Tax Type
BPOL Tax
Description
Taxpayer did not report any income or gross receipts from his consulting business
Topic
Assessment
Local Power to Tax
Local Taxes Discussion
Records/Returns/Payments
Residency
Date Issued
12-12-2013
December 12, 2013
Re: Final Local Determination
Locality Assessing Tax: *****
Taxpayer: *****
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer"), with the Department of Taxation. You appeal a final local determination upholding a BPOL tax assessment for the 2006 through 2012 tax years issued by the ***** (the "County").
The local license tax and fee are imposed and administered by local officials. Virginia Code § 58.1-3703.1 A 5 authorizes the Department to issue determinations on taxpayer appeals of certain 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, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.
FACTS
The Taxpayer was an expert witness and consultant who worked mostly with attorneys at their offices and the offices of their clients. He also testified in court and other forums.
Until the end of 2009, the Taxpayer was also a faculty member of a university
located in ***** (State A). He would receive calls, faxes, and e-mails at his State A university office to engage his services, but most contacts were by e-mail. During work weeks while school was in session, he lived with his son in State A. The rest of the time, the Taxpayer lived either at his residence in the County (VA Home 1) or at another home in another Virginia locality (VA Home 2).
After retiring from the university, the Taxpayer split time between VA Home 1 and VA Home 2 while conducting his consulting business as before. The Taxpayer later acquired a third residence (B Home) in ***** (State B), and he divided his time approximately equally between all three.
Under audit, the County determined that the Taxpayer was required to obtain a County business license and issued an assessment for BPOL taxes for the 2006 through the 2012 tax years. The Taxpayer appealed, contending that he was not subject to BPOL taxation because nearly all of his business activities took place outside the County.
The County issued a final determination upholding the assessment, on the basis that the Taxpayer was a County resident, had no definite place of business elsewhere and his entire gross receipts were subject to BPOL tax in the County.
The Taxpayer filed an appeal with the Department. The Taxpayer argues that he was not liable for the BPOL tax because the amount of gross receipts properly allocable to the County, if any, did not exceed the threshold amount required in order for the BPOL tax to be assessed.
ANALYSIS
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 30 consecutive days or more.
"Continuous" for purposes of this definition is analyzed in terms of whether the business has established a location for the exercise of the licensable privilege. The time spent actually conducting business at this location is not important so long as the business is availing itself to the public and conducting its activities at that particular location. Regularly conducting business refers to a periodic pattern of instances in which a business is "open for business." A regularly conducted business may operate daily, weekly, monthly or for some other set time period. See Public Document (P.D.) 97-75 (2/18/1997).
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 or 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). Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer's operations must be considered.
State A University Office
The Taxpayer asserts that his university office was a definite place of business while he was still employed there. The Taxpayer has provided some evidence indicating that clients contacted him at that office by phone, fax, and e-mail to engage his services. Throughout the assessment period, however, it seems that clients mostly contacted the Taxpayer by e-mail which could be retrieved anywhere. In addition, the Taxpayer stated in his local application for review that the university office was "unimportant and incidental" to his consulting activities. Further, the Taxpayer continued his consulting business after he left the university. As such, the facts and circumstances as presented do not demonstrate that the university office was a definite place of business.
Attorneys' Offices, Courts, etc.
The Taxpayer suggests that the attorney's offices, courts, and other locations where he performed services or from which those services were directed or controlled were definite places of business. Whether a taxpayer has a definite place of business at a particular location depends, however, on the continuity and regularity of the taxpayer's business operations occurring there, regardless of whether that location may be another individual's or business entity's definite place of business.
In this case, the Taxpayer travelled to attorneys' offices or the offices of their clients to assist them with cases. The Taxpayer also testified in court or in court-controlled settings at various locations. The Taxpayer did work for a number of different firms and on a number of different cases over the assessment period. He went wherever his services were required at the time, staying at a particular location several weeks at the most. The evidence does not show the Taxpayer had regular and continuous course of dealing at any of those locations..
Residences
The definition of a definite place of business in Va. Code § 58.1-3700.1 provides that "[a] person's residence shall be deemed to be a definite place of business if there is no definite place of business maintained elsewhere and the person is not subject to licensure as a peddler or itinerant merchant." See P.D. 01-215 (12/12/2001).
In its final determination, the County determined that VA Home 1 was the Taxpayer's permanent residence and thus deemed to be a definite place of business because he had no other definite place of business. The County considered VA Home 2 and B Home to be vacation homes where the Taxpayer was only temporarily away from his true residence, VA Home 1.
The statute, however, does not define "residence," nor is the term limited in any way, such as by specifying a primary, principal, or domiciliary residence. Generally, a residence is "the place in which one lives; [a] dwelling." American Heritage Dictionary 1051 (2nd Col. Ed. 1985). Stated another way, it is "the place where one actually lives, as distinguished from domicile." Black's Law Dictionary 1355 (8th Ed. 2004).
An individual's residence usually refers to bodily presence as an inhabitant, whereas domicile requires bodily presence coupled with an intention to make a place one's home. Thus, a person may have many residences but only one domicile. See P.D. 89-101 (3/23/1989). Because the BPOL tax statute use the term "residence" apart from the term "domicile," it does not appear the legislature intended to limit a residence to a domiciliary residence. This would seem to be supported by the definition of a definite place of business, which only requires regular and continuous course of dealing for 30 consecutive days or more. Establishing domicile typically requires a more substantial presence. Temporary sojourns, however, including (but not limited to) hotel stays in the normal course of business or personal travel or holiday visits to a family member's home, would not typically establish residency for BPOL tax purposes.
Until retiring from the university at the end of 2009, the Taxpayer lived at his son's homes in State A during the work weeks of the academic semesters. At other times, the Taxpayer either resided at VA Home 1 or VA Home 2. Starting in 2010, the Taxpayer split time between his two Virginia residences, until he purchased B Home. The Taxpayer then spent different portions of the year at each residence. Each of these locations meets the general definition of a residence and as such, was a definite place of business.
Situs — Gross Receipts
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 definite place of business from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine the definite place of business where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business. Virginia Code § 58.1-3703.1 A 3 b also states that gross receipts may not be apportioned to a definite place of business unless some business activities occurred at, or were controlled from, such definite place of business.
In the example described in Title 23 of the Virginia Administrative Code (VAC) 10-500-200 4, a taxpayer is a travelling consultant. She does not have an office but keeps a cell phone and business records in her car. Because she does not have an office, her residence is deemed to be a definite place of business. While services are not performed at her residence, they are controlled from there because it is the place from which she decides to set out to conduct business and to which she returns once her work is finished. As such, all of her gross receipts are sourced to the locality where her residence is located.
Like the example, the Taxpayer's business operations were highly mobile. He referred to the briefcase he carried as his "office-in-a-box" and described his business office as being wherever he (physically) was. In addition, the Taxpayer generally performed services away from his residences at attorney's offices, the offices of their clients, courtrooms, and other forums. Because the Taxpayer had multiple residences, all of the Taxpayer's gross receipts may not be attributed to one locality.
Under the statutory method, gross receipts should be allocated, if possible, to the location the Taxpayer was living at when the services were initiated and performed. For example, if the Taxpayer accepted a consulting job and performed all of the activities (i.e., working at attorney's offices and testifying in court) while he resided at one of his residences, all of the gross receipts from that job would be attributable to that residence.
In this case, however, the facts do not sufficiently indicate for all periods exactly which services were performed while the Taxpayer was living at each respective residence. In addition, payroll apportionment is not available because the Taxpayer was a sole proprietor with no payroll.
Virginia Code § 58.1-3703.1 A 3 c allows local assessing officers to enter into agreements in order to apportion the gross receipts of a taxpayer that has a definite place of business in each locality. The limitations on such agreements between or among taxing localities are that the (1) gross receipts must be apportioned between definite places of business, and (2) these gross receipts must not be taxed twice. See P.D. 00-208 (12/15/2000).
Under Title 23 VAC 10-500-220, the local assessing authority is required to make a good faith effort to reach an apportionment agreement with the other localities involved if a taxpayer asserts that a method is likely to result in taxes on more than 100% of its gross receipts from all its definite places of business. Including the taxpayer in the process of formulating an alternative apportionment between localities would more likely result in a method acceptable to all parties. If the local assessing officers are-unable to reach an agreement, either the assessors or the taxpayer, upon notice to the other parties, may request an advisory opinion for an alternative method from the Department.
In this case, the County sitused all of the Taxpayer's gross receipts to its jurisdiction and it is unlikely that the other Virginia locality is aware that the Taxpayer could be conducting a business from VA Home 2. Further, a portion of the Taxpayer's gross receipts may be sitused in State A and State B. Under the circumstances, however, a portion of the gross receipts would need to be sitused to each of the Taxpayer's residences.
Out-of-State Deduction
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." Pursuant to Title 23 VAC 10-500-80 A 2, a taxpayer must file an income or income-like tax return in a state or foreign country even if there is not actual tax liability in a given year, in order to claim the deduction in that state or foreign country.
For purposes of the deduction of business conducted in other states, the Department has found that, in the case of business services, the proper measure of the out-of-state deduction is based on gross receipts, or revenues derived from customers located in a state or country other than Virginia. See P.D. 97-490 (12/19/1997). Accordingly, in those instances in which a taxpayer is liable for an income or income-like tax, and files a tax return in those states, a deduction is allowed for the receipts derived from customers located in those states. This deduction is allowed even if a taxpayer does not have a definite place of business in those states or services are directed or controlled in those states.
Income attributable to at least some gross receipts derived from customers located in another state must be subject to an income or income-like tax in that state for such gross receipts to be deductible. The entire amount of such gross receipts, however, does not have to be taxable to be deductible. See P.D. 97-490. In addition, a taxpayer need not actually pay tax to take the deduction. See Title 23 VAC 10-500-80 A 2.
In this case, a number of the Taxpayer's consulting clients were located in State A. It appears, however, that the Taxpayer filed State A income tax returns to report only the wages from his university employment. The tax return information provided to the Department did not attribute any income or receipts attributable to the consulting business to State A. In fact, all of the income from the consulting business was attributed to Virginia. Based on the information provided, the Taxpayer did not consider its income to be subject to State A's income tax.
DETERMINATION
Because the Taxpayer did not establish a definite place of business elsewhere, his residence was deemed to be a definite place of business pursuant to Va. Code § 58.1-3700.1. The facts indicate that the Taxpayer had multiple residences during each of the tax years in question. Thus, each residence would be considered to be a definite place of business.
The Taxpayer's gross receipts should be sitused, if possible, to the residence at which the Taxpayer was living when the services that generated the gross receipts were initiated and performed. To the extent it may still not be possible or practical to apportion some part or all of the gross receipts under the statutory method, such gross receipts should be apportioned to each residence. More specifically, the amount of such gross receipts apportioned to a residence should bear some proportion to the total amount of time spent at each residence.
In addition, the Taxpayer does not appear to be eligible for the out-of-state deduction under Va. Code § 58.1-3732 B 2 because the Taxpayer did not report any income or gross receipts from his consulting business to State A or any other state.
Based on this determination, I am remanding this case to the County in order to review any evidence the Taxpayer can provide concerning the amount of gross receipts derived from his periods of residency at each location. Such evidence must be provided within 30 days of the date of this letter. If such documentation is unavailable, the County must situs gross receipts proportionally to each residence.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
Craig M. Burns
Tax Commissioner
AR/1-5401318726.M
Rulings of the Tax Commissioner