March 4, 2015
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business, Professional and Occupational License (BPOL) Tax
Business Tangible Personal Property (BTPP) Tax
Machinery & Tools (M&T) 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 the assessments of BPOL tax issued to the Taxpayer for the 2006 through 2011 tax years and the assessments of BTPP tax for the 2007 through 2010 tax years by the ***** (the "City").
The local license tax and fee and business tangible personal property tax are imposed and administered by local officials. Virginia Code §§ 58.1-3703.1 A 5 and 58.1-3983.1 D 1 authorize the Department to issue determinations on taxpayer appeals of certain BPOL and BTPP tax assessments, respectively. On appeal, a tax assessment by a local assessing officer 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
On June 6, 2011, the Department received an appeal for assessments of BPOL tax and BTPP tax. The Taxpayer contended in its appeal that it was a manufacturer for purposes of the BPOL and BTPP taxes. The City asserted that the Taxpayer was a business service provider. On December 13, 2011, the Department met with the Taxpayer and the City pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-20-165 E. At the conference, the Taxpayer agreed to allow the City's audit staff to revisit its facilities and review documentation.
The Taxpayer submitted an appeal on September 17, 2014 because the City had not yet issued its final local determination. On October 23, 2014, the City issued a final determination, concluding that the Taxpayer was a manufacturer for purposes of both the BPOL and BTPP taxes. A review of both the Taxpayer's appeal and the City's final determination letter indicates that while they agree that the Taxpayer was engaged in manufacturing, and therefore subject to the Machinery and Tools (M&T) tax, they may disagree on the Taxpayer's M&T tax liability and the refund of BPOL tax due.
ANALYSIS
Commissioner of the Revenue Records
The Taxpayer asserts that the City's Treasurer indicated that its records of the Taxpayer's BPOL and BTPP tax payments for the 2007 and 2008 tax years were purged after the June 2011 appeal was filed with the Tax Commissioner. A commissioner of the revenue is required to preserve returns of taxpayers. See Va. Code § 58.1-3112. It would seem prudent that a locality preserve taxpayer account records as long as an assessment remains in dispute.
Taxpayer Records
According to the City, multiple entities are located at the Taxpayer's facility and the Taxpayer has not provided adequate records to clearly distinguish the activities of the various businesses. Virginia Code § 58.1-3703.1 A 9 requires taxpayers to keep sufficient records to enable the local taxing authority to verify the correctness of the tax paid for the license years assessable and determine the correct amount of tax assessable. When the evidence provided by a taxpayer is inconclusive, it is reasonable for the local assessing officer to request a reconciliation of such gross receipts to a taxpayer's total gross receipts reported on its financial statements or tax returns. Further, when such information is not provided, a local assessing authority must use the information available to determine gross receipts sitused within its jurisdiction.
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. The gross receipts generated under each license are subject to tax in accordance to the rates provided for each business classification. See Va. Code § 58.1-3706 A.
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.
In order to obtain multiple licenses, a business must be engaged in clearly identifiable separate business activities and not merely activities ancillary to the primary business. In Public Document 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. In general, an activity for which no separate charge is made will be presumed to be ancillary to the activity for which a charge is made, but separately stating charges for different activities will not create a presumption that each such activity is a separate business. See Title 23 VAC 10-500-110 B.
DETERMINATION
When the evidence shows a taxpayer's records are incomplete or inadequate and the locality's basis for assessment is reasonable, the Department will consider the locality's assessment to be prima facie correct. However, when a locality fails to retain records, the Department is unable to support an assessment's accuracy.
I am remanding this case back to the City for the proper disposition of the Taxpayer's BPOL tax assessments for the 2006 through 2011 tax years and the M&T tax liabilities for the 2007 through 2010 tax years. The City must give credit for all payments that have been verified by the Taxpayer. Further, the Taxpayer is hereby instructed to provide the documentation requested by the City in order for it to determine the Taxpayer's BPOL and M&T tax liability in a timely manner.
In the alternative, where it is likely that an accurate liability cannot be attained, Va. Code § 58.1-3994 authorizes a local commissioner of the revenue to accept an offer in compromise. This authority may be used to settle past liabilities of taxpayers that voluntarily disclose tax issues. All such offers must be submitted in writing and are accepted solely at the discretion of the commissioner of the revenue or other local assessing official responsible for the assessment of any local tax appealable under the provisions of Va. Code §§ 58.1-3703.1 and 58.1-3983.1.
If you have questions regarding this response, you may contact ***** at the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-58409996626.B