Document Number
Tax Type
County to allow for the out-of-state deduction using the methodology in P.D. 12-89.
Allocation and Apportionment
Computation of Tax
Out of State Tax Credits
Date Issued

August 31, 2012

Re: Appeal of Final Local Determination
Locality Assessing Tax: *****
Taxpayer: *****
Business, Professional and Occupational License Tax

Dear *****:

This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals an assessment of Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by the ***** (the "County") for the 2007 tax year.

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 in the Tax Policy Library section of the Department's web site.


The Taxpayer is a multistate corporation with over 100 offices nationwide that had a definite place of business in the County during the tax year at issue. In filing its BPOL return, the Taxpayer concluded that it was impossible or impractical to determine the situs of its gross receipts under the general situs rules and its gross receipts were apportioned based on payroll.

The County audited the Taxpayer and adjusted the subtraction for the gross receipts attributed to states in which the Taxpayer filed income tax returns and issued an assessment. The Taxpayer appealed the assessment to the County. In its final local determination the County upheld the audit adjustment to the deduction, concluding that its method appropriately excludes gross receipts from the deduction that had already been sitused to a definite place of business outside the locality.

The Taxpayer appeals the County's final determination to the Tax Commissioner, contending it determined the out-of-state deduction by multiplying its total out-of-state tax receipts by the same payroll factor used to determine the situs of its gross receipts. The County counters that allowing the deduction based on the Taxpayer's computation allows companies with out-of-state offices to magnify the deduction in a way that businesses that only have an office in Virginia cannot do.


Virginia Code § 58.1-3732 B 2 provides a deduction from gross receipts otherwise taxable for any receipts "attributable to business conducted in another state or foreign country in which the taxpayer . . . is liable for an income or other tax based upon income." Because revenues are sitused by directly assigning receipts to a taxpayer's definite place of business, it would be entitled to claim the deduction for those gross receipts that are attributable to business conducted in another state or foreign country in which it was liable for an income or income like tax based on income.

In Public Document (P.D.) 10-229 (9/29/2010), the Department ruled that when gross receipts are apportioned by using the general payroll apportionment formula, the amount of the out-of-state deduction would be determined by multiplying the total out-of-state gross receipts by the same payroll factor used to determine situs of gross receipts.

The Department further clarified how the out-of-state deduction should be computed when payroll apportionment is used to situs gross receipts in P.D. 12-89 (5/31/2012). In such circumstances, determining the receipts that can be deducted requires a three-step analysis:

1. Ascertain whether any employees at the Virginia definite place of business participated in interstate transactions by, for example, shipping goods to customers in other states, participating with employees in other offices in transactions, etc. If there has been no participation in interstate transactions, then there is no deduction. If there has been participation, then;

2. Ascertain whether any of this interstate participation can be tied to specific receipts. If so, then those receipts are deducted; however, if payroll apportionment had to be used to assign receipts to the definite place of business, then it is very unlikely that any of those apportioned receipts can be specifically linked to interstate transactions. If not, or if only some of the participation can be tied to specific receipts, then;

3. The payroll factor used for the Virginia definite place of business would be applied to the gross receipts assigned to definite places of business in states in which the taxpayer filed an income tax return. Note that payroll apportionment would probably be needed to assign receipts to definite places of business in other states.

Payroll apportionment of gross receipts is a process designed to approximate gross receipts from business transactions within a locality. Because the situs of gross receipts using payroll apportionment is an approximation, any deduction for out-of-state gross receipts would be, at best, an estimate. While the Department acknowledges the concerns raised by the County, the Department has developed a method that (1) results in a reasonable approximation of the deduction, (2) is straightforward to administer, and (3) can be applied uniformly.


Based on the foregoing, I am remanding this case to the County in order to adjust the assessment for the 2007 tax year to allow for the out-of-state deduction using the methodology as shown in P.D. 12-89. If you have any questions regarding this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.


Craig M. Burns
Tax Commissioner


Last Updated 08/25/2014 16:46