Tax Type
BPOL Tax
Description
Time limit for assessment of BPOL tax
Topic
Local Power to Tax
Date Issued
10-10-1997
October 10, 1997
Re: Request for Advisory Opinion - Business, Professional, & Occupational License
(BPOL) Tax
Dear***************
In your memorandum dated August 19, 1997, you ask (1) when the six-year limitation is applicable for assessing omitted BPOL tax, pursuant to Code of Virginia § 58.1-3703.1(A)(4)(b), and (2) what the time period is for collecting this assessment.
Although the BPOL tax is a local license tax that is imposed and administered by local officials, the Virginia Department of Taxation may, on a limited basis according to the Code of Virginia, promulgate guidelines and issue advisory opinions. The department, however, is not required to interpret local ordinances.
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. Copies of cited sources are enclosed for your review.
FACTS
You submitted two interpretations of the six-year time limitations for assessing the local license tax under Code of Virginia § 58.1-3703.1(A)(4)(b). Your first interpretation states that the assessing official does not have the ability to assess the omitted local license tax for the current year (2003) and six years preceding the current year unless the following conditions occur:
a. The assessment was made on or after January 1, 1997.
b. The taxpayer is discovered in the year 2003 or later.
c. Fraud or failure to apply for the current and six prior (consecutive) years has been proved.
d. Any assessment of local license tax on that account would negate the local assessing official's ability to assess omitted local license tax.
e. The omitted local license tax must be assessed in its entirety for the current year (2003) and the six prior years.
The second interpretation states that the assessing official may assess the omitted local license tax if the official ascertains that the tax has not been assessed for any tax year of the six preceding years, beginning in 2003, if the following conditions are met:
a./b. The same as stated in the above list.
c. Fraud or failure to apply in any year for the current or six prior years.
d. Any assessment of the local license tax on that account does not limit the local official from further assessing omitted local license tax during any tax year for the current and six preceding years, upon discovery of the taxpayer's account.
e. The omitted local license tax would need to be assessed in its entirety for the current year (2003) and the six preceding years.
You further submit that an incongruity exists between the six-year rule for assessing omitted local taxes under Code of Virginia § 58.1-3703.1(A)(4)(b) and the five-year rule for collecting local taxes in Code of Virginia § 58.1-3940. This conflict will be apparent in the year 2003 when the full six-year limit is available for use in fraud and failure to file cases.
OPINION
The six-year assessment limitation
The general time limitation for assessing BPOL tax is three years. Code of Virginia § 58.1 -3703.1(A)(4)(b). This limitation provides, in pertinent part, that a local official may assess omitted local tax for any of the three preceding tax years under broadly stated circumstances. Code of Virginia § 58.1-3903.
The general limitation is superseded by a six-year limitation for omitted taxes due to fraud or failure to file for a license tax. Code of Virginia § 58.1-3703.1(A)(4)(b). Specifically, this statute provides: "Notwithstanding Code of Virginia § 58.1-3903, the assessing official shall assess the local license tax omitted because of fraud or failure to apply for a license for the current license year and the six preceding license years." Code of Virginia § 58.1-3703.1(A)(4)(b).
The full six-year period for assessment is limited in application until the year 2003 by a transitional rule that states: "The provisions permitting an assessment of a license tax for up to six preceding years in certain circumstances shall not be construed to permit the assessment of tax for a license year beginning before January 1, 1997." Code of Virginia § 58.1-3703.1(B)(2). In other words, until 2003, less than six years are allowed for assessing omitted license tax based on fraud or failure to apply for a license. In the year 2003, the transitional rule no longer limits application of the full six-year assessment period, therefore, allowing the current year and the six preceding years (from 2002 to 1997) to be assessed for omitted license tax for fraud or failure to apply for a license.
We have the following comments concerning the two interpretations of the six-year rule.
a./b. These sections under each interpretation are correct.
c. This section in the first interpretation is correct. The finding of fraud or failure to file for a license must be found for the current year and each of the six years BEFORE such year may be assessed for omitted tax. All seven years in total are not required to have fraud or failure to file found before any of the years may be assessed.
d. This section in the second interpretation is correct. Just because a business has been assessed prior to a fraud determination will not prevent the application of the six-year assessment period for omitted taxes when fraud is found.
e. This section in the second interpretation is correct. Each year can be individually assessed within the boundaries of the time period limitation.
To summarize, the three-year assessment limitation of Code of Virginia § 58.1-3903 generally applies to unassessed or omitted local taxes. However, if the license taxes are omitted as a result of fraud or failure to apply for a license, Code of Virginia § 58.1 -3703.1(A)(4)(b) applies, which permits the assessment of taxes for the current license year and the six previous license years. Please note - the transitional rule does not allow the application of the six-year review to apply to license years beginning before January 1, 1997.
The Collection Rule for Assessed Taxes Due to Fraud or Failure to Apply for a License
Your final question concerns the length of time that is available for collecting assessments of omitted taxes derived from the six-year assessment rule of the Code of Virginia § 58.1-3703.1(A)(4)(b). The time period for collecting BPOL assessments provides for four different collection periods, as stated below:
1. Code of Virginia § 58.1-3940 (five years from December 31 from the year assessed),
2. two years after the date of assessment if the period for assessment has been extended on account of a written agreement between a local official and a taxpayer to extend the assessment period or due to fraud or failure to file for a license),
3. two years after the final determination of an appeal under subdivision (5)(b) or 5(d), or
4. two years after the final decision in a court application or similar law for which collection has been stayed, such as under Code of Virginia § 58.1-3984 ("Application to court to correct erroneous assessments of local levies generally"), whichever is later.
Code of Virginia § 58.1-3703.1(A)(4)(c).
In relation to the six-year assessment rule, the collection time periods in #1 and #2 are applicable. The first time period refers to Code of Virginia § 58.1-3940 and allows for collecting assessments up to five years from the year for which an assessment applies. Code of Virginia § 58.1-3703.1(A)(4)(c). This collection period, however, would not allow for collecting omitted taxes for the sixth year under the fraud/failure-to-file assessment rule.
The second time period is also applicable to the collection of omitted taxes under the six-year rule. This rule provides for the collection of assessments to two years from the date of assessment, which applies to the current year and the six previous years. Code of Virginia § 58.1-3703.1(A)(4)(c).
For example: On June 30, 2003, a locality assesses a business for omitted taxes that had never been filed for the current year through 1997. The local official could collect only five years of the six-year assessment period under Code of Virginia § 58.1-3940 (i.e., period includes five years after December 31 of the year assessed), which are for the years 2003 through 1998. However, under the second collection period (i.e., two years after the assessment date for extensions pursuant to subdivision 4), all six years could be collected if done within two years from the assessment date, which is June 30, 2003 in this example. Consequently, under the two-year collection period, the local official has until June 30, 2005 to collect assessed taxes that were the result of fraud or failure to file.
Accordingly, the collection rule for taxes that were omitted due to fraud or failure to file for a license is two years from the assessment date or five years from the end of the calendar year for which the assessment refers.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please do not hesitate to contact me.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP12893G
Rulings of the Tax Commissioner