06-14 | Virginia Tax

Tax Type

BPOL Tax

Description

Entire gross receipts of the Taxpayer's business are subject to the BPOL tax

Topic

Assessment

Taxable Transactions

Date Issued

02-07-2006

February 7, 2006

Re: Appeal 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 filed by you on behalf of the ***** (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 for tax years 2001, 2002, 2003 and 2004. I apologize for the delay in responding to your appeal.

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

FACTS

The Taxpayer is engaged in both retail shipping and packaging of goods, and the rental of trucks. In the latter business, the Taxpayer processes orders and receives direct payment from customers for the total amount of the rental of the trucks. These payments are forwarded to the owner of the truck rental company. The rental company then pays the Taxpayer a commission based on the value of the truck rental.

The Taxpayer reported its combined gross receipts from both business activities on its federal income tax returns. Upon audit, the County classified the Taxpayer as a personal services business and based its assessment on the Taxpayer's total gross receipts as reported on the Taxpayer's federal income tax return.

The Taxpayer appeals the assessment, contending that only the commissions it receives from the daily rental truck business should be factored into its gross receipts for purposes of the BPOL tax.

ANALYSIS

Agency Relationship

Virginia Code § 58.1-3700.1 defines gross receipts as "the whole, entire, total receipts, without deduction." In some instances, an agency relationship meeting the criteria set forth in Public Document (P.D.) 01-38 (4/12/01) enables the taxpayer to exclude certain receipts from the calculation of gross receipts.

In P.D. 01-38, the Tax Commissioner cited three criteria as set forth in opinions of the Attorney General: (1) there must be a contractual relationship between the taxpayer and both the client and the contracted third party; (2) the taxpayer cannot commingle its funds with all other sources, rather it must have a separate accounting system or a fiduciary account where the pass through receipts are recorded; and (3) the taxpayer does not report these "pass through costs" on its federal income tax return.

In this case, the Taxpayer has provided no evidence that would indicate it is involved in an agency relationship with the owner of the truck rental company. The Taxpayer has not provided proof of its legal relationship with the truck rental company and the customer. In addition, the third criterion established in P.D. 01-38 is not satisfied because the Taxpayer reported its total gross receipts including the "pass through costs" on its federal income tax return.

Moreover, the Taxpayer has not provided evidence that the owner of the rental trucks is "doing business" in the County. The rental of the trucks occurs at the Taxpayer's definite place of business in the County.

Rental of Tangible Personal Property

The business of "packing, crating, shipping' hauling or moving goods or chattels for others" and the "renting or leasing any items of tangible personal property" are classified as a personal services business under the 2000 BPOL Guidelines § 5.5.2. County Code § 20-431 contains a similar provision, and the County classified the Taxpayer as a single personal services business under this provision.

Virginia Code § 58.1-3703.1 A 3 provides that the gross receipts of a business renting tangible personal property shall be attributed to the definite place of business from which the tangible personal property is rented or, if the property is not rented from any definite place of business, then to the definite place of business at which the rental of such property is managed.

Further clarification of this Code provision is provided in 2000 BPOL Guidelines § 3.5:

- A car rental agency located in County B, stores its cars in a lot in Town C. The car rental contract is signed in the main office in County B and then an employee drives the customer out to the lot to pick up the car. The situs of gross receipts is County B since that is the locality where the rental took place. [Emphasis added.]

In the present case, the Taxpayer is in the business of renting trucks from its definite place of business in the County. The Taxpayer receives its revenues from the rental of trucks at its definite place of business in the County. Accordingly, such revenues are to be considered gross receipts for purposes of BPOL taxation.

Erroneous Advice

On a final point, the Taxpayer contends that is was erroneously advised by the County's business office to calculate its taxable receipts based on the gross receipts it derives from the retail shipping and packaging of goods business and the commission amounts as reported on a Form 1099 it receives from the truck rental owner. The Department has no information regarding such advice and cannot overturn an assessment based on such an assertion. This is a matter for the local assessing official to consider.

DETERMINATION

Based on the facts presented on appeal, I find the County's assessment to be correct. The BPOL tax is based on the entire gross receipts of a business. The Taxpayer is engaged in the business of both "packing, crating, shipping' hauling or moving goods or chattels for others" and the rental of tangible personal property, both business activities that are classified as a personal services business. Absent proof that the Taxpayer is engaged in an agency relationship as defined above for purposes of the truck rental portion of its business, it is my determination that the entire gross receipts of the Taxpayer's business are subject to the BPOL tax.

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/55742H

Rulings of the Tax Commissioner