04-67 | Virginia Tax

Tax Type

BPOL Tax

Description

Manufacturer selling at wholesale for purposes of the BPOL tax.

Topic

Computation of Tax

Taxable Income

Taxpayers' Remedies

Date Issued

08-20-2004

August 20, 2004

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. You appeal a final local determination denying the refund of BPOL taxes paid by the Taxpayer to the ********* (the "Town") for tax years 1999, 2000 and 2001. I apologize for the delay in this response.

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. Copies of the Code of Virginia sections, regulations and public documents cited and other reference documents 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 states that it prints custom pocket folders, binders and folios on a custom order basis. In 2002, the Taxpayer requested an advisory opinion from the Tax Commissioner, contending that it should be taxed as a manufacturer selling at wholesale for purposes of the BPOL tax. In Public Document (P.D.) 02-128 (10/6/02), the Tax Commissioner found that:

- From the facts presented, it is clear that the Taxpayer is a manufacturer. However, to qualify for the manufacturer's exemption from the BPOL tax, the Taxpayer must be selling its product at wholesale from the place of manufacture. The fact that a print job is "custom" does not, by itself, mean the sale cannot qualify as a wholesale sale. The local commissioner of the revenue must determine whether or not the Taxpayer's sales are at wholesale or retail based on all the facts and circumstances.

Following the Tax Commissioner's advisory opinion in P.D. 02-128, the Town's assessing officer determined that the Taxpayer would be classified as a manufacturer for purposes of the BPOL tax for tax years 2002 and subsequent tax years. The assessing officer found, however, that the Taxpayer was a retailer for purposes of the BPOL tax in tax years 1999, 2000 and 2001, primarily because the Taxpayer had self-reported its classification as a retailer during those years. In this case, the Taxpayer filed its tax forms as an "other" entity on the Town's BPOL tax form in tax years 1999, 2000 and 2001. The classification under which the Taxpayer filed its BPOL return includes: "Retailers, Contractors, Persons constructing for sale, Repair, Personal and Business services; and all other businesses not listed above." Based on these facts, the local assessing officer denied the Taxpayer's request for refund for BPOL taxes paid in tax years 1999, 2000 and 2001.

The Taxpayer maintains that its business has not changed substantively between the years in question and the current year, and has submitted an affidavit to that effect. The Taxpayer states that during the tax years at issue, there was not a place on the BPOL self-assessment form to classify itself as a manufacturer. The Taxpayer has appealed the Town's final determination to the Tax Commissioner, protesting the denial of a refund for taxes paid in tax years 1999, 2000 and 2001.

An examination of the BPOL tax form distributed in the years in question reveals that the Taxpayer could have declared itself as a "wholesaler" or claimed an exclusion on lines 2 and 13, respectively. The tax form did not, however, explain the manufacturer's exclusion provided for in Va. Code § 58.1-3703(C)(4).¹

The Town contends that because the Taxpayer did not claim its status as a manufacturer selling at wholesale on either of these two lines, the Taxpayer must indeed have been selling at retail as it self-reported for the years in question. The Taxpayer states that its business has not changed, and that it mistakenly self-reported its classification for the years in question.

In summary, the Taxpayer has requested a refund in the amount of ***** for the tax years in question, based on the advisory opinion issued by the Department in P.D. 02-128. The Town's assessing officer, in a final local determination, has denied the Taxpayer's request. The Town's assessing officer maintains that because the Taxpayer classified itself in the "other" category, rather than as a manufacturer for purposes of the BPOL tax, the Taxpayer may not receive a refund.

ANALYSIS

Taxpayer's right to appeal

Virginia Code § 58.1-3703.1(A)(5)(a) states that "[a]ny person assessed with a local license tax as a result of an appealable event as defined in this section may apply within one year from the last day of the tax year for which such assessment is made, or within one year from the date of the appealable event, whichever is later, to the assessor for a correction of the assessment." An "appealable event" includes the denial of a refund arising out of a local assessing official's "determination regarding the rate or classification applicable to the licensable business." Virginia Code § 58.1-3703.1(A)(5)(f). In this case, the denial of the Taxpayer's refund request arises from the local assessing official's determination regarding the classification applicable to the Taxpayer's licensable business. Therefore, the Taxpayer clearly has the right to appeal the Town's determination denying the Taxpayer's refund request.

Classification of business

The question in this case involves the proper classification of the Taxpayer's business during the years at issue. Simply stated, the question is whether the Taxpayer was a manufacturer selling goods at wholesale from the place of manufacture during the years at issue, or was the Taxpayer properly classified as a retailer based on the "other" classification listed on its BPOL tax form filed with the Town?

The Virginia Supreme Court has consistently held that exemptions from taxation must be strictly construed against the taxpayer. See Carr v. Forst, 249 Va. 66 (1995); Roger D. Roberts, t/a Allstate Bonding Company, etc. v. Board of Supervisors of Roanoke County, 249 Va. 2 (1995); Fairfax County v. Group Health Association, 243 Va. 296 (1992) [exemption from license tax on businesses, professions, and occupations strictly construed]; Commonwealth v. Manzer, 207 Va. 996 (1967) [any doubt as to whether an exemption applies must be resolved in favor of the taxing authority, and the burden is upon the taxpayer to show that he comes within the terms of the exemption].

In this case, the burden is upon the Taxpayer to demonstrate to the local assessing official that its business in 1999, 2000 and 2001 was substantially the same as in tax year 2002 (the year in which the Town acknowledges that the Taxpayer qualifies for the exemption for manufacturers selling at wholesale). The Taxpayer has submitted copies of contracts with its customers for all the years in question. A review of these contracts confirms there was no demonstrable difference in the nature of the business the Taxpayer was conducting during the years in question. Based on this review, there is every reason to assume that if the Taxpayer was a manufacturer selling at wholesale from the place of manufacture in tax year 2002, it was conducting its business in a similar manner in tax years 1999, 2000 and 2001, notwithstanding the information it reported on its BPOL return for those years.

DETERMINATION

Based on the documentation presented, it is my determination that the Taxpayer has met the burden of proof that it erroneously classified itself for BPOL tax purposes during the tax years in dispute, and it was a manufacturer during those years as well as in tax year 2002. The Taxpayer made wholesale sales from the place of manufacture and, therefore, qualified for exemption from the BPOL tax. Any BPOL taxes paid in tax years 1999, 2000 and 2001 were improperly paid. Accordingly, pursuant to Va. Code § 58.1-3990, the Town should issue to the Taxpayer a refund for BPOL taxes paid in tax years 1999, 2000 and 2001, plus interest.

If you have any questions regarding this determination, you may contact ********** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/44052H

¹No county, city, or town shall impose a license fee or levy any license tax ... [o]n a manufacturer for the privilege of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture; Va. Code § 58.1-37 03(C)(4).

Rulings of the Tax Commissioner