Document Number
04-41
Tax Type
BPOL Tax
Description
Management advisory services; independent hospitals and health systems
Topic
Local Power to Tax
Date Issued
08-10-2004



August 10, 2004



Re: Appeal of Assessment: 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. You appeal a final local determination concerning a request for refund of BPOL taxes paid in tax years 2001 and 2002 to the ****** (the "County").

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.

The following determination is based on the facts presented to the Department as summarized below. Copies of the Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS

The Taxpayer describes itself as a business service that "provides management advisory services, implementation support, education and training programs, consulting and related services to independent hospitals and health systems" in 43 states. The Taxpayer has an office in the County that it states is used "only as a meeting place where employees can discuss, brainstorm and share ideas." The office is staffed by three administrative personnel, including a group vice president, who provide support to the Taxpayer's clients in *****, Contracts with hospitals and other key management functions are provided through the Taxpayer's corporate offices in ***** ("State A") or ***** ("State B").

In a sample contract, the Taxpayer agrees to provide a hospital with: (1) an account executive to "maximize the value and benefits" of the agreement; (2) a group vice president responsible for coordinating the "key initiatives" pursuant to the contract; (3) consulting services relative to the creation of an overall management plan; (4) access to certain proprietary systems information and accompanying tangible products; (5) access to management training and development programs that it offers either through its offices in State A or State B or through its office in the County; and (6) access to group purchasing programs arranged by its offices in State A or State B. In other situations, the Taxpayer may provide its clients with professional employees as a part of its contract with a hospital.

Currently, all long-term hospital contracts are drafted and negotiated by the Taxpayer's in-house legal department located in State A, in consultation with various officers located in either State A or State B. Following the contract negotiation process, the original contract is executed by the client and forwarded to the Taxpayer's in-house legal department for approval prior to execution by the Taxpayer's president located in State A.

The Taxpayer's marketing department, with sales teams located in both State A and State B, is in charge of generating new business contracts. Group office vice presidents and assistant vice presidents may assist the marketing department's sales team in new business sales efforts.

In summary, the Taxpayer's executive management people are based in either State A or State B, and major decisions affecting the Taxpayer's business are directed and controlled from these offices. Additionally, all contract employees are hired by the Taxpayer's office in State B and all consulting services are provided through departments located in State B. Training programs and tangible products related to the contracts are developed in State B or contracted out through the Taxpayer's corporate offices in State B. The "Learning Institute," one of the major development programs, is located in State B. The Taxpayer's office in the County is responsible for the oversight of the contracts in its region, and sponsors "Group/Division" seminars for its clients in the region. A group vice president is located in the County and is responsible for the "contract management with the client." All consultant support, however, is provided by the Taxpayer's offices in State B.

The Taxpayer states that all corporate accounts, payments, payroll and sales solicitation are performed from the Taxpayer's corporate offices in State A and State B and that all contract services in excess of thirty days are performed at locations outside of the County. The Taxpayer reported ***** in gross receipts attributed to its consulting contracts in Virginia for the fiscal year ended December 31, 2001, and ***** in gross receipts for the fiscal year ended December 31, 2002. An examination of the taxpayer's gross receipts attributed to services performed in Virginia indicates that the services were performed in eight Virginia jurisdictions outside of the County during the years in question. The Taxpayer does not report performing any services generated in its office in the County other than the oversight provided by its group vice president and its sponsoring of the "Group/Division" meetings.

The Taxpayer has asked for a refund of BPOL taxes paid in 2001 and 2002. The County maintains that the Taxpayer has a definite place of business within the County and, therefore, its gross receipts are subject to the BPOL tax.
ANALYSIS

Definite Place of Business

The BPOL tax is a local option tax imposed upon businesses, professionals and other occupations for the privilege of doing business within a given jurisdiction. "Definite place of business" is defined as "an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more." See Va. Code § 58.1-3700.1. The Taxpayer maintains an office in the County with three full time employees. Therefore, it has a " definite place of business" and is liable for the BPOL tax. The question becomes that of the measure of the Taxpayer's business activity related to its presence in the County.

Situs

The BPOL tax may be imposed by jurisdictions on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town ...." See Va. Code § 58.1-3703. [Emphasis added.] In other words, it is a business' situs and its activity within a given jurisdiction that gives rise to its local BPOL tax liability.

The general rule for establishing situs for the BPOL tax is that whenever the tax is measured by gross receipts, "the gross receipts included in the taxable measure shall be only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within [the] jurisdiction." See Va. Code § 58.1­3703.1(A)(3)(a). This general rule is applied to business and personal services as follows:
    • The 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 a definite place of business, then from the definite place of business from which the services are directed or controlled. Virginia Code § 58.1-3703.1(A)(3)(a)(4). [Emphasis added.]

In this instance, the actual services provided within the Taxpayer's region are performed in jurisdictions outside of the County. The bulk of these services, including the hiring and provision of consultants or contract employees, the provision of training programs and tangible products related to various contracts are controlled and directed from State A or State B. Because these services are (1) performed outside of the County, and (2) directed or controlled from a place of business outside Virginia, the gross receipts generated from these services are not attributable to the Taxpayer's office in the County.

The occasional seminars provided to clients at the Taxpayer's office in the County and the contract management activity provided by the Taxpayer to clients within the Taxpayer's region constitute business activity of the Taxpayer within the County. Nonetheless, these activities are ancillary to the actual consulting services provided by the Taxpayer. The consulting services, which constitute the Taxpayer's primary business, are rendered at locations outside of the County and directed and controlled from the Taxpayer's offices in State A and State B.

Addressing a similar situation in Public Document (P.D.) 99-11 (01/11/99), the Tax Commissioner found that, based on Code of Virginia § 58.1-3703.1(A)(3)(a)(4), if a "corporation maintains a definite place of business outside the city to which receipts are attributed or sourced using this rule [sourcing receipts to the jurisdiction in which the services are performed], these receipts are not subject to taxation by the city." The situation in that case is analogous to the present case. The Taxpayer's receipts from the services it provides must be sourced to the jurisdictions in which the services are provided. The Taxpayer has provided documentation that sources the receipts to these other jurisdictions, and those receipts are subject to a local license tax imposed by these jurisdictions. Furthermore, it does not matter whether these jurisdictions impose a local license tax. Virginia Code § 58.1-3703.1(A)(3)(b) provides:
    • Gross receipts attributable to a definite place of business in another jurisdiction shall not be attributed to this jurisdiction solely because the other jurisdiction does not impose a tax on the gross receipts attributable to the definite place of business in such other jurisdiction.

It is incumbent upon the Taxpayer, however, to report its gross receipts to each Virginia jurisdiction in which it does business.
DETERMINATION

The Taxpayer has a definite place of business in the County. The primary services it renders, however, are performed at definite places of business outside of the County and directed and controlled from the Taxpayer's corporate offices in State A and State B. The activities at the Taxpayer's office in the County are ancillary to its primary business.

Based on the facts and documentation presented, it is my determination that the County must refund to the Taxpayer the BPOL taxes paid to the County in license years 2001 and 2002. In accordance with its local ordinance, the County is entitled to impose a license fee on the Taxpayer's business for the years in question, reflecting the fact that the Taxpayer does have a definite place of business in the County.

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,
                                          • :i
                    • Kenneth W. Thorson
                      Tax Commissioner


AR/45114H


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46