Tax Type
BPOL Tax
Description
Multi-state S corporation with multiple affiliates
Topic
Basis of Tax
Local Power to Tax
Taxability of Persons and Transactions
Date Issued
04-30-2002
April 30, 2002
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 you on behalf of ***** (the "Taxpayer") with the Department of Taxation. Your client is appealing a final local determination upholding an audit assessment of BPOL taxes made by the Commissioner of the Revenue of the ***** (the"City").
The local license 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.
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 web site, located at www.tax.state.va.us.
FACTS
The Taxpayer is a multi-state S corporation with multiple affiliates that engage either in financial services or catalog sales. The Taxpayer contends that gross receipts attributed to other states should be deducted from the Taxpayer's total gross receipts apportioned to the City. The City requested additional information regarding the Taxpayer's state returns for three affiliates - ***** ("A"), ***** ("B"), and *****, ("C"). Two affiliates operate in the ***** ("State X") and the third is listed as a "corporate entity outside Virginia." The Taxpayer furnished the City with federal and State X tax returns for the tax years in question, along with numerous other states' income tax returns for tax year 1996 and 1997. The Taxpayer supplied the City an amended federal return for 1997, reflecting a change from the accrual to cash basis of accounting on its federal returns. The Taxpayer also submitted proof of local business license taxes paid to those local jurisdictions in other states that impose a business license tax or fee.
However, the City states that the documentation supplied to the City failed to include amended returns filed in State X reflecting the amendments made to the federal returns. The City subsequently issued a letter of "Final Local Determination" on May 9, 2001, finding in part that the Taxpayer had failed to supply it with copies of its amended state tax returns for affiliates A, B and C. The Taxpayer appealed the determination to the department on May 16, 2001.
On February 25, 2002, the Taxpayer called the department to ask for additional time to submit new information. The Taxpayer's representative had left the law firm representing it, and the Taxpayer wanted time to present new facts. The department informed the Taxpayer that it must consult with the City before pursuing this course of action. The department has not heard from the Taxpayer since that conversation eight weeks ago. Therefore, the following determination is made upon the original facts presented.
DETERMINATION
Under Code of Virginia § 58.1-3703.1(A)(5)(a), a BPOL assessment "shall be deemed prima facie correct. The assessor shall undertake a full review of the taxpayer's claims and issue a determination to the taxpayer setting forth its position." Furthermore, Code of Virginia § 58.1-3703.1(A)(5)(b) provides that any appeal:
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- Shall fully set forth the grounds upon which the Taxpayer relies and all facts relevant to the taxpayer's contention. Code of Virginia § 58.1-1821, [and that]
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- [C]ollection activity shall be suspended until a final determination is issued by the assessor, unless the assessor determines that collection would be jeopardized by delay or that the taxpayer has not responded to a request for relevant information after a reasonable time. [Emphasis added.]
While I understand that you believe the assessment violated § 58.1-3732(B)(2) of the Code of Virginia, an appeal to the Tax Commissioner must be made in accordance with the rules of administrative procedure as set for in Code of Virginia § 58.1-3700 et.seg. 1
The appeals process administered by the department presumes that the assessment of the local commissioner is prima facie correct, and that the local commissioner of the revenue has been provided all the relevant facts concerning the case at hand. When new facts are introduced, the appeal is returned to the locality. When supporting information is requested from a taxpayer and it fails to produce such information, the local commissioner may rule on the evidence at hand.
In this case, the relationship between the Taxpayer and affiliates A, B and C is unclear from the facts provided. Specifically, A and B file for local business licenses under the Taxpayer's name, their name, or another entity's ("D") name. The Taxpayer filed its return for State X under the third entity's name and followed a similar procedure in other states. The Taxpayer did not substantiate receipts attributable to its business conducted in another state in which it is liable for an income or other tax based on income.
Absent information regarding the relationship between A, B, C and the Taxpayer, I cannot determine if the income tax returns filed in State X by "D" included the gross receipts of A, B, and C, or if they filed separate returns. This information was requested by the City before it issued its final local determination. Subsequently, the information was also requested by the department. Since the Taxpayer failed to supply the City or the department with the requested information, I must uphold the final local determination.
If you have any questions regarding this determination, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/34281H
1 Pursuant to § 2.6 of the 2000 BPOL Guidelines, a taxpayer may deduct from gross receipts "any receipts attributable to a business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based upon income. A Virginia taxpayer is liable for an income or other tax based upon income if the taxpayer files a return for an income or income-like tax in that state or foreign country. The Virginia taxpayer, however, need not actually pay any tax to take the deduction."
Rulings of the Tax Commissioner