Tax Type
BPOL Tax
Description
Recalculate the BPOL tax assessment using payroll apportionment
Topic
Accounting Periods and Methods
Computation of Tax
Date Issued
07-19-2005
July 19, 2005
Re: Application for Correction of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License 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 upholding a 2003 audit assessment of BPOL taxes made by the Commissioner of the Revenue of the ***** (the "County") for tax years 2000, 2001, 2002 and 2003.
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 summarized below. The Code of Virginia and public documents cited are available online in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.
FACTS
The Taxpayer, a consulting group, is a provider of grant review services to the government and nonprofit foundations. These services include providing expertise and technology-driven solutions for all participants involved in the grant process. The Taxpayer is also engaged in the business of providing conference and meeting management services to customers worldwide.
The Taxpayer is headquartered in ***** ("State A"). In 1999, the Taxpayer began to transfer some of its contract fulfillment operations from its offices in State A to its new offices in the County. By 2002, all of the Taxpayer's operational facilities were located in the County. During this transitional period, both offices handled various government and nonprofit contracts, and occasionally shared responsibility for work on individual contracts. The Taxpayer states that while the majority of its contract fulfillment operations continued to be directed and controlled from the headquarters office in State A during the initial phase of the transition, a "co-management" system of direction and control was in effect during the bulk of the transition period.
The Taxpayer states that a substantial percentage of its services are performed off-site. The requirements of the different service contracts in which the Taxpayer was engaged during the years in question included the provision of services in a number of other states and foreign countries. In some cases, all the services required by a contract were performed outside of Virginia.
According to the Taxpayer, its accounting system tracks revenues by contract, not by services provided. Therefore, the Taxpayer could not estimate with any degree of accuracy its gross receipts attributed to its actual business in the County. For purposes of its initial BPOL tax review, the Taxpayer provided the County with information that listed revenues generated by contracts that the Taxpayer identified as being associated with its office in the County. The County based the Taxpayer's BPOL tax assessment on this information.
In its appeal, the Taxpayer contends that because its revenues are contract driven, rather than situs-of-service driven, apportioning revenue by the arbitrary assignment of contracts to an office location fails to capture the Taxpayer's actual business in the County during the tax years in dispute. Furthermore, the Taxpayer notes that: both its offices shared direction and control of its business activity; a substantial portion of contracted services were performed out-of-state; services provided by its offices in the County and State A were commingled; and the bulk of its revenue stemmed from contract activities generated by the employees on payroll associated with the various contracts. For all of these reasons, the Taxpayer argues that the best method of apportioning revenues between the Taxpayer's offices for purposes of the BPOL tax would be by payroll apportionment.
ANALYSIS
BPOL Taxation of Services
The BPOL tax is a gross receipts tax imposed upon "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town" for the privilege of engaging in such business in a locality. See Va. Code § 58.1-3703 A. The general rule determining situs of a business engaged in the provision of business services is set forth in Va. Code § 58.1-3703.1 A 3 a (4).
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- 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 any definite place of business, then to the definite place of business from which the services are directed or controlled.
The Taxpayer contends the nature of its business precludes using the general rule in determining the situs of its gross receipts for BPOL tax purposes. Rather, the Taxpayer argues the payroll apportionment method would more accurately reflect the actual business attributable to its office in the County. This method is provided for in Va. Code § 58.1-3703.1 A 3 b.
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- If the licensee has more than one definite place of business and it is impractical or impossible to determine to which definite place of business gross receipts should be attributed under the general rule, the gross receipts of the business shall be apportioned between the definite places of businesses on the basis of payroll. Gross receipts shall not be apportioned to a definite place of business unless some activities under the applicable general rule occurred at, or were controlled from, such definite place of business. [Emphasis added.]
That is, under payroll apportionment, all gross receipts must be apportioned to a definite place of business. Gross receipts would not be apportioned to locations where a taxpayer provides services on a temporary basis.
Public Document ("P.D.") 04-80 (8/25/2004) addressed a situation similar to that of the Taxpayer. In P.D. 04-80, as in the present case, the services performed in fulfillment of contracts could be performed in several states. In that case, the Department found that given the taxpayer's multistate activities and the fact that its accounting procedures were contract driven rather than service driven, the most appropriate method of assessing the taxpayer for BPOL purposes would be through the use of payroll apportionment.
In this case, the Taxpayer's business activities are also multistate and its accounting procedures are revenue driven. A contract could be executed in State A, require the primary services of personnel located in the County, but also require the services of personnel located in the Taxpayer's office in State A, and the actual performance of services could occur in another state or country. Furthermore, the direction and control of fulfillment operations is not clearly delineated. Rather, it is shared between the Taxpayer's offices in the County and State A. All of these factors make it "impractical or impossible to determine to which definite place of business gross receipts should be attributed under the general rule." Accordingly, as in P.D. 04-80, the Taxpayer's unique circumstances dictate the use of payroll apportionment to determine the Taxpayer's BPOL tax liability.
DETERMINATION
While payroll apportionment is the method of last resort to be utilized in determining the situs of a taxpayer's gross receipts for purposes of the BPOL tax, there are instances in which it is the proper method to use. Based on the facts presented, I find that the Taxpayer's activities for the years at issue create a situation in which it is impossible to determine the situs of the Taxpayer's gross receipts under the general rule. Accordingly, it is my determination that the Taxpayer must use the payroll apportionment method in determining its BPOL tax liability for those years. I am returning this matter to the County with instruction to recalculate the Taxpayer's BPOL tax assessment on the basis of payroll apportionment.
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/53100H
Rulings of the Tax Commissioner