January 30, 2019
Re: Notice of Jurisdiction
Taxpayers: *****
Locality: *****
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This notice of jurisdiction is issued upon the application for correction filed on behalf of your client, ***** (the "Taxpayer"), with the Department. The Taxpayer appeals the denial of a refund of BPOL tax from the ***** (the "City") for the 2012 through 2016 tax years.
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulation 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 filed BPOL tax returns with the City for the 2012 through 2015 tax years. Subsequently, it notified the City that it was filing an application for correction of assessment, claiming the out-of-state deduction for gross receipts attributable to business conducted in other states where a taxpayer is subject to an income or income like tax. The City conducted an audit to verify the refund claimed. The parties also agreed to include the 2016 tax year in the audit. Based on its review, the City issued a portion of the requested refund in May 2017. The City, however, also continued reviewing additional information the Taxpayer provided.
In August 2018, the City issued a response to the Taxpayer purporting to be a final local determination in which it denied the Taxpayer’s request for any additional refund beyond that which was previously issued. The letter referred to certain unspecified gaps in documentation required to support the out-of-state deduction. The letter also stated that no documentation had been provided to support any exclusions for inter-company receipts. The Taxpayer then filed an appeal with the Department, contending that the information provided to the City supports the refund claimed.
ANALYSIS
Appealable Event
Virginia Code § 58.1-3703.1 A 5 b provides that any person assessed with a local license tax as a result of an appealable event may file an administrative appeal of the assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of the appealable event, whichever is later, with the commissioner of the revenue or other local assessing official. An appealable event is an increase in the assessment of a local license tax payable by a taxpayer, the denial of a refund, or the assessment of a local license tax where none previously was assessed. See Virginia Code § 58.1-3703.1 A 5 a. The denial of a portion of the Taxpayer’s refund request falls within the definition of an appealable event for BPOL tax purposes. See Public Document (P.D.) 17-79 (6/1/2017).
Local Appeals Process
Virginia statute provides the procedure that a taxpayer must use to appeal a BPOL tax assessment. A taxpayer must first file an appeal with the locality in which the appealable event occurred. Once an appeal is filed, the locality’s assessing officer will fully review the taxpayer’s claims and issue a final determination letter setting forth the facts and arguments in support of its decision. See Virginia Code § 58.1-3703.1 A 5 b. The City denied the remaining refunds in August 2018, resulting in the appealable event.
Under Virginia Code § 58.1-3703.1 A 5 b, a taxpayer “assessed with a local license tax as a result of an appealable event as defined in this section may apply within one year from the last day of the tax year for which such assessment is made, or within one year from the date of the appealable event, whichever is later, to the assessor for a correction of the assessment.” Thus, the Taxpayer has until one year from the date the refund was denied in part to file an appeal with the City.
Final Local Determinations
Under Virginia Code § 58.1-3703.1 A 6 a, a taxpayer may file an appeal with the Department only after a final determination has been issued by a locality. See P.D. 11-124 (7/1/2011). Virginia Code § 58.1-3703.1 A 5 e, however, does allow a taxpayer to appeal directly to the Department if an appeal to a locality has been pending for more than one year. Under such circumstances, the taxpayer can elect to consider the local appeal to have been denied. The taxpayer is required to give a locality 30 days written notice of such an election. Under Title 23 of the Virginia Administrative Code (VAC) 10-500-710, “local assessing officer” means the Commissioner of Revenue or chief assessing officer or his designee. Therefore, to qualify as final local determinations, such letters should normally be signed by the Commissioner of Revenue or chief assessing officers and not employees working at their direction, unless the individual has been expressly designated by the Commissioner of Revenue or chief assessing officer and evidence of such designation is included with the final local determination. See P.D. 18-140 (3/30/2018).
DETERMINATION
It appears that the purported final determination letter was not signed by the individual the Department would consider to be the chief assessing official, the head of the City’s Department of Finance. Thus, the August 18 letter to the Taxpayer cannot be considered to be a final local determination. If the head of that department wishes a subordinate to be designated with the authority to make final local determinations, that written designation should accompany the final local determination.
Based on Virginia’s regulations, the City’s decision to deny a portion of the Taxpayer’s refund was an appealable event. Once that decision was communicated to the Taxpayer, the Taxpayer had one year from that date to file an appeal with the City. The Taxpayer, therefore, should file a local appeal with the City. Once the City has issued its final determination, the Taxpayer may file an appeal with the Department pursuant to Title 23 VAC 10-500-720 if it disagrees with any of the City’s conclusions. The Taxpayer may also appeal to the Department if its local appeal is pending with the City for more than one year, provided the Taxpayer gives the City 30 days written notice that it is electing to treat the appeal as denied.
In addition, the Taxpayer and the City should work together to identify the remaining issues in this case more precisely. Clearly, the City believed the Taxpayer was able to substantiate a large portion of the refund claimed, but the City should explain in more detail precisely what its remaining objections are beyond conclusory statements that the Taxpayer submitted inadequate documentation. Likewise, the Taxpayer should explain in more detail how its documentation supports the entire amount of refund claimed, and in particular the remaining amount in dispute. The Taxpayer should avoid merely making conclusory arguments that the documentation provided supports the amount claimed.
If you have any questions regarding this determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner