Document Number
05-24
Tax Type
BPOL Tax
Description
Manufacturer rebates and discounts
Topic
Local Taxes Discussion
Manufacturing
Subtractions and Exclusions
Date Issued
03-03-2005

March 3, 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 application for correction filed by you on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a BPOL tax assessment issued to your business for tax years 2001, 2002 and 2003 by ***** (the "County"). I apologize for the delay in responding to your appeal.

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

FACTS

The Taxpayer is a franchised automobile dealership. The Taxpayer purchases new motor vehicles from several different manufacturers and then sells the vehicles at retail to its customers. These transactions often involve vehicle trade-in values, manufacturer rebates or incentives offered directly to customers, and dealer incentive monies (manufacturer to dealer incentives). Manufacturer to customer rebates may be applied towards the cost of the vehicle or kept by the customer in the form of cash. Manufacturers offer dealer incentives directly to the dealer, often after certain sales goals are met.

At issue in this case is whether dealer incentives are considered to be part of the Taxpayer's gross receipts for purposes of BPOL taxation. The Taxpayer contends that the negotiated sales price less the value of any trade-in should be the basis for its BPOL tax assessment. The County disagrees. The County states that for BPOL tax purposes, the negotiated sales price less the trade-in value, plus the dealer incentive constitutes the Taxpayer's gross receipts for purposes of the BPOL tax. It is my understanding that the Taxpayer and the County agree on the treatment of customer incentives for purposes of the BPOL tax.

ANALYSIS

Gross Receipts

The BPOL tax is a local license tax imposed on the privilege of doing business. It is based on an entity's gross receipts. For BPOL tax purposes, Va. Code § 58.1­3700.1 defines the term "gross receipts" as "the whole, entire, total receipts, without deduction."

Virginia Code § 58.1-3732 provides a number of exclusions and deductions from gross receipts. Virginia Code § 58.1-3732 A 6 provides an exclusion for rebates and discounts taken or received on account of purchases by the licensee. The statute further provides:
    • A rebate or other incentive offered to induce the recipient to purchase certain goods or services from a person other than the offeror, and which the recipient assigns to the licensee in consideration of the sale goods and services shall not be considered a rebate or discount to the licensee, but shall be included in the licensee's gross receipts together with any handling or other fees related to the incentive. [Emphasis added.]1

In short, manufacturer incentives or rebates from the manufacturer to the customer that are assigned to the licensee in some form, are to be included in the licensee's gross receipts for BPOL tax purposes. In the Taxpayer's case, a rebate or incentive offered by a car manufacturer to induce a buyer (the "recipient") to purchase an automobile, which the buyer assigns to the Taxpayer in consideration of the sale of the automobile, is included in the Taxpayer's gross receipts.

Manufacturer Incentives

The primary issue raised by the Taxpayer is that of manufacturer incentives offered to the dealer. Manufacturer incentives are incentives or bonuses that manufacturers randomly offer to dealers, often without the dealer's foreknowledge. Manufacturer incentives come in different forms. These include:

· Dealer holdbacks. A percentage of the manufacturer's suggested retail price (MSRP) or invoice price of a new vehicle, repaid to the dealer for "variable sales expenses."

· Dealer cash incentives. These are usually related to the quantity of vehicles sold. They may be offered in the form of cash or a dealer discount on future purchases.

The County notes that the Taxpayer records manufacturer incentives as, separate income and maintains that these incentives are in fact additional receipts that should be included in the basis for the BPOL tax assessment purposes. To the extent a manufacturer's incentive is directly related to the purchase of vehicles by the Taxpayer, it must be excluded from the Taxpayer's gross receipts for purposes of the Taxpayer's BPOL tax assessment. If a manufacturer's incentive is not taken or received on account of purchases by the Taxpayer, but rather is received based on sales volume by the Taxpayer, the incentive must be included in the Taxpayer's gross receipts. While a manufacturer's incentives may ultimately reduce the Taxpayer's cost of the vehicle paid by the Taxpayer, the incentives are not taken or received on account of purchases by the licensee. Such monies are not subject to the exclusion provided for in Va. Code § 58.1­3732 A 6.

DETERMINATION

Manufacturer incentives to the Taxpayer in the form of rebates or discounts taken or received on the account of purchases by it must be excluded from the Taxpayer's receipts for purposes of BPOL taxation. Such incentives serve to reduce the Taxpayer's cost of items purchased and cannot be considered as gross receipts. Manufacturers' incentives that are unrelated to purchases (e.g., cash incentives based on the volume of vehicles sold) are considered to be a part of the Taxpayer's gross receipts. This is true if the incentive is paid by the manufacturer directly to the Taxpayer or it is paid to the customer, who assigns the incentive to the Taxpayer in consideration of the purchase of the automobile.

I am returning this matter to the County with the instruction to recalculate the Taxpayer's BPOL tax assessments to reflect the exclusion for those manufacturer rebates and discounts that were given to the Taxpayer on account of its purchases.

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/50150H
    1In the commentary accompanying the Report of the Subcommittee Studying the Business, Professional and Occupation License Tax, House Document 59 (1995), the authors clarified this section, noting, "While discounts on purchases would not be gross receipts [manufacturer to dealer], manufacturer's rebates and coupons offered to consumers and redeemed at a retailer, would be gross receipts to the retailer." p. 23.

    Rulings of the Tax Commissioner

    Last Updated 08/25/2014 16:46