Tax Type
BPOL Tax
Description
Gross Receipts; Sales Factor, Definite Place of Business
Topic
Appropriateness of Audit Methodology
Date Issued
03-10-2003
March 10, 2003
Re: Final Local Determination
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- Locality Assessing Tax:
Dear ****************:
This final state determination is issued upon the application for correction filed by you on behalf of ********************* (the “Taxpayer”) with the Department of Taxation. You appeal a final local determination upholding an audit assessment of the BPOL tax for tax years 1998, 1999, 2000 and 2001 made by the Commissioner of the Revenue ************** (the "County").
The local license tax and fee are imposed and administered by local officials. Va. Code § 58.1-3703.1(A)(5) authorizes the Department to issue determinations on taxpayer appeals of certain BPOL tax assessments. 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.
The following determination is based on the facts presented to the Department as summarized below. Copies of the Code of Virginia, regulations and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS
The Taxpayer is a “provider of business information for credit, marketing and purchasing decisions.” It has offices located throughout the United States and overseas, including two offices in Virginia, one in the County and one in ********* County (“County B”). The service it provides is delivered through both tangible and electronic mediums to its clients.
The Taxpayer states that it uses a commercial software product to generate statements of operations by locality. The statements reflect the Taxpayer’s business activities on a cost center basis. Its office in the County is one such cost center. Using the software, the Taxpayer is able to attribute its gross receipts (sales) to the definite place of business where the sale of its products or services is initiated, directed or controlled, including those sales attributed to its office in the County.
In its audit of the Taxpayer, the County found a significant discrepancy between the gross receipts reported to the County for BPOL tax purposes, and those receipts reported as “sales” on the Schedule A of the Taxpayer’s Virginia corporate income tax return. The County’s assessment was derived from the sales factor on the Taxpayer’s Schedule A, allowing credit for sales reported to and taxed by County B. Using this methodology, the County determined that the Taxpayer owed an additional **********, *********, ********* and ******* in BPOL taxes in tax years 1998, 1999, 2000 and 2001, respectively.
The Taxpayer maintains that the only receipts attributed to the County for BPOL tax purposes are those receipts generated by business activity in its office in the County. The Taxpayer used this methodology in reporting its gross receipts for purposes of BPOL taxes in both the County and in County B. The Taxpayer contends that receipts reported in the sales factor on the Virginia corporate income tax return do not accurately reflect receipts from sales originating in Virginia.
ANALYSIS
BPOL Taxation of Business Services
Va. Code § 58.1-3703 authorizes localities to impose the BPOL on “businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town . . . .” [Emphasis added.] In other words, it is a business’ situs and its activity within a given jurisdiction that give rise to its local BPOL tax liability.
Furthermore, in the calculation of a person’s BPOL tax liability, “the gross receipts included in the taxable measure shall be only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within this jurisdiction.“ Va. Code § 58.1-3703.1(A)(3)(a).
There is no dispute that the Taxpayer is a business service. As such, its 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. Va. Code § 58.1-3703.1(A)(3)(a)(4).
In this case, the Taxpayer contends that it has been able to identify those gross receipts that are directly attributed to the Taxpayer’s place of business in the County. It is only these receipts that are subject to the County’s BPOL tax.
Apportionment and the Virginia Corporate Income Tax
The sales factor reported on a taxpayer’s Virginia corporate income tax return does not necessarily equate to a taxpayer’s gross receipts as reported to a jurisdiction for purposes of the BPOL tax. While the BPOL tax is imposed on gross receipts attributed to business in a given jurisdiction (point of origin), sales of tangible personal property are attributed to Virginia for Virginia corporate income tax purposes when the property is received in Virginia by the purchaser. See Va. Code § 58.1-415.
For sales other than sales of tangible personal property, the sales factor as reported on Virginia corporate income tax returns reflects all of the income producing activity that is performed in Virginia. When such activity associated with a sale is performed both within the state and outside the state, if the preponderance of the activity occurs within the state, the total sale is attributed to Virginia and is included in a taxpayer’s sales factor. Therefore, in any given case, sales activity originating outside of the Commonwealth could be supported by activity within the Commonwealth to such an extent that it would be included in the Commonwealth’s sales factor for corporate income tax purposes. In other words, receipts reported as part of the sales factor for Virginia corporation income tax purposes could include receipts for the cost of performance elsewhere.1
Such receipts are not included in a taxpayer’s taxable measure for purposes of the BPOL tax.
Whether a business’s gross receipts are attributed to the sale of tangible property or to the cost of services performed, the methodology used in calculating those receipts for purposes of the Virginia corporate income tax is unique to that tax. The sales factor a taxpayer reports on its Virginia corporate income tax return is based upon a measure of taxable receipts that may be different from the measure used in the calculation of a taxpayer’s gross receipts for purposes of the BPOL tax.
DETERMINATION
The Taxpayer has furnished the County with statements reflecting the actual gross receipts generated by its business in the County. These receipts should be the basis of the County’s assessment of the Taxpayer’s BPOL tax liability. Based on the foregoing, and pursuant to Va. Code § 58.1-3703.1(A)(5)(c), I am referring this matter back to the County so it can adjust the Taxpayer’s assessment in a manner consistent with this determination.
If you have any questions regarding this matter, you may contact ************** in the Office of Policy and Administration, Appeals and Rulings, at *****************.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
1See Title 23 VAC 10-120-230 and Public Document 98-177 (October 29, 1998.) for further explanation.
Rulings of the Tax Commissioner