Tax Type
BPOL Tax
Local Taxes
Description
Foreign offices
Topic
Local Power to Tax
Date Issued
08-16-1999
August 16, 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 question of whether or not an architectural firm located in the City is subject to license taxation on gross receipts associated with the performance of services on the premises of its client in a foreign country. 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 provides architectural and engineering services to its clients. Its headquarters are located in the City. During the time period 1991-96, the Taxpayer performed services in Italy in facilities provided by a client (hereinafter"the Italian offices").
After auditing the Taxpayer's 1994-97 returns, the City assessed additional BPOL taxes for license year 1997. The Taxpayer subsequently sought correction of license tax years 1994--97 on two bases. First, the Taxpayer contended that the Italian offices constituted a definite place of business. Accordingly, the Taxpayer argues that receipts associated with services performed in the Italian offices should have been attributed to the Italian offices, not to the City. Second, the Taxpayer contended that it should have been allowed a deduction for certain receipts which would have been subject to Italian income taxation but for a tax treaty between the United States and Italy.
You filed this appeal after these arguments were summarily rejected by the City in its final local determination.
ANALYSIS
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia §§ 58.1-3700 and 58.1--3703(A). Business means "a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction." Code of Virginia § 58.1-3700.1.
1996 Revision of BPOL Statutes
The BPOL statutes were substantially revised during the 1996 session of the General Assembly. These changes included the introduction of Code of Virginia § 58.1-3703.1(A)(3), which provides situs rules governing the attribution of gross receipts and Code of Virginia § 58.1-3732(B)(2), which provides a deduction for receipts attributable to business conducted in another state or foreign country in which the business is liable for an income or other tax based on income. These specific code sections apply to license years beginning on and after January 1, 1997. 1996 Acts of Assembly, Chapter 715.
Your appeal is based solely on Code of Virginia §§ 58.1-3703.1(A)(3) and 58.1-3732(B)(2). As these code sections do not apply to license years beginning prior to January 1, 1997, they do not apply to three of the years you appeal, 1994-96. As you raise no other arguments, including arguments based on the United States and Virginia constitutions, the remainder of this determination will address license year 1997.
Attribution of Gross Receipts Under the Situs Rules
You argue that the Italian offices provided by the Taxpayer's client are a definite place of business and that gross receipts associated with services performed in these offices are not attributable to the City.
Code of Virginia § 58.1-3703.1 sets forth uniform ordinance provisions which must be included in every local ordinance levying a license tax pursuant to Chapter 37 of Title 58.1 of the Code of Virginia. Among the uniform ordinance provisions are situs rules which determine whether or not a locality may tax specific gross receipts. The specific situs rule concerning gross receipts from the performance of services provides that:
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- [t]he gross receipts from the performance of services shall be attributed to the definite place of business at which the services are performed or, if not performed at any definite place of business, then to the definite place of business from which the services are directed or controlled.
Code of Virginia § 58.1-3703.1(A)(3)(a)(4).
"Definite place of business" means an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more." Code of Virginia § 58.1--3700.1. Offices provided to the Taxpayer by its client may constitute a definite place of business for the Taxpayer. "A definite place of business for a person engaged in business may include a location leased or otherwise obtained from another person on a temporary or seasonal basis and real property leased to another." Id.
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- The determination of whether or not a business has a definite place of business in a locality is dependent on the facts and circumstances of each case. Factors indicating that an entity has a definite place of business in a locality may include the maintenance of a business phone, a phone directory listing, a mailing address, facilities for meeting with customers and retention of business records at a place in the locality.
Public Document 98-204.
The facts presented on appeal are not sufficient to determine (1) whether or not the Taxpayer had a definite place of business in Italy in 1996 (the base year for 1997) and (2) what, if any, receipts were attributable to that definite place of business. Accordingly, pursuant to Code of Virginia § 58.1-1822, I am remanding this matter to the City for a determination of these two issues consistent with the law set forth above. The Taxpayer has the burden of producing evidence that it maintained a definite place of business in Italy. The local determination on remand shall set forth the facts supporting the City's determination (1) whether or not the Taxpayer had a definite place of business in Italy in 1996 (the base year for 1997) and (2) what, if any, receipts were attributable to that definite place of business. In the event that the City determines that the Taxpayer maintained a definite place of business in Italy in 1996 and that gross receipts attributable to that definite place of business were incorrectly included in the taxable measure for the City, the City must correct the license year 1997 assessment and refund any tax, penalty and interest erroneously collected. Otherwise, the assessment shall stand as is. The City shall make this determination within ninety days after the date of this final state determination, and the Taxpayer may appeal the City's determination to the department within ninety days after the final local determination on remand.
Deduction under Code of Virginia § 58.1-3732(B
You also argue that the Taxpayer is entitled to a deduction under Code of Virginia § 58.1-3732(B)(2), which entitles a business to deduct from its gross receipts "any receipts attributable to business conducted in another state or foreign country in which the business is liable for an income or other tax based on income." You argue that the Taxpayer is entitled to this deduction even though it "claimed treaty benefits which allowed it to exclude its Italian source receipts from Italian income taxes." In support of this position, you cite 1997 BPOL Guidelines § 3.3.4 which states that the "taxpayer. . . need not actually pay any tax to take the deduction."
I disagree with your argument. The Guidelines language you cite applies to situations where the taxpayer is subject to an income or other tax based on income but does not actually incur a liability because its income is below the income tax threshold because of apportionment rules or income offsets such as exemptions, deductions and credits. As the Taxpayer was shielded from Italian income taxation by the tax treaty, it was not liable for an income or other tax based on income in Italy and is not entitled to a deduction under Code of Virginia § 58.1-3732(B)(2).
CONCLUSION
As set forth above, this matter is remanded to the City solely for a determination regarding license year 1997. Otherwise, as the Taxpayer has not shown sufficient proof that the assessment made by the locality for license years 1994-96 is incorrect, the assessment stands as is.
If you have other questions, please do not hesitate to contact Tax
Policy Analyst, in my Office of Tax Policy, at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13506D
Rulings of the Tax Commissioner