Tax Type
BPOL Tax
Description
Corporation that operates as a real estate broker is he subject of a "re-audit"
Topic
Local Power to Tax
Date Issued
08-13-2004
August 13, 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 the findings of the ****** (the "City") issued in an audit report.
The local license tax and fee are imposed and administered by local officials. Virginia Code § 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, that is, 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. 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 website, located at www.tax.state.va.us.
FACTS
The Taxpayer is a corporation that operates as a real estate broker. It was audited in 2000 by the City for tax years 1998, 1999 and 2000. The City issued a "no adjustment" audit report to the Taxpayer dated November 15, 2000. On October 29, 2001, the City issued another audit report for the same tax years in the amount of***************
The Taxpayer appeals the right of the local commissioner of the revenue to "re-audit" the Taxpayer for the same years addressed in its initial audit of the Taxpayer. The Taxpayer also questions the inclusion of transaction fees, national franchise fees, reimbursed expenses, and desk fees and overhead expenses billed to agents in the Taxpayer's gross receipts for purposes of calculating BPOL tax liability. It contends that the adoption of Chapter 532, 2002 Acts of Assembly, which addresses these issues, was merely a "clarification of existing law" and suggests that as such, it should be applied retroactively.
ANALYSIS
Statutory Authority - Local Assessing Officer
Virginia Code § 58.1-3903 provides that an assessing official may assess omitted local taxes for the current year and the three preceding tax years. As long as the limitations period remains open, the local assessing officer has the authority to issue an assessment for the applicable period. Barring a specific statutory prohibition, there is nothing in the law to preclude an additional audit and assessment for a period previously audited as long as it is within the statute of limitations.
In this case, the assessment was issued in October 2001 for the three preceding tax years (1998, 1999 and 2000). Based on the statute cited above, the Commissioner of the Revenue had the authority to issue the assessment, as the statute of limitations for the tax years at issue had not expired.
BPOL Taxation of Transaction Fees, etc.
Public Document (P.D.) 01-44 (4/17/01) addresses many of the questions raised by the Taxpayer. Specifically, under the law as it existed during the years in question, the opinion reviewed Va. Code § 58.1-3732.2, which provides the following exclusion for real estate brokers:
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- Gross receipts of real estate brokers for license tax purposes under Chapter 37 (§ 58.1-3700 et seq.) of this title shall not include amounts received by any broker which arise from real estate sales transactions to the extent that such amounts are paid to a real estate agent as a commission on any real estate sales transaction and the agent is subject to the business license tax on such receipts.
The broker is not entitled to the exclusion afforded by Va. Code § 58.1-3732.2 unless the agent is subject to a business license tax on such receipts in a Virginia locality. P.D. 97-8 (1/16/97).
2002 Law Change
During the 2002 session, the General Assembly amended Va. Code § 58.13732.2 to read:
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- In the event that a real estate agent receives the full commission from the broker less an adjustment for the business license tax paid by the broker on such commissions and the agent pays a desk fee to the broker, the desk fee and other overhead costs paid by the agent to a broker shall not be included in the broker's gross receipts. If the agent files separately, the agent must identify on its license application the broker to whom such excluded receipts have been paid, and the amount of such receipts that were included in the broker's license application. Chapter 532, 2002 Acts of Assembly.
The Taxpayer contends that this change was merely a "clarification of existing law" and suggests that as such, it should be applied retroactively. All laws passed by the General Assembly and signed by the Governor have an effective date of July 1 in the year in which they are passed unless they contain an enactment clause to the contrary. Constitution of Virginia, Article IV, § 13. Section 13. Effective date of laws.
All laws enacted at a regular session, including laws which are enacted by reason of actions taken during the reconvened session following a regular session, but excluding a general appropriation law, shall take effect on the first day of July following the adjournment of the session of the General Assembly.
This law contained no such enactment clause; therefore, it became effective July 1, 2002, and cannot be applied retroactively.
Moreover, the 2002 amendment to § 58.1-3732.2 contemplates a different arrangement from that contained in the original language. In the original language, the broker would not pay the gross receipts license tax on those receipts paid by the broker as commissions to a real estate agent who was subject to the BPOL tax. Under the amended law, the broker pays a gross receipts license tax on the commissions paid to a real estate agent, but then is permitted to exclude desk fees and overhead costs paid back to the broker by the real estate agent. The authority for this exclusion did not exist
prior to July 1, 2002. Exclusions or exemptions must be narrowly construed against the.
taxpayer. See DKM Richmond Associates v. City of Richmond, 249 Va. 401 (1995).
Deductions
The Taxpayer is required to remit a fee to its franchiser and contends that this fee is deductible. Only those expenses enumerated in Va. Code § 58.1-3700, et. seq., are eligible for deduction from the BPOL tax. This same principle applies to the Taxpayer's request to consider deductions for reimbursed expenses, desk fees and overhead costs billed to the agents. (See P.D. 01-162.) Unless the Taxpayer had established a formal agency relationship during the tax years at issue, all of the above expenses were properly included in the taxable gross receipts and subject to the City's assessment.
DETERMINATION
For the reasons outlined above, I find that the City's assessment of BPOL taxes for tax years 1998, 1999 and 2000 is correct. If you have any questions about this final state determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/41401
Rulings of the Tax Commissioner