05-59 | Virginia Tax

Tax Type

BPOL Tax

Description

A "speculative builder" request for refund denied

Topic

Local Power to Tax

Date Issued

04-12-2005

April 13, 2005

Re: Appeal of Assessment: 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 ***** (the "Taxpayer"), with the Department of Taxation. You appeal a final local determination by the Director of Finance of ***** (the "County") denying the Taxpayer's application for correction for Business, Professional and Occupational License ("BPOL") taxes paid for license tax year 2000.

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

FACTS

The Taxpayer is classified as a "speculative builder" under the provisions of the County's Code. "Speculative builder" is a special subclassification of the general classification of contractor created by the County for purposes of the BPOL tax. For speculative builders, the County imposes the BPOL tax on the entire cost (both hard and soft) of erecting the building, exclusive of the value of the land, but including the cost of off-site improvements (namely, water systems, sanitary sewerage systems, storm drainage systems and road, curb and gutter improvements), less the County established threshold of $100,000 in gross receipts.

The County imposes the BPOL tax on speculative builders based on estimated costs accrued to the taxpayer in the current license year. A taxpayer must estimate the cost of its building projects when applying for a license, then correct the figure when applying for the next year's license. That is, the application for the ensuing year would reflect the estimate for that year, plus or minus any correction of the previous year's estimate so as to reflect a true accounting of the previous year's cost of construction.

The County audited the Taxpayer for license years 2001 through 2003 and discovered the Taxpayer was using the prior year's gross receipts as its basis for the BPOL tax, rather than the estimated cost of construction as required by the County's Code. After adjusting the Taxpayer's returns to reflect the actual cost of construction minus the value of the land in each license year, the County issued the Taxpayer refunds for license years 2001 and 2002. The Taxpayer followed the County's procedure of reporting cost of construction in license year 2003.

The Taxpayer filed with the County an application for review of its BPOL tax return for license year 2001. In its application, the Taxpayer requested an adjustment that reflected the difference between 2000 receipts that were reported on its 2001 return in the traditional method of reporting for purposes of the BPOL tax, and the actual cost of construction in 2000, reflecting the County's methodology. The Taxpayer believes this difference should have been carried forward as a correction on its 2001 return. The County denied the application on the basis that the statute of limitations to review license year 2000 had expired.

ANALYSIS

Speculative Builders

The County has elected to create a subclassification of contractor titled "speculative builder." This is consistent with 2000 BPOL Guidelines § 2.1. This section provides that while localities must follow the exemptions, rates, classifications and thresholds as set forth in Chapter 37 of Title 58.1 of the Code of Virginia, through their local ordinances localities may:

Establish a threshold amount of gross receipts below which no tax will be imposed, or a maximum tax for any classification.
Establish subclassifications within the classifications set out in state law and provide for different rates or exemptions for such subclassifications, as long as no rate exceeds the maximum permitted by state law.

Refunds

Virginia Code § 58.1-3990 provides the local assessing officer the authority to examine the current year and the preceding three tax years when correcting a license tax assessment. Specifically, the statute states, "No refund shall be made in any case when application therefor was made more than three years after the last day of the tax year for which such taxes were assessed . . . ." In 2004, the County conducted an audit of the Taxpayer's 2001, 2002 and 2003 license tax years. The County found that the Taxpayer had used the traditional gross receipts method of calculating its BPOL tax due in license years 2001 and 2002 and made adjustments appropriate to the terms of its ordinance.

The Taxpayer believes that the overpayment "correction" from 2000 should be added to its refund for 2001. Taxpayer asserts that, because the prior year adjustment is normally included in the current return and taxed at the current year's rate without penalty or interest, this adjustment should be considered as part of the tax for the current year. As such, the Taxpayer believes that an adjustment for the difference between the 2000 tax paid on gross receipts and the tax that would have been due on the 2000 costs of construction should be allowed as an additional reduction to the license tax for 2001. The Taxpayer's reasoning is that if the monies would normally be used to apply towards the tax due and owing in license year 2001, they should be used by the County in calculating the Taxpayer's refund due in license year 2001.

For auditing purposes, adhering to the provisions of its Code, the County regards the estimate, plus or minus any correction made in the ensuing year's license application, as the base for the license year being audited. Thus for license year 2001, the County would compare the original estimate for 2001, plus or minus the correction for tax year 2001 filed in 2002, with the actual cost of construction for 2001. That is, even though the correction was applied to tax year 2002 at the time the 2002 license was purchased, the correction is ultimately regarded as monies due in 2001. Therefore, in the present case, any correction reflected on the 2001 return for license year 2000 is attributed to tax year 2000.

DETERMINATION

The refund the Taxpayer is claiming as an adjustment in 2001 cannot be refunded because, pursuant to the County's Code, those monies are attributed to tax year 2000. As such, under the provisions of Va. Code § 58.1-3990, the County is time barred from issuing a refund for license year 2000. The County's decision stands.

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/52941H

Rulings of the Tax Commissioner