Tax Type
BPOL Tax
Local Taxes
Description
Situs rules for contractors; License requirements for contractors
Topic
Local Power to Tax
Date Issued
11-30-1999
November 30, 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 pursuant to Code of Virginia § 58.1-3703.1. 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').
The local license tax is imposed and administered by local officials. Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to receive appeals of certain BPOL tax assessments and to issue determinations on such appeals. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the assessment will stand unless the taxpayer proves that it is incorrect.
The following determination is based on the facts presented to the department by the Taxpayer and the City, as summarized below. Copies of cited sources are enclosed.
This determination addresses the local license taxation of (1) monies received by a parent limited liability company from its subsidiary limited liability companies, and (2) the gross receipts of contractors engaging in business in more than one locality.
FACTS
The Taxpayer is a limited liability company (an "LLC') which is the parent LLC of several subsidiary LLCs. At all times relevant to this appeal, the Taxpayer maintained its administrative offices in the City and was classified by the City as a "general contractor.' The Taxpayer participates in the construction of homes with its subsidiaries.
After reviewing the Taxpayer's Form 1065 U.S. Partnership Return of Income, the City assessed additional license taxes based on the amount of "ordinary income (loss) from other partnerships, estates, and trusts' reported by the Taxpayer. This income was received from the subsidiary LLCs.
The Taxpayer filed an application for correction of this assessment with the City and filed this appeal when the City rejected its arguments. The Taxpayer contends that (1) income received by a parent LLC from its subsidiaries in this manner is not subject to license taxation and (2) as these receipts had been taxed in other localities, they were not subject to license taxation in the City.
In this appeal, the Taxpayer raises several facts supporting its second contention which were not raised at the local level. The Taxpayer states that (1) neither the Taxpayer nor its subsidiaries constructed any homes in the City; (2) the Taxpayer maintained a project supervisor (an employee) and a trailer at each of the job sites; (3) all the homes were built under the Taxpayer's state contractor's license; (4) some localities required the Taxpayer to procure a business license and other localities required the subsidiary to obtain the business license (which may have been paid for by the Taxpayer); and (5) building permits were obtained in a similar fashion. As the City has not had an opportunity to address these facts, I am returning this matter to the City for a re-determination in accordance with the law set forth below *****
ANALYSIS
Exclusion for Transactions Within an Affiliated Group
Code of Virginia § 58.1-3703(C)(10) provides an exclusion from local license taxation for certain transactions between corporations which are members of an "affiliated group' of corporations. Membership in an "affiliated group' is limited to corporations. Code of Virginia § 58.1-3700.1. As neither the Taxpayer nor its subsidiaries are corporations, this exclusion is not available to the Taxpayer.
Exclusion for Investment Income
Code of Virginia § 58.1-3732(A)(8) provides an exclusion from local license taxation for "[i]nvestment income not directly related to the privilege exercised by a business subject to licensure....' As the Taxpayer is engaged in the business of contracting and the receipts in question are directly related to this privilege, this exclusion is not available to the Taxpayer.
Situs Rule for Contractors
Code of Virginia § 58.1-3703.1(A)(3) provides that the gross receipts of a contractor shall be attributed to the definite place of business at which his services are performed, or if his services are not performed at any definite place of business, then to the definite place of business from which his services are directed or controlled, unless the contractor is subject to the provisions of Code of Virginia § 58.1-3715.
A definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends.' 1997 BPOL Guidelines §1. 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. P.D. 97-201.
The facts presented are not sufficient to determine whether or not the Taxpayer maintained definite places of business in localities other than the City. If it did so, gross receipts attributable to those localities under Code of Virginia § 58.1-3703.1 (A)(3) would not be subject to tax in the City.
License Requirements for Contractors
The definite place of business requirement set forth in Code of Virginia § 58.1-3703.1(A)(3) does not apply to contractors who are subject to Code of Virginia § 58.1-3715. Under that section, a contractor who earns gross receipts of $25,000 or more in a year in a locality may be subject to a license fee or tax on those gross receipts in the locality regardless of the duration of the business activity. Furthermore, gross receipts taxed under Code of Virginia § 58.1-3715 are not subject to tax in any other Virginia locality.
The facts presented are not sufficient to determine whether or not the Taxpayer had gross receipts which were subject to license taxation under Code of Virginia § 58.1-3715 in a locality other than the City. If it did, those gross receipts would not be subject to license taxation in the City.
CONCLUSION
In this appeal, the Taxpayer has raised, for the first time, facts which support its contention that it was subject to license taxation in localities other than the City. Accordingly, this matter is returned to the City for a re-determination on this issue in accordance with the law set forth above. The Taxpayer shall provide any facts supporting its position to the City within 45 days of the date of this final state determination. If the Taxpayer disagrees with the City's determination based on this new information, the Taxpayer may appeal to the department within 90 days of the City's final determination. Otherwise, as the Taxpayer has not shown sufficient proof that the assessment made by the City is incorrect on any other grounds, 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/24543D
Rulings of the Tax Commissioner