November 7, 2025
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: County of *****
Business, Professional, and Occupational License Tax
Dear *****:
This final state determination is issued upon the application for correction filed by you on behalf of your client, ***** (the “Taxpayer”), with the Department of Taxation. You appeal assessments of the Business, Professional, and Occupational License (BPOL) tax issued to the Taxpayer by the County of ***** (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 Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website.
FACTS
During the tax years at issue, the Taxpayer provided refueling services pursuant to government contracts at United States military installations in ***** (Country A). The Taxpayer’s headquarters was located in the County.
The Taxpayer filed a BPOL return with the County for each of the 2017-2020 tax years, reporting its total gross receipts and claiming an out-of-state deduction for the receipts attributable to the services performed in Country A. The County audited the Taxpayer and determined that the Taxpayer was not eligible to claim an out-of-state deduction because it did not file tax returns in any other state or country. As a result, assessments were issued.
The Taxpayer appealed to the County. Although the Taxpayer agreed that it was not eligible to claim the out-of-state deduction, the Taxpayer argued that the proper situses for the gross receipts at issue were the Taxpayer’s definite places of business in Country A rather than the County. In its final determination, the County concluded that the Taxpayer did not have any definite places of business in Country A and thus the proper situs for all of the Taxpayer’s gross receipts was the Taxpayer’s headquarters in the County, as the definite place of business from which the services were directed or controlled.
The Taxpayer filed an appeal with the Department, contending that its activities in Country A were sufficient to establish definite places of business there and that the proper situses for the gross receipts attributable to the services provided in Country A were such definite places of business.
ANALYSIS
Evidentiary Standard
The Taxpayer has provided voluminous exhibits in an effort to substantiate its claims. The County takes issue with much of this evidence, for different reasons. Some of the exhibits, for example, contain photographs purportedly of the Taxpayer’s work sites, equipment, and workers in Country A. The County, however, urges the Department to ignore this evidence on the basis that photographic evidence must be validated.
The administrative appeals process outlined in Virginia Code § 58.1-3703.1 and Title 23 of the Virginia Administrative Code (VAC) 10-500-640 et seq. was implemented to give taxpayers and localities an adjudication process that was less formal and less burdensome on the parties than litigating in the court system. Administrative appeals are not governed, for example, by the same rules of evidence that would exist for litigation in court. In addition, taxpayers are not required to prove their case beyond any reasonable doubt, as the government must do when prosecuting a criminal matter. Administrative appeals are civil matters in which a taxpayer satisfies its evidentiary burden of proof based on a preponderance of the evidence, a much lower standard. See Public Document (P.D.) 13-224 (12/13/2013) and P.D. 15-145 (6/30/2015).
Accordingly, as with any administrative appeal, the Department will evaluate this case with reference to all of the facts and circumstances presented to determine whether the Taxpayer’s claims are more likely than not to be true, and if taken as true, what the outcome is under the applicable BPOL statutes and regulations governing the issues presented.
Definite Place of Business
Virginia Code § 58.1-3700.1 defines a “definite place of business” as “an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more.” A definite place of business can include a location leased or otherwise obtained from another entity on a temporary or seasonal basis. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following on-site activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; and (6) advertising or otherwise holding oneself out as engaging in business at the particular location. See P.D. 97-201 (4/25/1997), P.D. 01-215 (12/12/2001), and P.D. 10-277 (12/21/2010).
Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer’s operations must be considered. In P.D. 01-215, the Department found that a computer consultant whose work was performed at clients’ locations on a regular and continuous basis could establish definite places of business at such locations. Similarly, in P.D. 11-161 (9/20/2011), the Department advised that a Taxpayer that maintained a regular and continuous presence at its client’s location for more than 30 consecutive days established a definite place of business even though it did not advertise, own business or personal property, or have a telephone at its customer’s location.
In 1978-79 Op. Va. Att’y Gen. 279, a maintenance contractor serviced hospitals and office buildings. The Attorney General opined that a continuous and regular course of dealing at a customer’s location would seem to constitute a definite place of business in such location when employees are “more or less” permanently assigned to work at the location for the duration of the contract. In P.D. 20-62 (4/21/20), a taxpayer provided support services on a United States military base. The taxpayer’s employees were exclusively located and performed all activities on the base, as mandated by the terms of the government contract. Because the employees were engaged in work on a continuous basis for more than 30 consecutive days during the tax years at issue, the Department determined that the base was a definite place of business of the taxpayer.
The instant case presents issues similar to those addressed in P.D. 20-62 in that the Taxpayer claims to have provided ongoing services at United States military installations in Country A during the tax years at issue. The County, however, concluded that the proper situs for all of the gross receipts attributable to the Taxpayer’s services in Country A was the County’s headquarters, as the location where the services were directed and controlled from, because the Taxpayer had no definite places of business in Country A. The County seems to take issue with the validity of most, if not all, of the evidence the Taxpayer submitted in an attempt to establish that it had definite places of business in Country A. In addition, the County argues that the activities of independent subcontractors hired by the Taxpayer to perform services in Country A were irrelevant in determining whether the Taxpayer had definite places of business there.
Physical Locations
The Taxpayer’s contracts required the Taxpayer to provide refueling services for the United States military at or near certain operational “hubs” in Country A, including the ***** (Location A), ***** (Location B), and ***** (Location C, and collectively, the “Locations”). The Taxpayer provided lengthy sample contracts clearly showing that it was responsible for delivering large quantities of fuel to support operations at these Locations as well as a number of other United States military installations in Country A during the audit period. A press release taken from a prior version of the Taxpayer’s website in 2015 also referenced the Taxpayer’s long history of operating in Country A and its development of strong local relationships.
The Taxpayer provided extensive documentation to support its claims that it established definite places of business at these Locations. For example, one exhibit, which summarizes the Taxpayer’s operations in Country A and may have served a marketing purpose, refers to the Taxpayer’s ability to reduce setup costs because it used existing fixed fuel facilities at each of the Locations. The same exhibit included a map of Country A with the heading “Where We Work” and referenced each of the Locations by name, as well as several others.
In addition, a similar exhibit details certain site improvements the Taxpayer made at Location A during the audit period, including parking for additional fuel trucks clearly displaying the Taxpayer’s logo. Yet another similar exhibit details the bulk fuel facility the Taxpayer built at Location B. The exhibit explains that the Taxpayer’s investment at this location meant that the customer had long-term access to a certain aircraft fuel for the first time from a fixed base operator. The exhibit contains technical drawings of the site layout, a number of photographs, as well as lists of the Taxpayer’s tangible personal property present onsite. Among other things, the photos show bulk fuel storage bags, testing laboratories, a manager’s office, other employee offices, and employee housing facilities. Collectively, these exhibits corroborate the Taxpayer’s explanations about how it conducted business in Country A and support the Taxpayer’s assertions that the Locations should be considered definite places of business in Country A.
Other exhibits the Taxpayer provided include photographs of personnel, equipment, and offices purportedly taken at the Locations. Although the Company’s logo is sometimes visible in the photographs, it is unclear where or when exactly the photographs were taken. As such, they have less evidentiary value than the other exhibits discussed above.
Test for Worker Classification
Not only do the parties dispute the evidentiary value of the exhibits provided by the Taxpayer in this appeal, but they also dispute the effect that the Taxpayer’s classification of workers has on the question whether the Taxpayer established definite places of business in Country A. As an initial matter, the Department believes it is necessary to clarify P.D. 15-16 (2/3/2015) and, in particular, the interpretation of Title 23 of the Virginia Administrative Code (VAC) 10-500-130, the BPOL regulation concerning employees and independent contractors.
Title 23 VAC 10-500-130 A provides that “[e]mployees are generally not engaged in a licensable business separate from that of their employer. Therefore, a license obtained by the employer generally covers the activities of any employees.” On the other hand, “[a]n independent contractor is engaged in a business separate from that of a person who contracts for the independent contractor’s services.” See Title 23 VAC 10-500-130 B. The regulation goes on to explain that if one business subcontracts out some of its business to an independent contractor, the primary business may not deduct from its gross receipts any payments made to the independent contractor even though the independent contractor is taxable on the same gross receipts. See id.
Taken as a whole, the purpose of this regulation is to provide the method for localities to discern whether gross receipts attributable to a person’s business activities within the taxing jurisdiction are includable in an employer’s measure of gross receipts or whether the person was operating their own business subject to separate licensure and taxation. The regulation is silent as to the impact, if any, worker classification has on the question of whether a taxpayer established a definite place of business.
The regulation goes on to say that “[t]he determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors.” See Title 23 VAC 10-500-130 C. In P.D. 15-16, the Department stated that the twenty-factor test commonly applied in worker classification cases for income tax withholding purposes under Internal Revenue Service (IRS) Rev. Rul. 87-41 did not apply in the BPOL context. The Department, however, cited the language of Title 23 VAC 10-500-130 C as the rule that applied for BPOL cases and did not provide any further guidance about what common law principles should apply in substitute of the twenty-factor test.
The twenty-factor test has now evolved to categorize factors into three main groupings to consider: behavioral control, financial control, and the type of relationship of the parties. See P.D. 21-56 (5/4/2021), citing Internal Revenue Manual (IRM) § 4.23.5.7.1 and IRS Publication 15-A, Employer’s Supplemental Tax Guide (2020). Regardless of what particular form they take, these multi-factor tests used to determine whether an employee relationship exists are based on common law principles. See Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 323-4 (1992).
In the absence of specific guidance as to what test should be applied in the BPOL tax context, the Department finds it is reasonable to apply the test used by the IRS to determine whether an individual is an employee or independent contractor. The test currently in use is the one that groups the relevant factors into three main groupings, as described above.
In this case, it appears that the Taxpayer initially treated the workers who performed the actual services in Country A as independent contractors rather than employees, with perhaps one exception. On appeal, the Taxpayer now claims that the workers were in fact employees. Because the County insists that activities of independent (sub)contractors cannot create a definite place of business for the Taxpayer, the parties have vigorously disputed the proper classification of the workers in this case.
Effect of Worker Classifications on Definite Places of Business
As stated above, Title 23 VAC 10-500-130 does not provide any guidance as to how worker classification affects definite places of business for BPOL purposes, if at all. Further, neither the statutory nor the regulatory definition of definite place of business includes any provision regarding worker classification, express or implied. The Department observes that the statutory definition of “definite place of business” is simply “an office or location at which occurs a regular and continuous course of dealing for thirty consecutive days or more.” See Virginia Code § 58.1-3700.1.
Nevertheless, the Department has previously ruled that a taxpayer may not use the definite place of business of a subcontractor to establish the situs of gross receipts attributable to the subcontractor’s services. See P.D. 99-259 (9/24/1999). Similarly, the Department determined that the proper situs of gross receipts attributable to billing services performed by a subcontractor was the definite place of business where the taxpayer solicited business from consumers and hired subcontractors to perform the billing services, not the subcontractors’ definite places of business where the actual billing services were being performed. See P.D. 15-74 (4/21/2015). In addition, the Department has stated more recently that activities must be performed by employees, not independent contractors, in order to establish a definite place of business for the employer. See P.D. 21-9 (2/2/2021).
The determinations cited above may be distinguishable from the current case, however, because the Taxpayer here took steps to further develop the Locations, owned property at the Locations, and held itself out as doing business from these Locations. As such, the Taxpayer is not merely relying on the activities of purported independent subcontractors to establish whether it had definite places of business in Country A.
Nevertheless, the Department has had the opportunity to examine a set of “independent contractor” agreements that the Taxpayer established with certain workers during the audit period. The Taxpayer provided evidence to establish that at least one of the Country A managers was treated as an employee for federal income tax purposes and was issued a Form W-2 for part of the period at issue. In addition, a closer reading of the agreements reveals that the Taxpayer exercised significant control over both the manner and means by which the workers’ assignments were to be completed. The extensive lists of responsibilities set forth in the agreements resemble employee job descriptions. These individuals worked continuously for the Taxpayer, reported directly to senior company managers, were paid at regular periodic intervals, and were eligible for performance bonuses and paid time off. In addition, the Taxpayer provided all of the required tools and facilities. In the Department’s opinion, such facts are sufficient to establish that the Taxpayer had an employer relationship with the individuals who entered into these agreements.
In addition, the totality of the evidence, including the nature of the contracts themselves, the photographs of the facilities, and the workers’ Country A residency cards strongly indicate a regular and continuous course of dealing. The extent of the activities detailed in the service contracts as well as the nature of the workers’ responsibilities detailed in the employment agreements as discussed above naturally indicate that the Taxpayer was engaged in a full-time business operation in Country A.
Situs
In determining the situs of gross receipts, Virginia Code § 58.1-3703.1 A 3 a (4) and § 58.1-3703.1 A 3 b provide that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
In this case, it appears that all gross receipts were attributable to services performed in Country A. The documentation provided establishes that the refueling services were provided at or near the Country A Locations. Even if some of the services were not actually performed at the Locations themselves, the personnel contracts clearly indicate on-site operational management. Based on the enumerated managerial responsibilities, on-site likely refers to one or more of the Locations and it would have been from these Locations that the services were directed and controlled at the local level.
To the extent any officers, executives, or other senior managers may have managed operations from the Taxpayer’s headquarters in the County, one could also reasonably argue that such individuals exercised a degree of direction and control. The Department, however, believes that when services are controlled more directly from local definite places of business, it is better policy to treat such locations as the proper situses of gross receipts rather than more centralized offices such as call centers or company headquarters, because local definite places of business are normally closer to the actual activities that are generating the gross receipts. See, e.g., P.D. 08-84 (6/6/2008) and P.D. 18-181 (10/24/2018). While, as the County points out, the information provided by the Taxpayer is not perfect by any means, the preponderance of the evidence indicates that the proper situses of the gross receipts from refueling services were the Taxpayer’s definite places of business at the Locations in Country A.
Fair Apportionment
The result sought by the County in this case, namely that the proper situs of all of the gross receipts derived from the Taxpayer’s refueling contracts performed in Country A was the Taxpayer’s headquarters in the County, raises an additional question of fair apportionment. The principle of fair apportionment has been applied in the BPOL tax context to determine whether a locality’s attempt to treat a taxpayer’s corporate headquarters as the proper situs of all of the taxpayer’s gross receipts violated the Commerce Clause of the United States Constitution. See City of Winchester v. American Woodmark Corp., 252 Va. 98 (1996) (hereinafter, “American Woodmark”).
To be fairly apportioned, an assessment of tax must be both internally and externally consistent. See American Woodmark, 252 Va. 98, 102, citing Goldberg v. Sweet, 488 U.S. 252, 261 (1989). The internal consistency test “looks to the structure of the tax at issue to see whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.” Comptroller of the Treasury v. Wynne, 135 S. Ct. 1787, 1803 (citations and internal quotation marks omitted). Internal consistency is not an issue in this case because, assuming every state and country had a BPOL tax identical to Virginia’s local BPOL tax, there is no risk of multiple taxation. Under any other identical system, the Taxpayer’s gross receipts would still be taxable to just the Taxpayer’s definite place of business in the County, any definite places of business it had in Country A, or some combination of the two.
An assessment of tax will fail the external consistency test if a taxpayer can demonstrate by “clear and cogent evidence that the income is attributed to the State is in fact out of all appropriate proportions to the business transacted . . . in that State, or has led to a grossly distorted result.” See American Woodmark, 252 Va. 98, 102-3, quoting Oklahoma Tax Comm’n v. Jefferson Lines, 514 U.S. 175, 195 (1995). In American Woodmark, the city assessed BPOL tax on 100% of the taxpayer’s gross receipts based on the fact that the taxpayer’s headquarters was located in the city. The taxpayer, however, operated a number of manufacturing, storage, and distribution facilities in other states but had none in the city. The court concluded that the assessments were out of all appropriate proportions and had no rational relationship to the business conducted in the locality. The court reasoned that it was simply not possible that the value added to the taxpayer’s product by the taxpayer’s operations in the locality could produce 100% of the gross receipts.
The facts in the instant case are similar to those of American Woodmark. The County is attempting to tax 100% of the taxpayer’s gross receipts attributable to contracts for services performed in Country A solely on the basis that the Taxpayer’s headquarters was located in the County. While it may have been true that the Taxpayer’s work in the County involved negotiating and winning contracts, the actual services that were the subject of those contracts, and ultimately generated the taxable gross receipts, were performed in Country A. Regardless of whether the Taxpayer performed the services itself or subcontracted some part of all of the work to others, the Taxpayer was only paid to the extent the actual services were completed. As such, the Taxpayer was in the business of providing fuel refueling services not negotiating and drafting contracts for pay. See also P.D. 18-181 (observing that the taxpayer was in the business of selling a monitored security service, not the contracts themselves).
DETERMINATION
The Department observes that this case has presented significant challenges both as to the presentation of facts as well as the application of the policies involved. The Department also recognizes that the parties have agreed on very few aspects of the case. When working with complex matters involving the BPOL tax, the Department believes it is helpful in many instances to step back and consider a business’s operations on a more fundamental level. Even with imperfect information, it is possible to draw reasonable conclusions about a company’s operations. In this case, for example, how can a United States-based business provide refueling services overseas without having regular and continuous access to local facilities where fuel is stored and trucks come to transport it away to the destinations set out in the contracts? It is reasonable to conclude that a high degree of local, on-site management is necessary in order to conduct a logistical operation of such complexity, and it is simply not possible for daily on-the-ground operations to have been managed from the United States, many time zones away from the actual places where the services were being provided.
Based on a close consideration of the facts presented in this case, the Department concludes that the Taxpayer maintained definite places of business in Country A at or near certain United States military installations there. Refueling services were either performed at these locations or, if performed elsewhere, were directed and controlled out of the local Country A sites. As such, the proper situses for the gross receipts attributable to the performance of the refueling services in Country A were the Taxpayer’s definite places of business there.
Further, the County’s attempt to treat the Taxpayer’s headquarters in the County as the proper situs of 100% of the Taxpayer’s gross receipts raises questions as to whether the receipts would be fairly apportioned because undoubtedly the great majority of activities that generated the gross receipts, i.e., the refueling services themselves, occurred in Country A, not the County.
Therefore, the County is directed to remove such gross receipts from the taxable measure subject to BPOL tax, revise the assessments accordingly, and issue updated bills or refunds as the case may be.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4608.X