Document Number
05-144
Tax Type
BPOL Tax
Description
Taxpayer states it has constitutional income tax nexus in all states.
Topic
Basis of Tax
Date Issued
08-26-2005


August 26, 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 of an assessment filed by you on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination made by the Commissioner of the Revenue of the ***** (the "County") imposing additional Business, Professional and Occupational License ("BPOL") taxes on the Taxpayer for tax years 2001, 2002, 2003 and 2004.

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

FACTS

The Taxpayer is a retailer that sells its merchandise through its retail stores, catalogs, and via the Internet. The Taxpayer has call centers located throughout the country, including one in the County, through which customers can place their orders for merchandise. It is the situs of the gross receipts attributed to sales made to the Taxpayer's customers from the call center in the County that are at issue.

The Taxpayer states it has constitutional income tax nexus in all states. Those states that require the Taxpayer to file an income or income-like tax return require the Taxpayer to report sales to customers in such states as destination sales for purposes of apportionment. The Taxpayer contends that under the provisions of Va. Code § 58.1-3732, it is entitled to deduct those gross receipts attributed to sales to customers in other states where the Taxpayer is liable for an income or an income-like tax. Using this analysis, the Taxpayer filed amended BPOL tax returns with the County for tax years 2001 through 2004 and requested a refund.

The County disagrees with the Taxpayer's analysis, finding that all gross receipts associated with the incoming orders are subject to the County's BPOL tax and the Taxpayer owes additional BPOL taxes.

ANALYSIS

The BPOL tax is based upon the gross receipts attributed to a licensable business activity conducted within a given jurisdiction, with certain exclusions and deductions provided by law. Virginia Code § 58.1-3703.1 A 3 a (2) states:
    • The gross receipts of a retailer or wholesaler shall be attributed to the definite place of business at which sales solicitation activities occur, or if sales solicitation activities do not occur at any definite place of business, then the definite place of business from which sales solicitation activities are directed or controlled . . . .

In this case, absent any exclusions or deductions provided for by statute, the Taxpayer's gross receipts attributed to the sales solicitation activity conducted in the County would be subject to the County's BPOL tax. Among the deductions provided for by statute, however, is the deduction for:
    • Any receipts attributable to business conducted in another state or foreign country in which the taxpayer (or its shareholders, partners or members in lieu of the taxpayer) is liable for an income or other tax based upon income. See Virginia Code § 58.1-3732 B 2.

The Taxpayer conducts business in all 50 states and several foreign countries. In filing its amended returns, the Taxpayer computed its taxable gross receipts by including only its gross receipts attributable to business conducted in Virginia and gross receipts attributed to its sales in other states and foreign countries that do not impose an income or income like tax. The Taxpayer deducted those receipts from sales made to customers in other states for which it was liable for an income or income-like tax.

The County contends that the sales were made from the Taxpayer's call center in the County; therefore, all the Taxpayer's gross receipts attributable to those sales are subject to the County's BPOL tax. This interpretation is contrary to the 2000 BPOL Guidelines § 2.6, Example 11
, which describes a hypothetical scenario that is similar to the Taxpayer's situation:
    • Merchant sells goods to a North Carolina resident and ships the goods to him in that state. Gross receipts from the sale of the goods are attributable to a definite place of business in Virginia. North Carolina imposes an income tax and Merchant files a North Carolina income tax return. Merchant reports sales delivered to customers in North Carolina in the numerator of its sales factor for North Carolina income tax apportionment purposes. Gross receipts from sales delivered in North Carolina are deductible from Merchant's Virginia BPOL taxable gross receipts (or the cost of the purchases are deductible from the tax base if the merchant is taxable on purchases.)

In essence, where a taxpayer is subject to an income or an income-like tax in another state, the sale and delivery of goods to customers in such a state is considered to be conducting business in that state. The Guidelines emphasize that a taxpayer must file an income or income-like tax return in another state or foreign country in order to qualify for the deduction provided for under Va. Code § 58.1-3732 B 2.

Public Document ("P.D.") 98-42 (03/06/1998) addressed the BPOL taxation of gross receipts attributed to sales made from a call center in a Virginia locality. In that advisory opinion, the Tax Commissioner held that
    • the gross receipts attributed to telephone sales from the call center that are delivered in Virginia are subject to the local BPOL tax ordinance. From these gross receipts, the Locality is required to deduct the receipts from business conducted in other states that are taxable for income tax or income-like tax purposes. The Taxpayer should provide the Locality with tax returns that were filed in a foreign state to support this deduction.

While a taxpayer does not necessarily have to pay tax in another state to take the deduction, it must offer proof that it is required to, and has filed, an income or income-like tax return in order to qualify for the deduction.

DETERMINATION

The Taxpayer has provided the County with worksheets demonstrating the gross receipts it believes are attributable to sales in Virginia and those other states and foreign countries in which it is not liable for an income or income-like tax. These receipts are subject to the County's BPOL tax. The Taxpayer is not liable for BPOL tax on those receipts attributable to sales in other states where it was liable for, and filed, income or income-like tax returns. I am remanding this appeal to the County with the instruction to reconsider its determination. If requested by the County, the Taxpayer must provide supporting documentation in order to claim the out-of state deduction.

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,


                    • Kenneth W. Thorson
                  Tax Commissioner


AR/53592H
1 Effective July 1, 2001, the BPOL Guidelines were accorded the weight of regulation under Va. Code § 58.1-205.

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46