December 29, 2014
Re: Request for Advisory Opinion
Business, Professional and Occupational License Tax
Dear *****:
This is in response to your letter requesting an advisory opinion on behalf of your client (the "Taxpayer") concerning the situs of gross receipts for purposes of determining the Taxpayer's liability for the Business, Professional and Occupational License (BPOL) tax in the ***** (the "County"). I apologize for the delay in responding to your request.
The local license fee and tax are imposed and 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 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, a provider of information security services, has its headquarters in the County. The Taxpayer also has three data centers, one of which is located in the County. The other two are located in ***** (State A). The Taxpayer states that the data centers evenly handle the Taxpayer's data flow but that services are primarily provided, directed and controlled from one of the data centers in State A (the "State A Management Center"). The Taxpayer asks how it should situs gross receipts for purposes of the County's BPOL tax.
OPINION
Definite Place of Business
The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. Where a Virginia locality has adopted a BPOL ordinance that requires a license, every person engaged in a licensable activity at a definite place of business in such locality must apply for a license.
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 period of time. 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.
In this case, the Taxpayer conducts management and administrative activities at its headquarters in the County. Typically, headquarters are offices where employees work, mail is received, records are kept, and taxpayers otherwise maintain a continuous presence that would be considered a definite place of business.
In addition, the Department has held that the mere presence of servers and other equipment is insufficient to create a definite place of business. See P.D. 01-43 (4/16/2001). One of the data centers, the State A Management Center, however, is fully staffed. Based on the facts presented, the Taxpayer's headquarters in the County and its State A Management Center are definite places 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 this case, the Taxpayer contends that all of its gross receipts should be sourced to the State A Management Center that is primarily responsible for providing, directing and controlling the Taxpayer's services. To the extent any services are not performed at a definite place of business, gross receipts attributable to those services would be sitused to the definite place of business from which the services are directed or controlled. In this case, the information provided seems to indicate that services are being directed and controlled from both the Taxpayer's headquarters in the County and from the State A Management Center. The question of where services are being directed and controlled, however, is only relevant to the extent that services are not performed at a definite place of business. The Taxpayer would first have to determine that some services are not performed at a definite place of business. Then the Taxpayer would have to determine the definite place of business from which those services are directed or controlled.
The Taxpayer also indicates that services are performed at each of the data centers and argues alternatively that it should be permitted to situs gross receipts one-third to each data center. As indicated above, two of the data centers would not be considered to be definite places of business. Under existing statutes, this proposed method of situsing gross receipts would not be permitted unless it was agreed upon by two or more Virginia localities pursuant to Va. Code § 58.1-3703.1 A 3 c.
If the Taxpayer has more than one definite place of business and it is impossible or impractical to situs any gross receipts under the first two ordering rules, the Taxpayer must situs such gross receipts among its definite places of business using payroll apportionment. Because the question of whether it is impossible or impractical to situs gross receipts under the normal methods is a factual matter, the Taxpayer should consult with the County if it believes it is necessary to use payroll apportionment.
If you have any questions regarding this opinion, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5656722965.M