Tax Type
BPOL Tax
Description
Changes to the Business should change its classification
Topic
Assessment
Classification
Date Issued
12-12-2005
December 12, 2005
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 appeal filed by you on behalf of ***** with the Department of Taxation. You appeal a final local determination upholding an assessment of BPOL taxes made by the Commissioner of the Revenue of the ***** (the "City").
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.
FACTS
You represent that you originally operated ***** ("Business A), which provided both educational and modeling services to its clients. In November 2004, Business A ceased to offer educational services, changed its corporate name to ***** (the "Taxpayer") and moved to a different location in the City. The Taxpayer continued to operate as a modeling agency and retained the same corporate status and federal identification number ("FEIN") under the new name.
The Taxpayer obtained a new business license for 2005 and paid a BPOL fee of $40 based on the fact that its gross receipts were estimated to be less than $25,000 for the 2005 tax year. Following an audit, the City determined that the Taxpayer was not a new business, but rather an existing business whose license tax for 2005 should be based on the gross receipts for the preceding calendar year, i.e., gross receipts for the calendar year ended December 31, 2004.
The Taxpayer contends that because it ceased operation of a major component of its business, it should be considered a new business for purposes of the BPOL tax. Therefore, the basis for its license tax for 2005 should not be gross receipts for the preceding tax year. Instead, the license tax or fee should be based on estimated receipts for 2005.
The City disagrees. In its final local determination addressing the Taxpayer's appeal, the City notes that the Taxpayer did not change either its corporate status or its FEIN. The City asserts that the change in business operations did not create a new and separate business. Therefore, for purposes of the BPOL tax, the Taxpayer is actually a continuation of the old business, and the license tax should be based on gross receipts for calendar year 2004.
ANALYSIS
Virginia Code § 58.1-3700.1 defines "base year" as:
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- 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. [Emphasis added.]
New businesses in Virginia are required to file articles of incorporation with the State Corporation Commission ("SCC"). Upon approval of the articles of incorporation, the SCC issues a certificate of incorporation and the taxpayer's "corporate existence" begins. See Va. Code §§ 13.1-619 and 13.1-621. In this case, if the Taxpayer had in fact begun a new business, for regulatory purposes the Taxpayer would have had to file articles of incorporation as a new entity. Likewise, under Internal Revenue Service requirements,1
if the Taxpayer had in fact begun a new business, it would have had to be so chartered by the SCC and obtained a new FEIN.
Instead of incorporating as a new business, the Taxpayer filed articles of amendment to its original articles of incorporation with the SCC to change its corporate name. The SCC issued a "Certificate of Amendment" to the Taxpayer on November 1, 2004. The Taxpayer now operates under the original certificate of incorporation granted under its former name in 1985, as amended in 2004. Because it has not changed its legal corporate identity, the Taxpayer continues to use the FEIN it used under its former name for federal income tax purposes.
DETERMINATION
Based on the facts presented, it is my determination that the City was correct in assessing the Taxpayer as an established business. Therefore, the assessment of tax is correct. Pursuant to the provisions of Va. Code § 58.1-3703.1 A 6 c (1), the commissioner of the revenue must certify the amount of tax due to the treasurer. The treasurer must issue a bill for the amount due together with interest and penalties, if any are due, to the Taxpayer within 30 days of the date of this determination.
If you have any questions regarding this 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
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AR/55358H
1See the Internal Revenue Service website at www.irs.gov/business/small/article.
Rulings of the Tax Commissioner