Tax Type
BPOL Tax
Description
Taxpayer is a travel agency with three locations in the County
Topic
Local Power to Tax
Taxability of Persons and Transactions
Date Issued
06-26-2008
June 26, 2008
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
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 "County"), for tax years 2001 through 2004.
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, 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 a travel agency with three locations in the County. The Taxpayer makes reservations through travel vendors on behalf of its clients. You represent that the clients make payments directly to the travel vendor for travel services. Upon receipt of a client's payment, the travel vendor pays the Taxpayer a commission.
The County issued BPOL tax assessments to the Taxpayer on December 20, 2006, based on the findings of an audit. The initial assessments were based on the financial information obtained from the Taxpayer that included both the travel services and the commissions. The Taxpayer appealed the assessment and presented internal operating statements to demonstrate the actual amount of commission revenue that it received. In its final determination, the County made adjustments to the audit assessment based on these documents, but determined that the information was insufficient to adjust the gross receipts for some travel carrier vendors (railroads, ferry companies, cruise companies, steamship lines, etc.) and other travel related services (hotels, motels, car rental, etc). The Taxpayer appeals the final local determination to the Department.
ANALYSIS
The BPOL tax is imposed on the gross receipts of a business. Virginia Code § 58.1-3700.1 defines gross receipts as "the whole, entire, total receipts, without deduction." Generally, gross receipts for license tax purposes exclude any amount not derived from the exercise of a licensed privilege to engage in business or profession in the ordinary course of business.
Previous opinions of the Attorney General and the Tax Commissioner have concluded that under certain circumstances, the term "gross receipts" does not include funds that the business receives and disburses as the agent for another. The seminal case dealing with agency relationship in relation to the BPOL tax is City of Alexandria v. Morrison- Williams Associates, Inc., 223 Va. 349 (1982).
In regard to the circumstances in which the funds handled by travel agencies are excluded from gross receipts under the BPOL tax, the Attorney General has opined:
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- If the client submits funds to the travel agency for the agency to disburse to the intended recipients on the client's behalf, with the client paying a separate fee to the travel agency for the services the agency renders the client, it is my view that the funds the agency disburses to the recipients would not be included in the agency's gross receipts. If, on the other hand, the travel agency provides a product that includes travel expenses and accommodations which the agency, in effect, purchases and resells to its clients at an increased price, the reasoning of the Court in Alexandria v. Morrison Williams suggests that the total cost to the client would be included in the travel agency's gross receipts. The final determination is to be made by . . . [the] commissioner of the revenue upon consideration of all the facts. Attorney General Opinion 09141998, September 14, 1999.
Citing this opinion, the Taxpayer states that receipts (commissions) that are "grossed up" for purposes of presenting "gross sales" on its financial statements should have no bearing on its actual gross receipts that can be taxed for BPOL purposes. Pursuant to Va. Code § 58.1-3703.1 A 5 a, however, an assessment of tax by a local tax authority is deemed prima facie correct. It is the obligation of a taxpayer to show that the assessment made by the County is incorrect by providing sufficient evidence to compute the correct amount of tax due. A taxpayer that keeps conflicting sets of financial records will generally be held to a higher standard with regard to proving which set is accurate for their intended purpose.
According to the Taxpayer, only the revenue from its commissions and fees are reported on its audited financial statements and federal income tax returns. The Taxpayer believes the audited financial statements should be sufficient documentation for its gross receipts. Although federal tax information and audited financial statements can be helpful in determining gross receipts, they usually provide insufficient detail when a taxpayer has multiple locations or operates in multiple localities and states. They may provide a basis on which to reconcile gross receipts attributable to a definite place of business, but more detailed records may be required.
Virginia Code § 58.1-3703.1 A 9 requires taxpayers to keep sufficient records to enable the local taxing authority to verify the correctness of the tax paid for the license years assessable and determine the correct amount of tax assessable. The Taxpayer has also provided a number of other records and logs to support its claim. The County gave this information due consideration and made adjustments where warranted. When logs and ledgers are inconclusive, a taxpayer may have to provide invoice records, paid receipts, bank statements, deposit slips and other similar documentation in order to prove what it actually received. The Taxpayer has not provided this documentation.
DETERMINATION
The Taxpayer is engaged in a licensable business activity in the County. The issue regarding the correct amount of gross receipts subject to BPOL tax for the tax years in question is a factual matter. The Taxpayer has not furnished adequate evidence to prove the assessments made by the County are incorrect. I am, therefore, returning this appeal to the County with the understanding that if the Taxpayer fails to comply with the requirements of Va. Code § 58.1-3703.1 A 9, within 45 days of the date of this letter, the BPOL tax assessments will stand.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1968663774.B
Rulings of the Tax Commissioner