07-209 | Virginia Tax

Tax Type

BPOL Tax

Description

City requiring a second license for the second definite place of business

Topic

Classification

Local Taxes Discussion

Date Issued

12-05-2007

December 5, 2007

Re: Appeal of Final Local Determination
Locality: *****
Taxpayer: *****
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 "Taxpayer") with the Department of Taxation. You appeal an assessment of Business, Professional and Occupational License (BPOL) taxes issued to the Taxpayer by the ***** (the "City") for tax years 2003, 2004 and 2005.

The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct. That is, the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections 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 operated at a definite place of business in the City (ADPB) for a number of years. In March 2003, the Taxpayer moved some of its employees to a second location (BDPB) in the City due to growth in the business. Although personnel located at ADPB conduct the overall supervision of both locations, distinct business activities were conducted at both locations.

The City ruled that in moving some of its employees to BDPB, the Taxpayer had created a second definite place of business, and assessed additional BPOL tax. The Taxpayer protests the assessment made on its business at BDPB, contending that the business license pertains to the individual employees who are generating the gross receipts and not to the arbitrary location at which they conduct business activities.

ANALYSIS

Separate Place of Business

Virginia Code § 58.1-3703.1 states, "A separate license shall be required for each definite place of business and for each place of business. A "definite place of business" is defined as "an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more." See Va. Code § 58.1-3700.1 3.

The Taxpayer argues that the movement of its employees is merely an extension of the privilege conveyed by the license granted to the office located at ADPB. For purposes of BPOL taxation, it is situs, or the physical location of the business, that determines the tax. Virginia Code § 58.1-3708 states:

- Where a local license tax imposed by any locality is measured by volume, the volume on which the tax may be computed shall be the volume attributable to all definite places of business of the business, profession, trade, occupation or calling in such locality.

This same section, however, provides that: "this section shall not be construed as prohibiting any locality from requiring a separate license for each definite place of business located in such locality." As such, localities retain the discretion over how to impose the tax.

As a general rule, the gross receipts from service activities are attributed to "the definite place of business at which the services are performed or, if not performed at a definite place of business, then from the definite place of business from which the services are directed or controlled." See Va. Code § 58.1-3703.1 A 3 a (4). Based on the information provided, the Taxpayer conducts service activities at BDPB that cannot be considered to be ancillary to the activities conducted by the Taxpayer at ADPB.

Beginning Business

The Taxpayer also contends that during the 2003 tax year, it paid a tax twice based on the gross receipts of the same business - once based on prior year gross receipts for ADPB, and secondly based on the estimated gross receipts of its business at BDPB.

A business that is subject to license taxation on its gross receipts calculates its tax liability for the license year using its base year gross receipts. Virginia Code § 58.1-3700.1 defines "license year" as the calendar year for which a license is issued for the privilege of engaging in business.

The calculation for the license tax is based upon the "base year," which is the "calendar year preceding the license year . . . unless the local ordinance provides for a different period for measuring the gross receipts of a business, such as for beginning businesses." See Va. Code § 58.1-3700.1.

Under the City's ordinance, a beginning business must calculate its license tax liability for its first year based on its estimated first year receipts. At the end of the first license year, the business' license tax liability is adjusted to reflect actual first year receipts. After the first full year in business, each succeeding year's tax is based upon the prior year's gross receipts and is not corrected to reflect actual gross receipts. See Public Document (P.D.) 99-210 (7/28/1999) and P.D. 99-229 (8/10/1999) for a further discussion of this issue.

This method of determining the basis of license taxes is supported by Virginia case law. In Cliff Weil, Incorporated v City of Richmond, 211 Va. 575; 179 S.E.2d 515; (1971), the Virginia Supreme Court specifically upheld a locality's method of imposing BPOL tax on beginning businesses in a manner similar to that at issue in the Taxpayer's case.

DETERMINATION

By opening BDPB, the Taxpayer established a second definite place of business in the City. The City imposed the BPOL tax on both ADPB and BDPB according to its ordinances as permitted under Va. Code § 58.1-3708. Further, the City had the authority to assess BDPB as a beginning business in accordance with its ordinances. Therefore, the City was correct in requiring the Taxpayer to obtain a second license for the second definite place of business.

For license year 2004, the Taxpayer's BPOL tax assessment for ADPB should reflect only those gross receipts attributable to business conducted at that location in 2003. The Taxpayer's 2004 license for its business at BDPB should again be based on an estimate because it will not have been in business for a full year in 2003. For license year 2005, the Taxpayer's BPOL tax at both ADPB and BDPB should be based on the gross receipts earned from business conducted at each respective location in 2004. In accordance with this determination, I am remanding this appeal to the City with the instructions to ensure that the appropriate assessment was made for both ADPB and BDPB.

If you have any questions regarding this determination, you may call *****, Office of Tax Policy, Appeals and Rulings at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-1300234033H

Rulings of the Tax Commissioner