September 2, 2016
Re: Request for Advisory Opinion
Business, Professional & Occupational License (BPOL) Tax
Dear *****:
This will reply to your e-mail in which the ***** (the “Town”) requests an advisory opinion as to seven separate issues regarding the administration of the Business, Professional and Occupational license (BPOL) tax in the Town.
The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to 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, regulation and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.
FACTS
The Town is located in ***** (the “County”). The Town administers the BPOL tax on businesses operating within the Town's limits. The County does not generally impose the BPOL tax, but it does impose the merchant's capital tax and license taxes on certain specific types of businesses. The Town is considering changes to its BPOL tax. The Town presents seven questions regarding the administration of BPOL tax.
OPINION
Question 1
Can a county impose BPOL tax in a town?
Virginia Code § 58.1-3703 A grants the governing bodies of counties, cities and towns the authority to impose the local license fee and tax. A county's license tax does not apply within the limits of any town located in the county if the town also imposes a license tax on the same privilege. In that case, however, a town's governing body may still allow the county's license tax to be imposed. See Va. Code § 58.1-3711 A.
A county, therefore, cannot impose a BPOL tax on businesses within a town's limits to the extent they are already subject to the town's tax, unless the town's governing body grants the county permission to impose its tax. A county may, however, impose a license tax within a town's limits without a town's governing body's approval if the town does not impose its own BPOL tax.
Question 2
Are there any deductions or credits a merchant can use for the BPOL tax, such as improvements to their business or adding employees?
Exclusions and deductions from gross receipts for BPOL tax purposes are set forth in Va. Code § 58.1-3732. There are no deductions or credits available under Va. Code § 58.1-3732 for improvements to a business or hiring employees. As explained in the answer to Question 3 below, in localities that use Virginia taxable income (VTI) as the base on which to assess the BPOL tax, the subtractions and deductions that are reflected in VTI would effectively reduce a taxpayer's BPOL tax liability.
Question 3
Are there towns that charge a flat business tax based on profits instead of gross receipts?
The base on which a county, city or town may impose a business license tax is either the business' gross receipts or Virginia taxable income (VTI). See Va. Code § 58.1-3702. Gross receipts are generally defined as the whole, entire, total receipts, without deduction. See Va. Code § 58.1-3700.1. VTI may be calculated pursuant to Va. Code §§ 58.1-302 or 58.1-402, depending on the type of business. Although VTI is not synonymous with profits, because the calculation of VTI includes subtractions and deductions that are not normally included in the computation of BPOL tax using gross receipts as the tax base, VTI would typically be a closer approximation of profits than gross receipts. It appears that most, if not all, towns continue to use gross receipts as the base for their BPOL tax.
Question 4
If a merchant believes the license tax was calculated incorrectly, who do they appeal to?
The BPOL tax appeals process is governed by the provisions of Va. Code § 58.1-3703.1 A 5 — 7 and Title 23 of the Virginia Administrative Code (VAC) 10-500-640 et seq. Generally, a taxpayer must first file an appeal with the commissioner of the revenue or other local assessing official responsible for the assessment within one year of the date of such assessment. If the taxpayer disagrees with that official's final determination, it may appeal to the Department within 90 days of the date of such determination. Once the Department issues its determination, the taxpayer may appeal to the local circuit court if it continues to disagree with the outcome.
Alternatively, a taxpayer aggrieved by a BPOL assessment may seek relief under the general appeal statute for any local assessment. Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes “may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.” Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer's determination, the taxpayer may then seek correction with the circuit court under the provisions of Va. Code § 58.1-3984.
Question 5
If a merchant has sales to out of state customers, is he taxed on that gross amount made out of state?
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, the taxpayer 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.
Question 6
If a merchant is part of a network of businesses in the county, does he pay the gross receipts based on total business, county gross sales or just his gross sales in the town?
For BPOL tax purposes, receipts are subject to tax based on their situs. See Va. Code § 58.1-3703.1 A 3. The situs of receipts depends on the type of business the taxpayer operates and to which definite place(s) of business a taxpayer's gross receipts would be attributed. Because the answer depends on the unique facts and circumstances of each taxpayer, the Department is unable to give generalized advice as to this question. The Department, however, has published a number of public documents that apply the definite place of business and situs rules. See, for example, Public Document (P.D.) 10-104 (7/18/2010) and P.D. 15-174 (9/10/2015).
Question 7
Can a town use gross receipts as the tax base for some classifications of business and profits as the tax base for others?
As stated in the answer to Question 3 above, a locality may now impose BPOL tax on either gross receipts or VTI. When an eligible locality elects to impose BPOL tax based on VTI, Va. Code § 58.1-3702 requires the locality to substitute the term “Virginia taxable income” wherever the term “gross receipts” is used, except for Va. Code § 58.13731. In the absence of express statutory authority authorizing the application of different tax bases to different classifications of businesses, in the Department's opinion, localities must use the same tax base for all businesses.
If you have any questions regarding this advisory opinion, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6345266430.M