10-97 | Virginia Tax

Tax Type

BPOL Tax

Description

Gross receipts, Payroll apportionment

Topic

Allocation and Apportionment

Local Taxes Discussion

Date Issued

06-04-2010

June 4, 2010

Re: Request for Advisory Opinion
Business, Professional and Occupational License Tax

Dear *****:

This is in response to your letter in which you request guidance on behalf of your client, ***** (the "Taxpayer"), regarding the methodology for apportioning receipts between two facilities for purposes of the Business, Professional and Occupational License (BPOL) tax. I apologize for the delay in the Department's response.

The local license fee and tax are imposed arid administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virgiriia.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 several localities. Its local headquarters is located in Locality A. This facility houses the Taxpayer's management personnel, customer service call center, principal sales office, marketing personnel, technical support personnel, and transmission and satellite equipment, as well as a customer service walk-in center. The Taxpayer's principal business of providing cable television services is conducted from this location.

The Taxpayer also has a definite place of business in Locality B 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 Locality B provides public access to cable transmission for purposes of broadcasting local programming. Transmission equipment for local government access is also located at this office. In addition, installation, repair and maintenance, and cable line personnel travel into Locality B to perform various functions to keep the cable system operational for customers.

In light of the various tasks required to operate its cable network in multiple localities, the Taxpayer requests that the Department rule that payroll apportionment would be required in order to determine gross receipts subject to BPOL tax imposed by Locality A and Locality B.

OPINION

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. In other words, it is a business' situs and its activity within a given jurisdiction that gives rise to its local BPOL tax liability. The question becomes whether the measure of the Taxpayer's business activity is related to its presence in each locality in which it operates.

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. Under Va. Code § 58.1-3703.1 A 3 a (4), this general rule is applied to business services as follows:

- 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 to the definite place of business from which the services are directed or controlled.

In the present case, the provision of cable television services are almost entirely performed in Locality A, and the installation and maintenance activities conducted by the employees entering Locality B are controlled and directed from the Locality A headquarters facility.

The provision of customer services, local programming broadcasts, government access transmissions are generated from a definite place of business in Locality B. According to the Taxpayer, these customer services are built into the fees assessed to customers of the Taxpayer's cable television services.

Because the customer services provided at the office in Locality B are included in the base price for cable television services, the Taxpayer contends the nature of its business precludes using the general rule in determining the situs of its gross receipts for BPOL tax purposes. Rather, the Taxpayer contends that the payroll apportionment method would more accurately reflect the actual business attributable to its office in Locality B.

The Taxpayer cites Public Document (P.D.) 04-26 (06/02/2004) to support its position. In P.D. 04-26, the Department ruled that it is incumbent upon a taxpayer to unbundle the aggregated gross receipts from various services in a case where a locality has determined that payroll apportionment is the most appropriate method of determining situs. Further, in P.D. 04-90 (8/31/2004), the Department approved payroll apportionment where a taxpayer was unable to provide the locality with a clear accounting of gross receipts directly attributable to that locality.

Virginia Code § 58.1-3703.1 A 3 b states that when a taxpayer "has more than one definite place of business and it is impractical or impossible to determine to which definite place of business gross receipts should be attributed under the general rule, the gross receipts of the business shall be apportioned between the definite places of businesses on the basis of payroll." Under payroll apportionment, all gross receipts must be apportioned to a definite place of business. Gross receipts would not be apportioned to locations where a taxpayer provides services on a temporary basis.

It is my understanding that the Taxpayer has been operating in Locality B for a number of years and attributing gross receipts under a regime acceptable to Locality B. Thus, it would be incumbent upon the Taxpayer to prove to Locality B that its current method of attributing gross receipts to Locality B fails the statutory method and that the Taxpayer is unable to determine to which definite place of business gross receipts should be attributed. While payroll apportionment is the method of last resort to be utilized in determining the situs of a taxpayer's gross receipts for purposes of the BPOL tax, there are instances in which it is the proper method to use.

In addition, while the Taxpayer is seeking to apportion gross receipts to Locality B, it has made no mention of how it currently attributes gross receipts to Locality A. Under Title 23 of the Virginia Administrative Code (VAC) 10-500-220 localities may enter into agreements regarding the manner in which gross receipts should be apportioned among definite place:; of business. In addition, taxpayers are permitted to request an alternative method of attributing gross receipts if differing methods of one or more other localities has, or is likely to, result in taxies on more than 100% of its gross receipts in localities where it is licensed.

Based on the information provided, I decline to rule that payroll apportionment is required in this case. I recommend the Taxpayer seek a meeting with Locality A and Locality B to determine if an alternative method is warranted. If an agreement cannot be reached, an advisory opinion may be sought from the Department as prescribed under Title 23 VAC 10-500-220.

If you have any questions regarding this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-2629595497.o

Rulings of the Tax Commissioner