Tax Type
BPOL Tax
Description
Definite Place of Business; Situs; License Fee and Taxation of Contracting Services
Topic
Classification
Local Power to Tax
Taxability of Persons and Transactions
Taxable Income
Date Issued
01-03-2011
January 3, 2011
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 "County") for the 2006 through 2009 tax years.
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, i.e., 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 corporation that performs tree and stump removal, tree pruning, landscaping and tree planting, grinding and recycling, mulch supply and commercial land clearing. The Taxpayer also performs demolition projects and construction of buildings, additions, and retaining walls. These jobs are performed in various Virginia localities and outside of the Commonwealth. The Taxpayer holds a Class A construction license and is licensed as a contractor for BPOL purposes in the ***** (the "City").
The Taxpayer's operates from a facility leased in the City. Its sales staff and business estimators work from the City facility, and all of its equipment is located and dispatched from the City. The City facility includes a machine shop operated to maintain all of the Taxpayer's equipment. The Taxpayer has a phone at its City facility and holds itself out as operating from the City on its business cards. The Taxpayer's president directs the operations of the Taxpayer from his office at the City location or from his home, which is also located in the City.
The Taxpayer's office in the County has four individuals that perform record keeping and administrative functions. Business documents, including license applications and tax returns, reflect the County address. The telephone directory and the Taxpayer's Internet web page provide the County phone number and the address of the County facility.
Under audit, the County issued assessments for the 2006 through 2009 taxable years. In its final determination addressing the Taxpayer's local appeal, the County concluded that the Taxpayer was subject to BPOL tax because it had a definite place of business within its jurisdiction. The County also concluded that the Taxpayer should be classified as a business service rather than a contractor. The Taxpayer appeals the final local determination to the Tax Commissioner, contending (1) it should be classified as a contractor, (2) it does not have a definite place of business in the County, and (3) all of its business was directed and controlled from the City facility.
ANALYSIS
Classification
The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is imposed at different rates according to the classification of an enterprise. See Va. Code § 58.1-3706. The classifications are explained under Title 23 of the Virginia Administrative Code (VAC) 10-500-10 et seq. Classification of a specific business must be determined based on consideration of all the facts and circumstances. Some of the factors to be considered include:
1. What is the nature of the enterprise's business?
2. How the enterprise generates gross receipts.
3. Where the enterprise conducts its business.
4. Who are the enterprise's customers?
5. How the enterprise holds itself out to the public.
6. The enterprise's NAICS code.
The Taxpayer contends that because it has a state contractor's license, it should be classified as a contractor. I disagree. State contractors licenses are issued by the state for regulatory purposes. The BPOL tax is a local tax imposed on a person for the privilege of doing business in a locality. A person can have a state contractor's license, yet be engaged in another business in the locality. See 2002 Op. Va. Att'y Gen. 02-044.
A contractor is defined in Va. Code § 58.1-3714 D 1 in pertinent part, as any person, firm or corporation:
- Accepting or offering to accept orders or contracts for doing any work on or in any building or structure, requiring the use of paint, stone, brick, mortar, wood, cement, structural iron or steel, sheet iron, galvanized iron, metallic piping, tin, lead, or other metal or any other building material . . .
Accepting or offering to accept an order for or contract to excavate, earth, rock, or other material for foundation or any other purpose or for cutting, trimming or maintaining rights-of-way
The Taxpayer meets the definition of a contractor because it builds additions and retaining walls and it performs trimming services for maintaining rights of way.
Title 23 VAC 10-500-500 provides a list of occupations that are considered repair, personal, business, and other services. Tree surgeons, trimmers and removal services are listed as a business services. As such, the portion of the Taxpayer's business that includes tree and stump removal, tree pruning, landscaping and tree planting, grinding and recycling, mulching and commercial land clearing would be classified as a business service. See Public Document (P.D.) 99-207 (7/28/1999).
Multiple Businesses
Virginia Code § 58.1-3703.1 A 1 provides that a separate license shall be required for each definite place of business and for each business a taxpayer is operating. Local tax officials are responsible for making the determination as to whether a taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other. In order to make this determination, the local tax official must be provided with documentation demonstrating the substantiality of each business. See 1994 Op. Va. Att'y Gen. 99.
The facts presented in this case indicate that the Taxpayer may be operating multiple businesses. Specifically for this case, the Taxpayer may be engaged in multiple businesses because it engages in both tree removal, a business service, and construction contracting. Under its authority, the City classified the Taxpayer as a contractor for BPOL purposes for the tax years at issue.
Definite Place of Business
Virginia Code § 58.1-3700.1 defines a "definite place of business" as an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following onsite activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See P. D. 97-201 (4/25/1997).
Contrary to the County's assertion, there is no doubt that the Taxpayer has a definite place of business in the City. The Taxpayer's employees also work out of an office in the County in which they perform administrative tasks. Therefore, the Taxpayer has a continuous presence, office and employees in the County. It holds itself out to the public as a business through the maintenance of a phone number in the phone directory and a County address on its Internet web page. As such, the Taxpayer has a definite place of business in the County.
Situs
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.
In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or as a last resort (iii;) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
The County contends that a site visit, coupled with the fact that the Taxpayer listed a business phone number in the County and filed tax returns using the County office's address, indicates that the Taxpayer's business was directed or controlled from the County. In this case, while the Taxpayer maintains a definite place of business in the County, the actual services that the Taxpayer performs occur in different localities. The documentation indicates that the services are directed and controlled from the Taxpayer's facility or the president's home in the City. For BPOL tax purposes, those gross receipts must be sitused to the Taxpayer's office in the City where the actual services are directed and controlled.
Ancillary Activity
Because the Taxpayers have a definite place of business in the County, but the services conducted by the business are directed and controlled from the City, the question is whether the office located in the County was engaged in a separately licensable activity. For purposes of the BPOL tax, an ancillary activity is defined as an activity for which no separate charge is made. Furthermore, any gross receipts attributable to ancillary activities are taxable as part of the primary business. See 23 VAC 10-500-110 B.
In P.D. 97-257 (6/11/1997), the Department concluded that the term "ancillary" refers to business activities that are subordinate, subservient, auxiliary, or in aid of the business' principal business activity. Distinguishing between an ancillary activity and an activity that rises to the level of a separate business can often be accomplished by determining 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 County office provided recordkeeping and administrative services. These services cannot exist independently of the Taxpayer's principal business services. As such, the recordkeeping and administrative services provided by the Taxpayer in the County were supplemental to the contracting and business services that were directed and controlled from the Taxpayer's facility in the City.
License Fee
Virginia Code § 58.1-3703 provides for localities to impose, by local ordinance, a license fee or a license tax on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within" the locality. As such, even though Taxpayer's gross receipts must be sitused to the City, the County may impose a license fee on the Taxpayer.
Taxation of Contracting Services
Virginia Code § 58.1-3715 states that while a contractor generally is obligated to procure a license in the jurisdiction where its principal offices are located, a contractor must obtain a license in a secondary jurisdiction when its business in that jurisdiction is in excess of $25,000. In such instances, the statute provides:
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- when the amount of business done by any contractor generally in any other county, city or town exceeds the sum of $25,000 in any year, such other county, city or town may require of such contractor a local license, and the amount of business done in such other county, city or town in which a license tax is paid may be deducted by the contractor from the gross revenue reported to the county, city or town in which the principal office or any branch office of the contractor is located
Therefore, if the Taxpayer is conducting its contracting activities within County, and these activities generate more than $25,000 in gross receipts in any year, the County may require that the Taxpayer get a business license and assess a tax on those gross receipts. If the Taxpayer is required to pay a BPOL tax in the County on its gross receipts derived from contracting, the Taxpayer would be allowed to subtract those gross receipts from its gross receipts reported to the City.
DETERMINATION
For the reasons stated above, it is my determination that the Taxpayer does have a definite place of business in the County. However, because the Taxpayer conducts neither business services nor contracting at this facility, the County may not impose BPOL tax on the Taxpayer for the 2006 through 2009 tax years.
However, the nature of they actual business conducted at the County office requires that the Taxpayer obtain a business license and may be subject to the County's license fee. Further, if the Taxpayer generated more than $25,000 of gross receipts from contracting activities in the County, the local taxing authority may require that the Taxpayer acquire a business license and play a tax on those gross receipts.
Accordingly, I am returning this case to the County with the instructions to adjust the assessments in accordance with this determination. The County may access a license fee on the Taxpayer for the privilege of conducting business in the locality.
If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4278912279.B
Rulings of the Tax Commissioner