Tax Type
BPOL Tax
Local Taxes
Description
Base year; License year
Topic
Local Power to Tax
Date Issued
08-10-1999
August 10, 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 Sec. 58.1-3703.1(A)(5)(c). You appeal a final local determination upholding an audit assessment of BPOL taxes issued to ***** ("the Taxpayer') by the Commissioner of the Revenue of the ***** ("the City').
The local license tax and fee are imposed and administered by local officials. Codeof Virginia Sec. 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia Sec. 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 Sec. 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 Sec. 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 City's ordinance requires a business which is subject to license taxation based on its gross receipts to determine its tax liability using its gross receipts from the preceding calendar year ending on the thirty-first day of December. However, a business which was not engaged in business for the full preceding calendar year must use an estimate of its current license year gross receipts to determine its tax liability. If the business underestimates its gross receipts, the City may later correct the assessment using actual gross receipts to determine the tax liability. City Code Sec.18-10.
The Taxpayer commenced business in April 1996. As it had not engaged in business for the full preceding calendar year, the Taxpayer used an estimate of its 1996 gross receipts to determine its 1996 license tax liability. No correction of this self-assessment was necessary because the nature of the Taxpayer's business allows it to accurately forecast its gross receipts. Accordingly, the Taxpayer's 1996 license tax liability was determined using its actual 1996 gross receipts.
Similarly, the Taxpayer used an estimate of its 1997 gross receipts to determine its 1997 license tax liability as it had not engaged in business in the City for the full preceding calendar year. Again, no correction of this self-assessment was necessary as the nature of the Taxpayer's business allows it to accurately forecast its receipts. Accordingly, the Taxpayer's license year 1997 tax liability was determined using its actual 1997 gross receipts.
In 1998, the Taxpayer continued this method of determining its tax liability, even though it had engaged in business in the City for the full preceding calendar year. The Taxpayer determined its 1998 license tax liability using its estimated 1998 gross receipts. As the nature of the Taxpayer's business allows it to accurately forecast its receipts, the Taxpayer determined its license year 1998 tax liability using its actual 1998 gross receipts. The City audited this return and, as the Taxpayer had been engaged in business for the full preceding calendar year, assessed additional license taxes based on the Taxpayer's 1997 gross receipts.
The Taxpayer contends that, after assessing 1996 and 1997 license taxes using actual gross receipts for each year, it is unfair for the City to assess 1998 license taxes using the prior year's gross receipts. The Taxpayer sought correction of the license year 1998 assessment at the local level and filed this appeal after the City rejected its argument.
ANALYSIS
A business which is subject to license taxation based on its gross receipts determines 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 Sec. 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, provide that a business which has not engaged in business in the locality for a whole year must determine its license tax liability using its estimated receipts for the current license year. At the end of the license year, the business's tax liability is adjusted to reflect actual receipts. Once the business has engaged in business in the locality for a whole year, each succeeding year's tax is determined using the prior year's gross receipts and is not corrected to reflect actual current year gross receipts.
The lawfulness of this method of determining 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 year 1998 is incorrect, the assessment stands, as is. If you have any other questions, you may contact ***** Tax Policy Analyst, in my Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23474D
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 Sec. 58.1-3703.1(A)(5)(c). You appeal a final local determination upholding an audit assessment of BPOL taxes issued to ***** ("the Taxpayer') by the Commissioner of the Revenue of the ***** ("the City').
The local license tax and fee are imposed and administered by local officials. Codeof Virginia Sec. 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia Sec. 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 Sec. 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 Sec. 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 City's ordinance requires a business which is subject to license taxation based on its gross receipts to determine its tax liability using its gross receipts from the preceding calendar year ending on the thirty-first day of December. However, a business which was not engaged in business for the full preceding calendar year must use an estimate of its current license year gross receipts to determine its tax liability. If the business underestimates its gross receipts, the City may later correct the assessment using actual gross receipts to determine the tax liability. City Code Sec.18-10.
The Taxpayer commenced business in April 1996. As it had not engaged in business for the full preceding calendar year, the Taxpayer used an estimate of its 1996 gross receipts to determine its 1996 license tax liability. No correction of this self-assessment was necessary because the nature of the Taxpayer's business allows it to accurately forecast its gross receipts. Accordingly, the Taxpayer's 1996 license tax liability was determined using its actual 1996 gross receipts.
Similarly, the Taxpayer used an estimate of its 1997 gross receipts to determine its 1997 license tax liability as it had not engaged in business in the City for the full preceding calendar year. Again, no correction of this self-assessment was necessary as the nature of the Taxpayer's business allows it to accurately forecast its receipts. Accordingly, the Taxpayer's license year 1997 tax liability was determined using its actual 1997 gross receipts.
In 1998, the Taxpayer continued this method of determining its tax liability, even though it had engaged in business in the City for the full preceding calendar year. The Taxpayer determined its 1998 license tax liability using its estimated 1998 gross receipts. As the nature of the Taxpayer's business allows it to accurately forecast its receipts, the Taxpayer determined its license year 1998 tax liability using its actual 1998 gross receipts. The City audited this return and, as the Taxpayer had been engaged in business for the full preceding calendar year, assessed additional license taxes based on the Taxpayer's 1997 gross receipts.
The Taxpayer contends that, after assessing 1996 and 1997 license taxes using actual gross receipts for each year, it is unfair for the City to assess 1998 license taxes using the prior year's gross receipts. The Taxpayer sought correction of the license year 1998 assessment at the local level and filed this appeal after the City rejected its argument.
ANALYSIS
A business which is subject to license taxation based on its gross receipts determines 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 Sec. 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, provide that a business which has not engaged in business in the locality for a whole year must determine its license tax liability using its estimated receipts for the current license year. At the end of the license year, the business's tax liability is adjusted to reflect actual receipts. Once the business has engaged in business in the locality for a whole year, each succeeding year's tax is determined using the prior year's gross receipts and is not corrected to reflect actual current year gross receipts.
The lawfulness of this method of determining 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 year 1998 is incorrect, the assessment stands, as is. If you have any other questions, you may contact ***** Tax Policy Analyst, in my Office of Tax Policy, at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23474D
Rulings of the Tax Commissioner