Tax Type
BPOL Tax
Description
Taxpayer has a definite place of business in the City
Topic
Local Power to Tax
Taxability of Persons and Transactions
Date Issued
06-06-2008
June 6, 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 ***** (the "City") for tax years 2003 through 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 is a provider of television cable service to residents of the City and nearby counties. Its local headquarters is in ***** (the "County"). The Taxpayer's management personnel, customer service call center, principal sales office, marketing personnel, technical support personnel, and transmission and satellite equipment are all located at its facility in the County.
The Taxpayer also has an office in the City that provides customer service including accepting, initiating and processing orders for new services, cancellations, upgrades and downgrades; receiving payments on accounts; distributing or exchanging converter boxes, cables, and other equipment; and taking orders for repair services. Additionally, the studio at the office in the City provides public access to cable transmission for purposes of broadcasting local programming. Transmission equipment for local government access is also located at this office.
The Taxpayer has a franchise agreement with the City, under which it pays an annual fee based on a percentage of its gross revenues from its business in the City. Additionally, the City imposes a BPOL tax on the Taxpayer. The franchise agreement stipulates that the Taxpayer keep complete and accurate books of account and records of its business in the City at the office located in the City.
For BPOL tax purposes, the City assessed the Taxpayer's business in the City as a business service. The Taxpayer contests the assessments, contending that the functions of the office in the City are ancillary to the functions of the main operation of the headquarters office in the County. The Taxpayer asks for a full refund of BPOL taxes it paid in tax year 2003, and asks that the assessments made in 2004 and 2005 be abated.
ANALYSIS
Definite Place of Business
The BPOL tax is a local option tax imposed upon businesses, professionals and other occupations for the privilege of doing business within a given jurisdiction. "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.
The Taxpayer maintains an office in the City as required under the terms of the franchise agreement. This office is staffed with six full-time employees. Clearly, the Taxpayer has a definite place of business in the City and is liable for the City's BPOL tax.
Situs
The BPOL tax may be imposed by jurisdictions on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town . . . ." See Va. Code § 58.1-3703. The general rule for establishing situs for the BPOL tax is that whenever the tax is measured by gross receipts, "the gross receipts included in the taxable measure shall be only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within [the] jurisdiction." See Va. Code § 58.1-3703.1 A 3 a. As applied to business and personal services Va. Code § 58.1-3703.1 A 3 a (4) provides:
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- The gross receipts from the performance of services shall be 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.
The situs of business service providers is discussed in 2000 BPOL Guidelines § 3.6. In example 2 of that section, a real estate management agency headquartered in one jurisdiction maintains on-site rental offices in other jurisdictions where it owns property. Because these on-site offices may make rental, repair and management decisions, the agency would source appropriate gross receipts to the locality where it has an on-site office where the rentals occur.
In the instant case, the same analysis would apply. The Taxpayer's headquarters is in the County. The Taxpayer also has a definite place of business in the City that provides direct services to customers. Therefore, the receipts attributed to services performed at the definite place of business in the City must be sourced to the City.
The franchise agreement grants the Taxpayer the "right and the authority to engage in the business of operating and providing cable services" in the City. In accordance with the agreement, the Taxpayer installs, constructs, repairs, replaces, and maintains property necessary to operate the cable system in the City. To the extent that these services are performed at the office in the City, gross receipts associated with these services would be sitused to the City.
Ancillary Activity
The Taxpayer contends that because its services are directed, controlled and delivered from its office in the County, its activities in the City are ancillary to its business and therefore are not subject to the City's gross receipts tax.
In Public Document ("P.D.") 97-257 (6/11/1997), the Tax Commissioner defined the use of "ancillary" for purposes of the BPOL tax. The term "ancillary "refers to business activities, which are subordinate, subservient, auxiliary, or in aid of the business's principal business activity. To determine whether a business activity is ancillary to another business, one must inquire if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business.
In this case, the Taxpayer has a definite place of business in the City. As stated above, this office provides a number of services directly to customers. I cannot agree that the services performed at the office in the City are ancillary to the Taxpayer's business. Services such as collecting payments, providing equipment, and making adjustments to customer account services, and arranging for repair services are necessary in order for the Taxpayer's customers to receive their desired level of cable television service.
DETERMINATION
The Taxpayer has a definite place of business in the City. Its office in the City performs many customer related functions. These services are not merely ancillary: It is my determination that the City has the authority to impose BPOL tax on the Taxpayer's receipts associated with the services performed at the office in the City. Therefore, I find no basis for overturning the City's final local determination that the BPOL taxes for tax years 2003 through 2005 were correctly assessed.
If you have any questions regarding this determination, you may call 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/1-136074089H
Rulings of the Tax Commissioner