September 28, 2021
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This notice of jurisdiction is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the denial of refunds of Business, Professional and Occupational License (BPOL) tax by ***** (the “County”) for the 2016 through 2019 tax years and the issuance of an assessment of BPOL tax for the 2020 tax year.
The following determination is based on the facts presented to the Department summarized below. The 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, a business that collected and distributed data for a specific industry, had a definite place of business in the County. The Taxpayer filed amended BPOL tax returns for the 2016 through 2019 tax years with the County requesting refunds. The amended returns sitused gross receipts using payroll apportionment and claimed the out-of-state deduction for gross receipts attributable to business conducted in other states in which it filed tax returns.
The County audited the amended returns and issued three different letters purporting to be final local determinations. Each letter was issued after receiving additional information from the Taxpayer. In the last letter, the County determined that the Taxpayer only had one definite place of business and therefore no apportionment was required. The County further denied the out-of-state deduction claimed for a number of states and a foreign country because the Taxpayer either lacked nexus or did not attribute income to those particular states. The Taxpayer filed an appeal with the Department, contending that it should be allowed to use payroll apportionment and that the out-of-state deduction disallowed by the County was for gross receipts attributable to states in which income tax returns were filed.
ANALYSIS
The Code of Virginia creates a review process designed to encourage resolution of local license tax issues through an appeals process that includes review by the local assessing officer and appeal to the Department. Through this process, a taxpayer who disagrees with an audit assessment may apply to the local assessing officer for review. If the taxpayer is dissatisfied with the results of the local review, the taxpayer may appeal the local decision to the Department, who will make a determination of the issues raised by the taxpayer. See Title 23 of the Virginia Administrative Code (VAC) 10-500-640 and the Guidelines for Appealing Local Business Tax in Public Document (P.D.) 04-28 (6/25/2004).
Under Title 23 VAC 10-500-710 and P.D. 04-28, “local assessing officer” means the Commissioner of Revenue or chief assessing officer or his designee. Therefore, to qualify as a final local determination, the letter should normally be signed by the Commissioner of the Revenue or chief assessing officer and not an employee working at their direction, unless the individual has been expressly designated by the Commissioner of the 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), 19-62 (6/17/2019) and P.D. 21-62 (5/18/2021). Additionally, Title 23 VAC 10-500-710 contains specific language that must be included in any written final determination.
In this case, the Taxpayer appealed the denial of refunds of BPOL tax for the 2016 through 2019 tax years. The County issued three determination letters, dated July 30, 2020, December 23, 2020 (updated on December 29, 2020) and March 11, 2021, purporting to be in response to the Taxpayer’s refund request. Each determination letter was signed by the County’s deputy commissioner of tax compliance. While the deputy commissioner’s oath of office was attached to these determination letters, there was no express designation by the County’s Commissioner of the Revenue given to issue final local determinations.
DETERMINATION
The determination letters issued by the County were not signed by the County’s Commissioner of the Revenue and did not include a designation granting the employee who signed the letter authority to issue a final local determination on the Commissioner’s behalf. Therefore, the Department cannot consider the letters to be final local determinations.
The Department observes that it is the practice of most, if not all localities, for the Commissioner of Revenue or chief assessing officer to sign final local determination letters. This practice generally reflects the Department’s own appeals process by which the Tax Commissioner signs appeal determinations and official rulings of the Department.
In the Department’s opinion, such a practice is preferred because it helps ensure the highest level of supervisory oversight of the process. Regardless, under no circumstance should an employee who issued an audit determination which becomes the subject of an appeal be permitted to sign the final local determination in the case.
In addition, the Department has observed that localities are uncertain about what constitutes a proper designation by a Commissioner of the Revenue or chief assessing officer. Designations should be signed and notarized and clearly identify the designee and what authority the Commissioner of the Revenue or chief assessing officer is granting such individual. As such, the following is a sample of such a designation:
TO WHOM IT MAY CONCERN:
Under the authority of Title 23 of the Virginia Administrative Code (VAC) 10-500-10 and the Guidelines for Appealing Local Business Tax in Public Document (P.D.) 04-28 (6/25/2004), I hereby delegate to [Insert Name], [Insert Title], the authority to sign final local determination letters on my behalf.
________________________
Honorable [Insert Name]
Commissioner of the Revenue
[Insert Locality]
Further, in reviewing the information provided with the appeal, it is unclear whether the Taxpayer filed a local appeal with respect to the adjustments the County made to the Taxpayer’s 2020 BPOL filing. The County’s last letter does not appear to address the payroll apportionment or out-of-state deduction issues for the 2020 tax year, if they still existed. The County did, however, include the 2020 tax year in reference to the creation of a BPOL account for a separate entity and also in reference to receipts that may have been attributable to a branch located in a foreign country. If the Taxpayer has not already done so, it should supplement its local appeal with facts and arguments related to any disputed issues that have arisen for the 2020 tax year, and the County’s final determination should address any such issues.
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/3830.B