05-51 | Virginia Tax

Tax Type

BPOL Tax

Description

Professional staffing service special classification

Topic

Local Taxes Discussion

Taxpayers' Remedies

Date Issued

04-08-2005

April 8, 2005

Re: Application for Correction of Final Local Determination
Taxpayer: *****
Locality: *****
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 denying a partial refund of BPOL taxes paid to the ***** (the "City") for tax years 1999 and 2000.

The following determination is based on the facts presented to the Department as summarized below. The 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.policylibrary.tax.virginia.gov.

FACTS

The Taxpayer is a staffing firm located in the City. For purposes of the BPOL tax, the Taxpayer was classified as a business service during tax years 1999-2003. The Taxpayer initially filed an application for review with the local commissioner of the revenue on December 12, 2002, under the provisions of Va. Code §§ 58.1-3980 and 58.1-3981, requesting a partial refund of its 1999, 2000, 2001 and 2002 BPOL taxes paid. The Taxpayer's request was based on the fact that it is a professional staffing service, and as such, is subject to the special classification provided for in Va. Code § 58.1-3732.4.

In addition to meeting the requirements for a formal application for review as defined in § 7.4 of the 2000 BPOL Guidelines, the Taxpayer submitted annual payroll reports, quarterly state and federal reports, and monthly worker's compensation reports for calendar year 1998 (the base year for the 1999 license tax) with its application for review. The Taxpayer asked the local commissioner for guidance as to what, if any, additional documentation would be necessary for the commissioner's review of license years 2000, 2001 and 2002.

The City responded to the Taxpayer's application for review on December 17, 2002, and initiated what the City termed to be a "second audit" covering license tax years 1999-2002. While the audit was still in November 2003, the Taxpayer expanded its refund request to include license tax year 2003. The City complied with the Taxpayer's request, and the audit was extended to include license tax year 2003. In January 2004, the City submitted a final request to the Taxpayer for additional information pertaining to license tax years 1999, 2000, 2001, 2002 and 2003.

On March 17, 2004, the City notified the Taxpayer that it had approved the request for the partial refund for tax years 2001-2003, but was denying the refund request for tax years 1999 and 2000. In denying the Taxpayer the partial refund for tax years 1999 and 2000, the City's commissioner of the revenue explained: "My office completes an audit assessment on every business license application that is processed in [the City's] commissioner of the revenue's office." It is the City's position that, under the provisions of Va. Code § 58.1-3703.1 A 5(a), as in existence in 1999¹, the Taxpayer should have filed an application for review within 90 days of the license payment date. The City issued its final local determination on April 2, 2004.

In providing the Taxpayer with a refund for tax years 2001-2003, the City agreed with the Taxpayer's contention that its original classification as a business service was incorrect. The City's denial of a refund for taxes paid in license years 1999 and 2000 is not based upon the issue of classification. Rather, it is based on the position that the Taxpayer's application for a refund for tax years 1999 and 2000 was not timely filed. The Taxpayer appeals the City's determination.

ANALYSIS

Application for Review

The Taxpayer initially filed its application for correction of its 1999, 2000, 2001 and 2002 assessments in December 2002 under the provisions of Va. Code § 58.1-3980 A. This section provides that any person, firm or corporation assessed with:

- a local license tax, aggrieved by any such assessment, may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof ^2. [Emphasis added.]

Pursuant to this Code section, the Taxpayer's application for correction of its BPOL assessment was timely filed. The application for review was filed on December 12, 2002, which is within three years of the last day of tax year 1999.

Audit assessments

The City contends that the Taxpayer's application for review for license years 1999 and 2000 was time barred under the provisions of Va. Code § 58.1-3703.1 A 5(a), which, as in existence during those years, provided:

- Any person assessed with a local license tax as a result of an audit may apply within ninety days from the date of such assessment to the assessor for a correction of the assessment. [Emphasis added.]

In license years 1999 and 2000, therefore, the only license tax assessments appealable to the local commissioner of the revenue under this provision of the statute were audit assessments.

The City contends that it completes an audit assessment when a taxpayer files an application for a business license³.

This position is contrary to standard definitions of "audit." The commonly accepted definition of an "audit" refers to an examination of books, records, documents from which the business extracted information contained in the tax return or annual report in order to verify the accuracy of the reported information. Under the 2000 BPOL Guidelines § 7.4 "audit" means:

- an examination of records, financial statements, books of accounts, and other information to evaluate the correctness of a local license tax. An audit shall include, but is not limited to, an examination to determine the correctness of a classification of a licensable business, examinations resulting in adjustments made to gross receipts, tax, and other information contained in the taxpayer's return, and examinations resulting in the imposition of a local license tax when no return has been filed. [Emphasis added.]

Under the provisions of Va. Code § 58.1-3701 A 5(a), as it existed in 1999, a Taxpayer could only appeal an audit assessment. A cursory review of selected tax returns by the City at the time a BPOL license application is made does not qualify as an audit. Therefore, I find the City's contention that the Taxpayer did not timely file an application for review under the provisions of Va. Code § 58.1-3701 A 5(a), as it existed in 1999, to be without merit. Because there was no audit performed, there was nothing to appeal under this section of the statute. The Taxpayer appropriately filed an application for correction under the provisions of Va. Code § 58.1-3980 A.

I would also note that any review or audit of the Taxpayer's license tax for license year 2003 should have been considered separate from the audit covering license tax years 1999-2002. Statutorily, an audit or review can only embrace the current year and the three previous years from the date of the assessment. Adding additional years to a review cannot be utilized as justification for eliminating those years covered in the original period, whether the taxpayer or the assessing official initiated the review.

Time Limitations

While the time period during which a taxpayer may exercise its right to apply for correction of an erroneous assessment is statutorily limited, there is no limit within which a taxpayer may be granted a refund. In a recent opinion, the Virginia Attorney General noted that:

- § 58.1-3980 does not provide a time limit within which a refund of erroneous taxes may be paid pursuant to a timely filed application for correction, but only when such application may be filed. 2004 Op. Att'y Gen., 03-113, 2004 Va. AG Lexis 9⁴. [Emphasis added.]

In the present case, the Taxpayer timely filed its application for review in for tax years 1999-2002. The City was incorrect in stating that it was timed barred from issuing the refund for license tax years 1999 and 2000.

DETERMINATION

The Taxpayer correctly filed an application for review with the locality pursuant to the provisions of Va. Code § 58.1-3980. The fact that the audit period was extended does not affect the Taxpayer's initial request for a refund. I am returning this matter to the City with the instruction to issue the appropriate refund of excess taxes paid by the Taxpayer, with interest, for license tax years 1999 and 2000.

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/51744H

¹This section was amended by Chapter 364 of the 2002 Acts of Assembly which substituted the term "appealable event" for "audit" and extended the time for a taxpayer to appeal a BPOL tax assessment to the local assessing officer from 90 days to one year.
²This provision is superseded by Va. Code § 58.1-3703.1 that, effective July 1, 2002, permits a taxpayer to seek correction of an "appealable event" within one year from the last day of the tax year for which the assessment is made, or within one year from the date of the appealable event, whichever is later. None of the events deemed "appealable" as defined in Va. Code § 58.1-3703.1 A 5 f occurred, however.
³This appears to be an unwritten policy. Neither the City's ordinance nor its BPOL tax form states that the filing of a return constitutes an "audit."
⁴The facts of this case are markedly different from the facts presented in Op. Att'y Gen., 03-113, 2004 Va. AG Lexis 9, in which the Taxpayer appealed in 2003 for a full exoneration of taxes assessed in 1998. In that case, the Attorney General opined the time period in which the taxpayer could appeal for administrative remedy had expired. In this case, the application for review was timely filed.

Rulings of the Tax Commissioner