Tax Type
BPOL Tax
Description
Refund of gross receipts tax
Topic
Local Power to Tax
Date Issued
04-11-1997
April 11, 1997
Re: Request for an Advisory Opinion: BPOL
Dear*********************
This will respond to your facsimile dated April 3, 1997, regarding the calculation of BPOL refunds.
The license tax is a local tax which is imposed and administered by local officials. The Code of Virginia limits the involvement of the Department of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
While addressing the question raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
Your locality imposes both a fee and a gross receipts tax. You have a $100,000 threshold for gross receipts. Your taxable year is based on a calendar year and tax payments are due by March 1 of the taxable year. You ask how refunds for businesses which cease operation before the end of the year should be calculated in light of the thresholds and fees. Specifically, you want to know how to issue a refund to a taxpayer whose gross receipts exceeded the threshold in the base year, but did not exceed the threshold in the license year.
OPINION
Code of Virginia § 58.1-3710, copy enclosed, states that:
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- In the event a person ... ceases to engage in a [licensable privilege] within a [locality] during a year for which a license tax is based on gross receipts has already been paid, the taxpayer shall be entitled upon application to a refund for the portion of the license tax already paid, prorated on a monthly basis so as to ensure that the licensed privilege is taxed only for that fraction of the year during which it is exercised within the [locality].
The BPOL license tax which has been paid for a particular license year must be refunded for any portion of the year that the business permanently ceases to do business. A business pays the tax based on gross receipts for the license year. The license year is "the calendar year for which a license is issued for the privilege of engaging in business." Code of Virginia § 58.1-3700.1, copy enclosed. However, the gross receipts for which the tax is paid is based on the gross receipts earned in the taxpayer's base year. The taxpayer's base year is "the calendar year preceding the license year, except for contractors subject to the provisions of § 58.1-3715, or unless the local ordinance provides for a different period for measuring the gross receipts of a business." Id. The determinative question is whether a refund to a taxpayer who permanently ceases to do business prior to the end of a license year is derived from the base year gross receipts or the current year gross receipts.
In a 1990 Attorney General Opinion, copy enclosed, a locality based its gross receipts tax on the gross receipts derived from the license year prior to the license year of a taxpayer's operation. The Attorney General held that any refund must be based on gross receipts earned in the license year prior to the license year of a taxpayer's operation, not the gross receipts earned in the current year. The Attorney General's rational was that the measurement of the tax for engaging in the licensable privilege of doing business in the current year was based on the gross receipts of the prior license year. Current year receipts were not attributable to the privilege of engaging in business in the current year. Thus any refund prorated over the current license year should be based on the prior year's gross receipts.
In the instant case, the gross receipts attributed to the exercise of a licensable privilege in the license year are those earned in the base year. Any prorated refund issued must be derived from the base year gross receipts, not the current year gross receipts even if the current year gross receipts do not exceed the tax threshold.
Any fee paid by the taxpayer is not refundable. Code of Virginia § 58.1-3710, states that "In no event shall a [locality] be required to refund any part of a flat fee or minimum flat tax [when a locality permanently ceases to do business prior to the end of the licensable year]."
I have attached an example which illustrates the proration of refunds for taxpayers who cease to do business prior to year end. I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12383B
Rulings of the Tax Commissioner