Tax Type
BPOL Tax
Local Taxes
Description
Base year; License year
Topic
Basis of Tax
Local Power to Tax
Date Issued
07-28-1999
July 28, 1999
Re: Taxpayer: Locality Assessing Tax: Final State Determination
Appeal of Business, Professional and Occupational License (BPOL) Tax
Dear***************
This final state determination is issued upon the application for correction filed by you with the Department of Taxation pursuant to Code of Virginia § 58.1-3703.1(A)(5)(c). You appeal a final local determination upholding an audit assessment of BPOL taxes to ***** ("the Taxpayer') by the Commissioner of the Revenue of the ***** ("the City'). I apologize for the delay in responding to your application for correction.
The local license tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance with the exception of those appeals in which a local ordinance is relevant to the appeal of an assessment. Code of Virginia § 58.1-3701. The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below.
This determination addresses the calculation of the taxable measure of a beginning business. Copies of cited sources are enclosed.
Code of Virginia § 58.1-3703.1(A)(5)(a) provides that, on appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
FACTS
The Taxpayer commenced business in the City in 1996. As a beginning business, the Taxpayer was required by the local ordinance to pay its 1996 license tax based on its estimated 1996 gross receipts. After the close of the license year, an audit revealed that the Taxpayer had underestimated its 1996 gross receipts. Pursuant to the local ordinance, the City corrected this underestimate and assessed additional license year 1996 taxes based on actual gross receipts.
In 1997, as required by the local ordinance, the Taxpayer paid a license tax based on its prior year's gross receipts. After the Taxpayer's actual 1997 gross receipts turned out to be less than its base year gross receipts, the Taxpayer requested a refund. The Taxpayer contends that it is unfair for the City to tax beginning businesses based on actual gross receipts in the first year of business and not allow a similar "correction' in later years.
The Taxpayer sought correction of the license years 1996 and 1997 assessment at the local level and filed this appeal after the City rejected its arguments.
ANALYSIS
A business which is subject to license taxation on its gross receipts calculates its tax liability for the license year using its base year gross receipts. "`License year means the calendar year for which a license is issued for the privilege of engaging in business.' Code of Virginia § 58.1-3700.1. "`Base year means the calendar year preceding the license year ... unless the local ordinance provides for a different period for measuring the gross receipts of a business, such as for beginning businesses.... Id.
Many local ordinances, like that of the City (see City Code §18-10), provide that a beginning business must calculate its license tax liability for its first year based on its estimated first year receipts. At the end of the first license year, the business's license tax liability is adjusted to reflect actual first year receipts.
After the first year, each succeeding year's tax is based upon the prior year's gross receipts and is not corrected to reflect actual gross receipts.
The lawfulness of this method of determining the basis of license taxes is supported by Virginia case law. See Commonwealth v Jones, 194 Va. 727, 728 (1953), copy enclosed, for a discussion of this issue.
CONCLUSION
As the Taxpayer has not shown sufficient proof that the assessment made by the City for license years 1996 and 1997 is incorrect, the assessment stands, as is. If you have any other questions, you may contact Office ***** Tax Policy Analyst, in my Office of Tax Policy, at
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22237D
Re: Taxpayer: Locality Assessing Tax: Final State Determination
Appeal of Business, Professional and Occupational License (BPOL) Tax
Dear***************
This final state determination is issued upon the application for correction filed by you with the Department of Taxation pursuant to Code of Virginia § 58.1-3703.1(A)(5)(c). You appeal a final local determination upholding an audit assessment of BPOL taxes to ***** ("the Taxpayer') by the Commissioner of the Revenue of the ***** ("the City'). I apologize for the delay in responding to your application for correction.
The local license tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance with the exception of those appeals in which a local ordinance is relevant to the appeal of an assessment. Code of Virginia § 58.1-3701. The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below.
This determination addresses the calculation of the taxable measure of a beginning business. Copies of cited sources are enclosed.
Code of Virginia § 58.1-3703.1(A)(5)(a) provides that, on appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
FACTS
The Taxpayer commenced business in the City in 1996. As a beginning business, the Taxpayer was required by the local ordinance to pay its 1996 license tax based on its estimated 1996 gross receipts. After the close of the license year, an audit revealed that the Taxpayer had underestimated its 1996 gross receipts. Pursuant to the local ordinance, the City corrected this underestimate and assessed additional license year 1996 taxes based on actual gross receipts.
In 1997, as required by the local ordinance, the Taxpayer paid a license tax based on its prior year's gross receipts. After the Taxpayer's actual 1997 gross receipts turned out to be less than its base year gross receipts, the Taxpayer requested a refund. The Taxpayer contends that it is unfair for the City to tax beginning businesses based on actual gross receipts in the first year of business and not allow a similar "correction' in later years.
The Taxpayer sought correction of the license years 1996 and 1997 assessment at the local level and filed this appeal after the City rejected its arguments.
ANALYSIS
A business which is subject to license taxation on its gross receipts calculates its tax liability for the license year using its base year gross receipts. "`License year means the calendar year for which a license is issued for the privilege of engaging in business.' Code of Virginia § 58.1-3700.1. "`Base year means the calendar year preceding the license year ... unless the local ordinance provides for a different period for measuring the gross receipts of a business, such as for beginning businesses.... Id.
Many local ordinances, like that of the City (see City Code §18-10), provide that a beginning business must calculate its license tax liability for its first year based on its estimated first year receipts. At the end of the first license year, the business's license tax liability is adjusted to reflect actual first year receipts.
After the first year, each succeeding year's tax is based upon the prior year's gross receipts and is not corrected to reflect actual gross receipts.
The lawfulness of this method of determining the basis of license taxes is supported by Virginia case law. See Commonwealth v Jones, 194 Va. 727, 728 (1953), copy enclosed, for a discussion of this issue.
CONCLUSION
As the Taxpayer has not shown sufficient proof that the assessment made by the City for license years 1996 and 1997 is incorrect, the assessment stands, as is. If you have any other questions, you may contact Office ***** Tax Policy Analyst, in my Office of Tax Policy, at
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22237D
Rulings of the Tax Commissioner