Tax Type
BPOL Tax
Description
Discrepancies in gross receipts attributable to Virginia
Topic
Appropriateness of Audit Methodology
Local Taxes Discussion
Date Issued
04-09-2002
April 9, 2002
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 Commissioner of Revenue of the ***** (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 the Code of Virginia,regulations and public documents cited are included for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's website, located at www.tax.state.va.us.
FACTS
The Taxpayer provides products and services to governments and businesses. Although it has a branch office in the County and another branch office in a second Virginia locality, its headquarters are located in a third Virginia locality. Additionally, the Taxpayer states that it maintains a long-term presence at several customer sites located in other states.
The Taxpayer appeals an assessment of business license taxes issued by the County subsequent to a review of the Taxpayer's federal and state income tax returns and financial statements. The County determined that the gross receipts attributable to Virginia reflected on these returns and statements exceeded the total gross receipts reported by the Taxpayer to the County and other Virginia localities on its local license tax returns. Additionally, the County determined that the gross receipts attributable to other states reflected on these returns and statements exceeded the total gross receipts reported by the Taxpayer to other states on income tax returns. The County assessed additional license taxes for license years 1997, 1998, 1999 and 2000 based on these discrepancies.
The Taxpayer appealed this assessment to the County. The Taxpayer argued that the gross receipts in question are not subject to license taxation in the County because they are attributable to definite places of business located in other Virginia localities and other states. It is not clear what facts the Taxpayer presented to support this contention. However, the County's final determination clearly states that its refusal to adjust the assessment was based on the Taxpayer's inability to provide tax filings from the other jurisdictions evidencing that the Taxpayer had already paid taxes on the gross receipts in question.
Additionally, at some point in its appeal to the County, the Taxpayer raised the contention that a portion of the gross receipts in question are monies received from a subsidiary that were properly excluded from the Taxpayer's taxable gross receipts under the affiliated group exclusion afforded by Code of Virginia § 58.1-3703(C)(10). It is not clear what facts the Taxpayer presented to support this contention. The County's final determination does not address this issue.
The Taxpayer filed this appeal with the department after the County rejected its appeal.
ANALYSIS
Situs of Gross Receipts
In general, a Virginia locality may impose a license tax only on those gross receipts attributable to the locality under the situs rules set forth in Code of Virginia § 58.1-3703.1(A)(3).
The Taxpayer provides goods and services. The situs rules provide that gross receipts from the performance of services "shall be attributed to the definite place of business at which the services are performed or, if not performed at any definite place of business, then to the definite place of business from which the services are directed or controlled." Code of Virginia § 58.1-3703.1(A)(3)(a)(4). Similarly, the gross receipts of a retailer "shall be attributed to the definite place of business at which sales solicitation activities occur, or if sales solicitation activities do not occur at any definite place of business, then the definite place of business from which sales solicitation activities are directed or controlled. . ." Code of Virginia § 58.1-3703.1(A)(3)(a)(2).
The Taxpayer maintains offices in three Virginia localities. Additionally, it maintains a long-term presence at several customer sites in other states which it contends are definite places of business. Although the facts presented regarding the Taxpayer's activities at its customer sites are not sufficient to reach a conclusion, offices provided to a business by its client may constitute a definite place of business for the business. Public Document 99-236 (8/16/99).
The discrepancies uncovered in the County's audit raise legitimate concerns that justify further inquiry. However, as the Taxpayer has definite places of business in several jurisdictions and is not headquartered in the County, the discrepancies are not, in and of themselves, grounds for an assessment. Gross receipts attributable to a definite place of business in another jurisdiction may not be attributed to the County solely because the other jurisdiction does not impose a tax on the gross receipts. Code of Virginia § 58.1-3703.1(A)(3)(b).
Prior to imposing a local license tax on the gross receipts in question, the County should have reviewed the Taxpayer's activities. As the Taxpayer has multiple definite places of business, the County should work with the Taxpayer and the other interested localities in order to determine the correct attribution of Taxpayer's gross receipts under the situs rules. I am enclosing a copy of § 6.6 of the 2000 BPOL Guidelines, which addresses consistent reporting and coordinated enforcement of the local license taxes.
The County erred in rejecting the Taxpayer's appeal by refusing to consider any evidence other than tax filings in other jurisdictions. There is no requirement that receipts be subject to a license tax or income tax in another jurisdiction in order for the receipts to be attributed to another jurisdiction under the situs rules.1
The facts presented are insufficient to determine whether or not the Taxpayer has definite places of business at its customer sites and, if so, the amount of gross receipts attributable to these locations.
Affiliated Group Exclusion
Code of Virginia § 58.1-3703(C)(10) provides an exclusion from local license taxation for certain transactions between entities that are members of an "affiliated group." The terms "affiliated group" and "entity" are defined in Code of Virginia
§ 58.13701.
The facts presented are insufficient to determine whether or not the Taxpayer qualifies for this exclusion.
DETERMINATION
As the facts submitted by the Taxpayer and the County are not sufficient to determine whether or not the gross receipts in question 1) are attributable to the County and/or 2) eligible to be excluded under the affiliated group exclusion, I am returning this matter to the County for a determination of these issues consistent with the legal authority set forth in this determination.
If you have any other questions about this final determination, you may contact ***** in the department's Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/32882D
1However, a taxpayer is not entitled to the deduction afforded under Code of Virginia § 58.1-3732(B)(2) for any receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based on income unless the taxpayer files a return for such tax in another state or country. 2000 BPOL Guidelines § 2.6.
Rulings of the Tax Commissioner