Tax Type
BPOL Tax
Description
Base year for purposes of assessment of the BPOL/license year
Topic
Assessment
Computation of Tax
Date Issued
08-25-2004
August 25, 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 regarding the ********** (the "County") use of a "base year" in assessing BPOL tax to the Taxpayer's business for tax year 2003. I apologize for the delay in this response.
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, 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 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 is a real estate development company that was formed in 2001. It had no gross receipts to report in that year. In calendar year 20002, the Taxpayer reported gross receipts of ***** resulting in a tax due of ***** for license year 2003. In calendar year 2003, the Taxpayer's gross receipts generated by the sale of the final properties in its development were ***** with the resulting tax due for license year 2004 of *****. On March 6, 2003, the County issued an assessment for license year 2002 in the amount of ***** based on the Taxpayer's actual gross receipts in 2002, and an assessment for license year 2003 in the same amount of which reflected the Taxpayer's gross receipts for the base year 2002. The Taxpayer paid the assessments. The County then notified the Taxpayer that it would receive a BPOL assessment in license year 2004 based on its gross receipts earned in calendar year 2003.
The Taxpayer is a real estate development company that was formed in 2001. It had no gross receipts to report in that year. In calendar year 20002, the Taxpayer reported gross receipts of ***** resulting in a tax due of ***** for license year 2003. In calendar year 2003, the Taxpayer's gross receipts generated by the sale of the final properties in its development were ***** with the resulting tax due for license year 2004 of *****. On March 6, 2003, the County issued an assessment for license year 2002 in the amount of ***** based on the Taxpayer's actual gross receipts in 2002, and an assessment for license year 2003 in the same amount of which reflected the Taxpayer's gross receipts for the base year 2002. The Taxpayer paid the assessments. The County then notified the Taxpayer that it would receive a BPOL assessment in license year 2004 based on its gross receipts earned in calendar year 2003.
On April 1, 2003, having concluded the sale of all of its properties, the Taxpayer paid its BPOL license tax for both license tax years 2003 and 2004, even though the tax assessment for gross receipts generated in 2003 should not have been issued until 2004.
The Taxpayer questions the use of the "base year" as a basis for assessment, contending that the County's ordinance does not contain such a provision, and that "actual year" assessment is the appropriate method of assessment for purposes of the BPOL tax.
ANALYSIS
Base Year
Virginia Code § 58.1-3700.1 defines "base year" as:
- the calendar year preceding the license year, except for contractors subject to the provisions of § 58.1-3715 or unless the local ordinance provides for a different period for measuring the gross receipts of a business, such as for beginning businesses or to allow an option to use the same fiscal year as for federal income tax purposes.
In other words, unless the County's ordinance specifies otherwise, the base year for purposes of assessment of the BPOL tax is the year preceding the license year. The term "license year" is defined in Va. Code § 58.1-3700.1 as "the calendar year for which a license is issued for the privilege of engaging in business." The County's ordinance does not make any provision for a different period for "measuring the gross receipts of a business, such as for beginning businesses," nor does it "allow an option to use the same fiscal year as for federal income tax purposes." In fact, County Ordinance Section 11-02 defines base year as "the calendar year preceding the license year, except for contractors subject to the provisions of § 58.1-3715 of the Code of Virginia." Therefore, the base year used by the County in its administration of the BPOL tax is the year preceding the license year, with the only exception being that for contractors subject to the provisions of Va. Code § 58.1-3715.
Application of the Base Year to Assessments
The Taxpayer began business in 2001. At that time, it should have filed for a license with the local commissioner of the revenue. See Va. Code § 58.1-3703.1(A)(2)(a) and County Ordinance Section 11.1-3(b). The County's assessment for license year 2002 should have been based upon the Taxpayer's gross receipts earned in 2001. Because the Taxpayer reported no gross receipts in 2001, for purposes of license year 2002, the County should have imposed a license fee on the Taxpayer for the privilege of engaging in business in the County. The Taxpayer did have gross receipts in 2002; therefore, for license year 2003, the Taxpayer's BPOL tax assessment should have been based upon its actual gross receipts for calendar year 2002. For purposes of license year 2004, the County should assess the Taxpayer based on its gross receipts for calendar year 2003.
In this case, the County assessed the Taxpayer twice on gross receipts earned in calendar year 2002 (for license years 2002 and 2003). Rather than basing the assessment for license year 2002 on the Taxpayer's gross receipts earned in 2001, the County erroneously computed the assessment based on the Taxpayer's actual receipts earned in 2002. While the County is authorized by law to adopt an ordinance for assessing the gross receipts of new businesses that would have enabled the County to do just that, the County did not. Without such an ordinance, the County may not assess a 2002 license tax based upon 2002 actual gross receipts. The County then correctly used the same 2002 receipts as the basis for the tax due for license year 2003.
DETERMINATION
The County's BPOL tax assessment for tax year 2003 based on the Taxpayer's gross receipts from calendar year 2002 (the base year) is consistent with state law and the County's ordinance and, therefore, is correct. The documentation provided with this case indicates the County was in error when it issued an assessment for license year 2002 in the amount of ***** based on the Taxpayer's actual gross receipts in 2002. The County and the Taxpayer should review this matter and determine if a refund is due to the Taxpayer for any tax, penalties and interest that were paid as a result of using the 2002 actual receipts as the basis for the BPOL tax due for license year 2002.
If you have any questions regarding this determination, you may contact *************** in the Department's 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/48558H
Rulings of the Tax Commissioner