re: Taxpayer: ****
Locality Assessing Tax: ****.
Appeal of Business, Professional, and Occupational License (BPOL) Tax
Dear ***********
This final determination is issued upon an application for correction of a BPOL tax assessment filed by you on behalf of **** (the "Taxpayer"). The assessment was made by the **** of the County of ***** (the "County").
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 County as summarized below. Copies of cited sources are enclosed.
FACTS
The Taxpayer manufactures marine comfort control products (the "Finished Goods") at a manufacturing facility (the "Factory") located in a Virginia locality. The Finished Goods are stored at a storage facility (the "Warehouse") located in another Virginia locality, the County.
The Taxpayer sells the Finished Goods at wholesale. All sales contracts are negotiated and entered into by sales personnel located at the Factory. The Finished Goods are shipped by common carrier to the Taxpayer's customers from the Warehouse. The Taxpayer employs several individuals at the Warehouse. The sole responsibility of these employees is to ensure that the correct finished products are placed into the common carriers' vehicles. These employees have no customer contact.
The County imposes a business license tax on wholesale merchants and distribution houses based on their gross purchases. Sometime after the Taxpayer commenced activities at the Warehouse, it was approached by the County about obtaining a business license. The Taxpayer refused to obtain a business license. The Taxpayer asserted that it is a manufacturer selling at wholesale from its place of manufacture and, under Code of Virginia § 58.1-3703(C)(1), not subject to local license taxation.
The County issued a criminal summons requiring the Taxpayer to appear in the County's General District Court to answer the charge that it was operating a business in the County without a business license. The facts presented indicate that the matter was never heard by the court.
Soon after the issuance of the summons, the Taxpayer filed a County business license application. The Taxpayer reported that because its activities at the Warehouse were ancillary to its manufacturing operations at the Factory, it had no gross purchases subject to tax in the County.
The County requested that the Taxpayer provide its gross purchases. In response, the Taxpayer's attorney wrote a letter to the County. This letter, which reiterated the Taxpayer's arguments, provided the gross purchases. The letter also enclosed a simple breakdown of the gross purchases by category.
The County used the gross purchases provided by the Taxpayer's attorney to calculate the Taxpayer's license tax liability. The Taxpayer appealed this assessment to the County and filed this appeal when its arguments were rejected by the County. The County asserts that the assessment is not an audit assessment and thus cannot be appealed to the Department of Taxation.
ANALYSIS
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." 2000 BPOL Guidelines § 7.4 defines "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, but is not limited to, an examination to determine the correctness of a classification of a licensable business, examinations resulting in adjustments made to gross receipts, tax, and other information contained in the taxpayer's return, and examinations resulting in the imposition of a local license tax when no return has been filed (Emphasis added).
In Public Document (P.D.) 00-132 (July 7, 2000), the department ruled that a locality's examination of a taxpayer's federal income tax return in order to verify the gross receipts that the taxpayer reported on his license tax application constituted an audit for purposes of Code of Virginia§ 3703.1(A)(5)(c).
The actions of the County in this case differ significantly from those of the taxing authority discussed in P.D. 00-132. The facts presented indicate that the parties have not disputed a single fact in the course of this matter. From its onset, this matter has been focused on one narrow issue of law - whether or not, under the agreed upon facts, the Taxpayer is qualified for the special tax treatment afforded manufacturers under § 58.1-3703(C)(1). The County reached its conclusion regarding this legal issue before the Taxpayer provided its license tax application and, through its attorney, the gross purchases figure which completed the application. Moreover, the gross purchases information had no relevance whatsoever to the County's determination of the legal issue under appeal. The County's insistence that the Taxpayer complete a license tax application was not an audit. As the assessment in question did not result from an audit, it is my determination that it may not be appealed to the department.
If you have any other questions about this final determination, please contact ****, Tax Policy Analyst, in my Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/32336D
Rulings of the Tax Commissioner