Tax Type
BPOL Tax
Description
Payroll factor might be excluded in apportionment of gross receipts
Topic
Local Power to Tax
Date Issued
07-22-1997
July 22, 1997
Re: Request for Advisory Opinion: BPOL
Dear****************
This will respond to your letter dated June 12, 1997, regarding the apportionment of gross receipts between two definite places of business.
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 questions raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
**********(the "Taxpayer") is predominantly a service contractor, performing work for the Federal Government. Its corporate headquarters are located in **County, ("County A"). It has a definite place of business in County A and in the town of ****('Town B"). Gross receipts are to be apportioned between County A and Town B on the basis of payroll as it is impossible or impractical to attribute the receipts.
The Taxpayer reports its payroll to County A in two parts. One part represents the payroll of the productive workers who perform the actual service. The other part represents the labor cost of the corporate office which includes the salary and wages for administrative and management personnel whose efforts support all contracts performed at all locations of the corporation.
For many years, the Taxpayer has allocated Virginia gross receipts between County A and Town B in proportion to the productive worker payroll associated with the two locations. County A's position is that the corporate office payroll should be included in the apportionment factor.
The Taxpayer requests an opinion as to whether it permissible, over the objection of County A, to allocate Virginia gross receipts using only the productive worker payroll at both locations.
DETERMINATION
Gross receipts must be attributed to a licensable businesses' definite place of business pursuant to the situs rules as stated in Code of Virginia § 58.1-3703.1 A 3a. However, if a licensee has more than one definite place of business and it is impractical or impossible to determine which definite place of business gross receipts should be attributed to under the general rule, localities must apportion the gross receipts amongst themselves. Localities which must apportion gross receipts may do so by agreement. Since the results of the analysis will differ if localities have an apportionment agreement, l will address the method of apportioning gross receipts both with and without an apportionment agreement.
Apportionment Agreement
A person must have a definite place of business to be subject to licensure. If a person has more than one definite place of business, and it is impossible or impractical to attribute gross receipts to the definite places of business, Code of Virginia § 58.1-3703.1 A 3c, copy enclosed, provides that:
-
- The assessor may enter into agreements with any other political subdivision of Virginia concerning the manner in which gross receipts shall be apportioned among definite places of business. However, the sum of the gross receipts apportioned by the agreement shall not exceed the total gross receipts attributable to all of the definite places of business affected by the agreement.
The statute's only restriction on apportionment agreements is that gross receipts must be apportioned between definite places of business and these gross receipts must not be taxed twice. If County A's proposed apportionment method is used, corporate office employees would be attributed to County A. Town B would have less gross receipts attributed to it as compared to the Taxpayer's proposed method. However, if County A and Town B agree to apportion the Taxpayer's gross receipts by using both the productive worker and corporate office payrolls, and no gross receipts are taxed twice, the apportionment agreement is valid.
No Apportionment Agreement
Code of Virginia § 58.1-3703.1 A 3b, states that if the licensee has more than one definite place of business and it is impractical or impossible to determine which definite place of business gross receipts should be attributed under the general rule, "...the gross receipts of the business shall be apportioned between the definite places of businesses on the basis of payroll."
The determinative question is which employees should be included when apportioning gross receipts. A governing body may include only those employees who directly participate in the businesses' licensed activity. The legislative history states that the purpose of apportionment by payroll is to divide gross receipts among the definite places of business, not to impose a disguised payroll tax on all employees.
From the facts provided, the employees whose activities are classified as productive workers should be included in the payroll apportionment. The question becomes whether the corporate office and management personnel also should be included in the apportionment formula. The local governing bodies must make a factual determination as to whether individual corporate office personnel directly participate in the Taxpayer's licensed activity. If corporate office employees directly participate in the licensed activity in a particular locality, they should be included for apportionment purposes in that locality.
While localities may be authorized to enter into any type of apportionment agreement provided that none of the licensee's gross receipts are taxed twice, the department recommends that gross receipts be apportioned by using the payroll of only those employees who directly participate in the businesses' licensed activity.
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/12654B
Rulings of the Tax Commissioner