December 28, 2021
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) tax
Dear *****:
This final state determination is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”), with the Department of Taxation. You appeal the assessment of Business, Professional and Occupational License (BPOL) tax issued by ***** (the “County”) for the 2017 through 2020 tax years.
The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL tax assessment 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 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 Virginia corporation, was a wholly owned subsidiary of ***** (the “Parent”). The Parent was engaged in the business of providing cable service. The Parent’s headquarters were located in ***** (State A), and it had significant operations in numerous other states. The Parent licensed programming from content providers and broadcasted through its network operation centers, which were located outside of the County. The Parent’s policy, procurement and operational decisions were made by executives at the State A headquarters. Customer service personnel, who could be reached by telephone or the company site portal, were located outside of the County.
The Taxpayer maintained two locations in the County pursuant to requirements in a franchise agreement. It had a customer service center where cable subscribers could make payments, purchase self-installation kits, and request repairs or return equipment. There was a separate location where customer service technicians were dispatched. Technicians performed all work in the County and in ***** (Locality A), an adjacent locality. The personnel working at the County locations were employed by ***** (Company A).
The gross receipts reported by the Taxpayer on its income tax returns for the 2017 through 2020 tax years consisted of cable subscription and other fees paid by all customers located in the County and Locality A. The Taxpayer filed BPOL tax returns with the County for the tax years at issue, situsing a portion of its gross receipts out of Virginia using payroll apportionment. The County audited the Taxpayer and determined that all of its gross receipts should have been sitused to its two locations within the County. As a result, assessments of BPOL tax, penalty and interest were issued.
The Taxpayer filed an appeal for the 2017 tax year and then for the 2018 through 2020 tax years with the County, contending that payroll apportionment was the proper method to situs its gross receipts. In its final local determinations, the County held that all of the Taxpayer’s gross receipts were subject to tax and that payroll apportionment was unnecessary. The Taxpayer appeals the County’s final determinations to the Department, asserting that: 1) payroll apportionment is the correct method to situs gross receipts because it was impossible or impractical to determine where its services were performed; 2) situsing all gross receipts to the County violates the Commerce Clause; 3) the federal Cable Act caps the amount of BPOL tax that the County could assess; and 4) that the penalties should be abated.
ANALYSIS
The Taxpayer previously appealed the County’s BPOL tax assessments for the 2013 through 2016 tax years which were upheld by the Department in Public Document (P.D.) 20-3 (1/7/2020) and in P.D. 20-107 (6/23/2020). In P.D. 20-3, the Department determined that all of the Taxpayer’s gross receipts were properly sitused to the County, that payroll apportionment was not required and that there was no violation of the Commerce Clause. The case was, however, remanded back to the County to consider the waiver of the penalty. The Department further determined in P.D. 20-107 that the BPOL tax was not subject to the 5% franchise fee limitation imposed by the Cable Act.
The Taxpayer cites the recent case of City of Eugene v. FCC, 998 F.3d 701 (6th Cir. 2021), a federal opinion issued after P.D. 20-107, to argue that the County was preempted from assessing a BPOL tax over and above the 5% franchise fee the Taxpayer already paid to the County. In City of Eugene, the Sixth Circuit Court of Appeals held that the city’s fee for broadband services was not a franchise fee subject to the 5% cap because it was not imposed on the operator’s provision of cable services. See 998 F.3d at 714. The court, however, did rule that the city could not require payment of an information services fee, which included a fee for broadband services, as a condition to obtaining a cable franchise. See id. at 715. Further, the court concluded the city had impermissibly attempted to circumvent the limitation when it imposed the fee under its general police power. See id.
Because the holding of City of Eugene focused on the city’s unlawful imposition of a specific information services fee to use the same right-of-way it was already paying a cable franchise fee for, that case is distinguishable from the facts at issue. In any event, the Department does not find a sufficient basis to reverse its conclusion in P.D. 20-107 that imposition of the BPOL tax was preempted by the Cable Act.
There was no substantive change to the Taxpayer’s operations as addressed in P.D. 20-3 and P.D. 20-107 for the tax years at issue, and the Taxpayer otherwise reiterates the same arguments it previously made, all of which were addressed by those determinations. As such, the Department finds no basis for reaching a different conclusion than it did in P.D. 20-3 and P.D. 20-107.
DETERMINATION
After carefully considering all the facts of this case and the applicable statutes and prior rulings, I find that the County properly sitused all of the Taxpayer’s gross receipts to its definite places of business and the assessments of BPOL tax for the 2017 through 2020 tax years are upheld. As stated in P.D. 20-3, the waiver of penalty is in the discretion of the County.
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/3853.B