Tax Type
BPOL Tax
Description
Methodology to be utilized in calculating its gross receipts
Topic
Appropriateness of Audit Methodology
Local Taxes Discussion
Date Issued
04-12-2005
SUPERSEDED BY PD 07-66
Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) 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 BPOL taxes made by the Director of Finance of the ***** (the "City"), for tax year 2003.
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov.
The Taxpayer is a limited liability partnership (LLP) with offices in Virginia, including one in the City, in several other states and in foreign countries. You state that partners in the Taxpayer's office in the City "regularly represent" clients in other states. For income tax purposes, the Taxpayer uses a three-factor formula based on property, payroll and receipts to apportion domestic firm income among the states where the Taxpayer has offices. The net income of each office so calculated is treated as earned by the firm's partners in proportion to their respective shares of the Taxpayer's income. As noted in Public Document (P.D.) 02-165, in Virginia, partnerships may make written application to the Tax Commissioner for permission to file a statement of combined partnership income attributable to nonresident partners. This relieves nonresident partners from the need to file nonresident individual income tax returns. Many other states, but not all, have a similar provision. The facts presented on appeal in this case indicate that the partners file their own individual income tax returns in Virginia, and in some, but not all of the states where the firm or the partners do business.
For purposes of the Virginia income tax, each of the Taxpayer's partners is deemed to be doing business in, and to have taxable income in, each of the states where the Taxpayer has an office or does business. Income taxes reported to and paid by a partner to other states are credited against the partner's Virginia income tax. Likewise, in those states where the Taxpayer does not have an office, but the City-based partners do business and the states require the firm or the partner to file income tax returns based on the nexus created between the Taxpayer and the state, such income is credited against the partners' Virginia income tax returns.
In filing its 2003 BPOL tax return with the City, the Taxpayer reported gross receipts of ***** in calendar year 2002. The Taxpayer states that this figure represented the total receipts of the firm attributed to hours worked by its partners and employees based in the Taxpayer's office in the City, including those receipts attributed to services performed by City-based partners and employees in other states or countries.
Citing the provisions of Va. Code § 58.1-3732 B 2, the Taxpayer filed an amended BPOL tax return with the City in May 2003, claiming a deduction for receipts attributed to business services the Taxpayer's partners performed in other states and foreign countries where the Taxpayer or its City-based partners were liable for an income or other tax based on income. The Taxpayer calculated the deduction based on the ownership percentage of each of the City-based partners multiplied by gross receipts attributed to the each of the out-of-state jurisdictions.
In June of 2003, the Taxpayer filed a second amended BPOL return with the City. In this return, the Taxpayer calculated the deduction offered under Va. Code § 58.1-3732 B 2 based on the amount on which its City-based partners are required to report, and pay income tax to other states, using the three-factor apportionment formula.
The City rejected the Taxpayer's amended returns. In calculating the taxable measure of the Taxpayer's gross receipts attributed to its business in the City, the City began with the Taxpayer's total worldwide gross receipts and deducted the Taxpayer's income attributable to the Taxpayer's definite place of business in other Virginia localities, in other states and foreign countries. The City maintains that for BPOL tax purposes, providing a deduction for individual partners' business conducted in other states in addition to deducting the Taxpayer's business conducted in other states based on the Taxpayer's definite place of business in these states, would be tantamount to offering a double deduction for the same receipts.
In its appeal and concomitant ruling request, the Taxpayer has presented for consideration four different methodologies that could be used in calculating the deduction Taxpayer claims is allowable by Va. Code § 58.1-3732 B 2. The Taxpayer's proposed methodologies are:
The Taxpayer asks for a correction of the City's BPOL tax assessment and a ruling on the most appropriate methodology to be utilized in calculating its gross receipts for purposes of the City's BPOL tax.
The BPOL tax is a gross receipts based tax imposed on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations for the privilege of engaging in business in a given locality. Only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within a jurisdiction may be included in the taxable measure. See Va. Code § 58.1-3703.1 A 3.
Although the tax is based upon "the whole, entire total receipts, without deduction," there are some specific deductions that a taxpayer may take as provided for in the Code of Virginia. Included among these is the deduction for business conducted out-of-state where a taxpayer files an income or income-like tax return. Virginia Code § 58.1-3732 B 2 provides for the following deduction:
In the present case, the deduction would apply to those receipts attributed to business the City-based partners The Taxpayer has suggested that the hours worked by paralegals and other support personnel be included. The deduction provided for in the statute only extends to "shareholders, partners or members," and only when such receipts are taxed in lieu of taxation of the firm itself. conducted in other states where the partners, in lieu of the Taxpayer, are liable for an income or other tax based on income. For purposes of the BPOL tax, a Virginia taxpayer is liable for an income tax or other tax based on income if:
The Department has addressed the interpretation of this provision in several public documents. See Public Documents (P.D.) 97-490 (12/19/97), P.D. 98-41 (3/6/98), P.D. 01-5 (1/4/01), and P.D. 02-165 (12/19/02).
Taxation of Services
In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or (iii) when it is impossible or impractible to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
When a taxpayer engaged in business services has a definite place of business in other states, the preferred approach is to assign gross receipts to each office, both out-of-state and in Virginia, following the statutory hierarchy set out above. From the receipts assigned to an office in Virginia, certain deductions are authorized by statute, including a deduction for receipts attributable to services performed by the Taxpayer or its partners in other states or countries where they are subject to, and file, an income or income-like tax return. The deduction is only allowed to the extent that the receipts to be deducted were assigned to a Virginia office in the first step.
In the present case, the Taxpayer has assigned its gross receipts to each of its offices primarily based on where services are directed and controlled. The Taxpayer is correct in asserting that it is entitled to the second step, the out-of-state deduction for services performed by the Taxpayer's City-based partners in other states or foreign countries where the Taxpayer or its partners are liable to file an income or an incomelike tax return. Furthermore, this deduction also applies to receipts attributed to states or countries where the Taxpayer does not have a definite place of business, but the Taxpayer or its partners are subject to, and file, an income or income-like tax return. See P.D. 01-5 (1/4/01).
The deduction only applies to those gross receipts that are subject to the Virginia locality's BPOL tax and are also subject to an income or an income-like tax in another state or foreign country. A taxpayer may not deduct any receipts that, because of other exemptions or exclusions, are not subject to a locality's BPOL tax. See PD. 98-41.
Taxation of Partners
Chapter 346 of the 2002 Acts of Assembly amended Va. Code § 58.1-3732 B 2 to exclude from gross receipts of a pass-through entity (e.g., S Corporation, partnership or limited liability company) any receipts attributable to business conducted in another state or foreign country in which the entity's shareholders, partners or members are, in lieu of the entity, liable for an income tax or other tax based upon income. In other words, in those instances where the partners, shareholders or members of a firm are individually subject to an income or an income like tax, in lieu of the taxpayer, the entity is entitled to the out-of-state deduction for purposes of the BPOL tax. See P.D. 02-165.
The City contends that granting this deduction to partners is tantamount to "double dipping." I disagree. The Taxpayer is subject to the local BPOL tax based upon the gross receipts attributed to work performed out of the Taxpayer's office in the City. Any reported gross receipts generated by the City-based partners in other states where those partners, in lieu of the Taxpayer, are subject to an income or an income like tax must be deducted from the Taxpayer's City BPOL tax liability.
Proposed Methodologies
Having affirmed the fact that the Taxpayer's partners are indeed entitled to the out-of-state deduction provided for in Va. Code 58.1-3732 B 2, I turn now to the Taxpayer's proposals regarding the most appropriate methodology to be utilized in determining the deduction.
1. Formulary Apportionment
In the case of professional services, the BPOL tax is generally based on receipts attributed to services performed at a definite place of business, or the place from which such services are directed or controlled. See Va. Code 58.1-3703.1 A 3 a 4. The formulary apportionment methodology proposed by the Taxpayer for a partner's use in the calculation of gross receipts for purposes of taking the out-of-state deduction, relies on the Taxpayer's total income. Rather than isolating the individual partner's actual receipts attributed to the partner's services performed in a given state, this method relies upon the partner's percentage share of the Taxpayer's overall business. This approach does not reflect the actual gross receipts generated by the partner's business in the state; therefore, it is not an appropriate methodology to utilize in this case.
2. Income Tax Methodology
Generally, the Department has found use of an income tax methodology, or a semblance thereof, to be an unreliable measure of gross receipts for purposes of the BPOL tax. In P.D. 97-490, the Tax Commissioner found:
The Taxpayer has identified the gross receipts attributed to each of its offices. It also can identify the City-based individual partner's receipts attributed to services performed in other states or foreign countries. There would be no reason to use an income tax methodology as a proxy for actual gross receipts.
3. Customer Location
The third method the Taxpayer proposes for use in the calculation of the out-ofstate deduction is to source revenue by customer location. For purposes of illustration, the Taxpayer has furnished working records of business conducted in three different states by billings from the Taxpayer's office in the City. In support of this scenario, the Taxpayer cites P.D. 97-490, in which the Tax Commissioner opined, "I concur that it would be proper to measure the gross receipts deduction with reference to revenue derived from customers located in a state or country other than Virginia."
Each ruling of the Tax Commissioner is based on the facts of the case as presented. It appears that the Taxpayer's situation is somewhat different from the facts in the hypothetical example presented to the Tax Commissioner and addressed in P.D. 97-490. I cannot agree that this method is the most appropriate in the Taxpayer's case.
4. Hours Worked
The fourth methodology the Taxpayer proposes for consideration in calculating the deduction for receipts earned in other states or countries in a partnership situation is calculating the deduction based on the location of each lawyer and paralegal when billable hours for client services are recorded. The Taxpayer has demonstrated that its internal accounting system does record such data. Unlike the Taxpayer's various state and foreign income tax returns, this data bears a strong correlation to the gross receipts attributed to actual services performed in other states and foreign countries. For this reason, I find this approach, modified as set forth below, to be the most appropriate in this particular case.
The Taxpayer has demonstrated that it can segregate its gross receipts by hours billed for work attributed to its office in the City. The Taxpayer also can identify those hours its City-based partners bill for services performed in other states where the Taxpayer or its partners are subject to an income or an income-like tax. The deduction provided for out-of-state receipts only applies to the Taxpayer and its partners. It does not apply to the Taxpayer's employees. In this case, employees would include attorneys of counsel, associates, paralegals, administrative assistants, etc. Only those receipts directly related to a partner's business, i.e., the partner's billable hours, conducted in other states or countries would qualify for the deduction.
The City may request copies of returns filed by the Taxpayer or its partners in other states or foreign countries to determine the amount of gross receipts qualifying for the deduction.
The Taxpayer is entitled to the out-of-state deduction for the receipts of its partners attributed to other states where the partners were liable to file and filed an income tax or an income tax-like return. Given the facts presented, I find the methodology using "hours worked," as modified above, is most appropriate in the Taxpayer's case.
This determination is based upon the specific facts and circumstances presented. A change in the facts or circumstances may result in a different conclusion.
I am returning this matter to the City with the direction to correct the assessment in accordance with the guidelines set forth above. The Taxpayer must supply the City with the appropriate schedule of hours worked, and gross receipts earned from those hours by the affected partners in the Taxpayer's offices in the City.
If you have any questions regarding this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
AR/50948H
SUPERSEDED BY PD 07-66
April 12, 2005
Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) 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 BPOL taxes made by the Director of Finance of the ***** (the "City"), for tax year 2003.
The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov.
FACTS
The Taxpayer is a limited liability partnership (LLP) with offices in Virginia, including one in the City, in several other states and in foreign countries. You state that partners in the Taxpayer's office in the City "regularly represent" clients in other states. For income tax purposes, the Taxpayer uses a three-factor formula based on property, payroll and receipts to apportion domestic firm income among the states where the Taxpayer has offices. The net income of each office so calculated is treated as earned by the firm's partners in proportion to their respective shares of the Taxpayer's income. As noted in Public Document (P.D.) 02-165, in Virginia, partnerships may make written application to the Tax Commissioner for permission to file a statement of combined partnership income attributable to nonresident partners. This relieves nonresident partners from the need to file nonresident individual income tax returns. Many other states, but not all, have a similar provision. The facts presented on appeal in this case indicate that the partners file their own individual income tax returns in Virginia, and in some, but not all of the states where the firm or the partners do business.
For purposes of the Virginia income tax, each of the Taxpayer's partners is deemed to be doing business in, and to have taxable income in, each of the states where the Taxpayer has an office or does business. Income taxes reported to and paid by a partner to other states are credited against the partner's Virginia income tax. Likewise, in those states where the Taxpayer does not have an office, but the City-based partners do business and the states require the firm or the partner to file income tax returns based on the nexus created between the Taxpayer and the state, such income is credited against the partners' Virginia income tax returns.
In filing its 2003 BPOL tax return with the City, the Taxpayer reported gross receipts of ***** in calendar year 2002. The Taxpayer states that this figure represented the total receipts of the firm attributed to hours worked by its partners and employees based in the Taxpayer's office in the City, including those receipts attributed to services performed by City-based partners and employees in other states or countries.
Citing the provisions of Va. Code § 58.1-3732 B 2, the Taxpayer filed an amended BPOL tax return with the City in May 2003, claiming a deduction for receipts attributed to business services the Taxpayer's partners performed in other states and foreign countries where the Taxpayer or its City-based partners were liable for an income or other tax based on income. The Taxpayer calculated the deduction based on the ownership percentage of each of the City-based partners multiplied by gross receipts attributed to the each of the out-of-state jurisdictions.
In June of 2003, the Taxpayer filed a second amended BPOL return with the City. In this return, the Taxpayer calculated the deduction offered under Va. Code § 58.1-3732 B 2 based on the amount on which its City-based partners are required to report, and pay income tax to other states, using the three-factor apportionment formula.
The City rejected the Taxpayer's amended returns. In calculating the taxable measure of the Taxpayer's gross receipts attributed to its business in the City, the City began with the Taxpayer's total worldwide gross receipts and deducted the Taxpayer's income attributable to the Taxpayer's definite place of business in other Virginia localities, in other states and foreign countries. The City maintains that for BPOL tax purposes, providing a deduction for individual partners' business conducted in other states in addition to deducting the Taxpayer's business conducted in other states based on the Taxpayer's definite place of business in these states, would be tantamount to offering a double deduction for the same receipts.
In its appeal and concomitant ruling request, the Taxpayer has presented for consideration four different methodologies that could be used in calculating the deduction Taxpayer claims is allowable by Va. Code § 58.1-3732 B 2. The Taxpayer's proposed methodologies are:
- 1. Formulary Apportionment. Under this method, the ownership portion of each partner located in the Taxpayer's office in the City would be used to determine the percentage of gross receipts generated by the Taxpayer in each state that are to be attributed to those partners who file an income or an income-like tax return in other states. These receipts would, in turn, constitute the out-of-state deduction in Va. Code § 58.1-3732 B 2, if eligible.
- 2. Income Tax Returns. This method would utilize income tax returns filed by the Taxpayer's City-based partners in other states and countries as a method of determining the City-based partners' gross receipts eligible for the deduction.
- 3. Customer Locations. This method would determine the gross receipts deduction by revenue derived from the Taxpayer's business with clients in out-of-state locations.
- 4. Hours Worked. This method would base the out-of-state deduction on the location of each lawyer and paralegal where hours are billed to clients.
The Taxpayer asks for a correction of the City's BPOL tax assessment and a ruling on the most appropriate methodology to be utilized in calculating its gross receipts for purposes of the City's BPOL tax.
ANALYSIS
The BPOL tax is a gross receipts based tax imposed on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations for the privilege of engaging in business in a given locality. Only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within a jurisdiction may be included in the taxable measure. See Va. Code § 58.1-3703.1 A 3.
Although the tax is based upon "the whole, entire total receipts, without deduction," there are some specific deductions that a taxpayer may take as provided for in the Code of Virginia. Included among these is the deduction for business conducted out-of-state where a taxpayer files an income or income-like tax return. Virginia Code § 58.1-3732 B 2 provides for the following deduction:
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- Any receipts attributable to business conducted in another state or foreign country in which the taxpayer (or its shareholders, partners or members in lieu of the taxpayer) is liable for an income or other tax based upon income. [Emphasis added.]
In the present case, the deduction would apply to those receipts attributed to business the City-based partners The Taxpayer has suggested that the hours worked by paralegals and other support personnel be included. The deduction provided for in the statute only extends to "shareholders, partners or members," and only when such receipts are taxed in lieu of taxation of the firm itself. conducted in other states where the partners, in lieu of the Taxpayer, are liable for an income or other tax based on income. For purposes of the BPOL tax, a Virginia taxpayer is liable for an income tax or other tax based on income if:
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- The taxpayer files a return for an income or an income-like tax in that state or foreign country. The Virginia taxpayer, however, need not actually pay any tax to take the deduction. 2000 BPOL Guidelines § 2.6
The Department has addressed the interpretation of this provision in several public documents. See Public Documents (P.D.) 97-490 (12/19/97), P.D. 98-41 (3/6/98), P.D. 01-5 (1/4/01), and P.D. 02-165 (12/19/02).
Taxation of Services
In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or (iii) when it is impossible or impractible to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
When a taxpayer engaged in business services has a definite place of business in other states, the preferred approach is to assign gross receipts to each office, both out-of-state and in Virginia, following the statutory hierarchy set out above. From the receipts assigned to an office in Virginia, certain deductions are authorized by statute, including a deduction for receipts attributable to services performed by the Taxpayer or its partners in other states or countries where they are subject to, and file, an income or income-like tax return. The deduction is only allowed to the extent that the receipts to be deducted were assigned to a Virginia office in the first step.
In the present case, the Taxpayer has assigned its gross receipts to each of its offices primarily based on where services are directed and controlled. The Taxpayer is correct in asserting that it is entitled to the second step, the out-of-state deduction for services performed by the Taxpayer's City-based partners in other states or foreign countries where the Taxpayer or its partners are liable to file an income or an incomelike tax return. Furthermore, this deduction also applies to receipts attributed to states or countries where the Taxpayer does not have a definite place of business, but the Taxpayer or its partners are subject to, and file, an income or income-like tax return. See P.D. 01-5 (1/4/01).
The deduction only applies to those gross receipts that are subject to the Virginia locality's BPOL tax and are also subject to an income or an income-like tax in another state or foreign country. A taxpayer may not deduct any receipts that, because of other exemptions or exclusions, are not subject to a locality's BPOL tax. See PD. 98-41.
Taxation of Partners
Chapter 346 of the 2002 Acts of Assembly amended Va. Code § 58.1-3732 B 2 to exclude from gross receipts of a pass-through entity (e.g., S Corporation, partnership or limited liability company) any receipts attributable to business conducted in another state or foreign country in which the entity's shareholders, partners or members are, in lieu of the entity, liable for an income tax or other tax based upon income. In other words, in those instances where the partners, shareholders or members of a firm are individually subject to an income or an income like tax, in lieu of the taxpayer, the entity is entitled to the out-of-state deduction for purposes of the BPOL tax. See P.D. 02-165.
The City contends that granting this deduction to partners is tantamount to "double dipping." I disagree. The Taxpayer is subject to the local BPOL tax based upon the gross receipts attributed to work performed out of the Taxpayer's office in the City. Any reported gross receipts generated by the City-based partners in other states where those partners, in lieu of the Taxpayer, are subject to an income or an income like tax must be deducted from the Taxpayer's City BPOL tax liability.
Proposed Methodologies
Having affirmed the fact that the Taxpayer's partners are indeed entitled to the out-of-state deduction provided for in Va. Code 58.1-3732 B 2, I turn now to the Taxpayer's proposals regarding the most appropriate methodology to be utilized in determining the deduction.
1. Formulary Apportionment
In the case of professional services, the BPOL tax is generally based on receipts attributed to services performed at a definite place of business, or the place from which such services are directed or controlled. See Va. Code 58.1-3703.1 A 3 a 4. The formulary apportionment methodology proposed by the Taxpayer for a partner's use in the calculation of gross receipts for purposes of taking the out-of-state deduction, relies on the Taxpayer's total income. Rather than isolating the individual partner's actual receipts attributed to the partner's services performed in a given state, this method relies upon the partner's percentage share of the Taxpayer's overall business. This approach does not reflect the actual gross receipts generated by the partner's business in the state; therefore, it is not an appropriate methodology to utilize in this case.
2. Income Tax Methodology
Generally, the Department has found use of an income tax methodology, or a semblance thereof, to be an unreliable measure of gross receipts for purposes of the BPOL tax. In P.D. 97-490, the Tax Commissioner found:
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- Gross receipts attributed does not mean apportioned net income or amounts appearing in sales factors or other like factors for apportioning income. It means gross receipts derived from business conducted in another state or foreign country regardless of whether the full amount or a portion of such gross receipts are subject to income tax in another state or foreign country .... [B]ecause the income tax policies of other states and countries are so diverse[,] . . . a common basis for the deduction can only be arrived at by using gross receipts. [Emphasis added.]
The Taxpayer has identified the gross receipts attributed to each of its offices. It also can identify the City-based individual partner's receipts attributed to services performed in other states or foreign countries. There would be no reason to use an income tax methodology as a proxy for actual gross receipts.
3. Customer Location
The third method the Taxpayer proposes for use in the calculation of the out-ofstate deduction is to source revenue by customer location. For purposes of illustration, the Taxpayer has furnished working records of business conducted in three different states by billings from the Taxpayer's office in the City. In support of this scenario, the Taxpayer cites P.D. 97-490, in which the Tax Commissioner opined, "I concur that it would be proper to measure the gross receipts deduction with reference to revenue derived from customers located in a state or country other than Virginia."
Each ruling of the Tax Commissioner is based on the facts of the case as presented. It appears that the Taxpayer's situation is somewhat different from the facts in the hypothetical example presented to the Tax Commissioner and addressed in P.D. 97-490. I cannot agree that this method is the most appropriate in the Taxpayer's case.
4. Hours Worked
The fourth methodology the Taxpayer proposes for consideration in calculating the deduction for receipts earned in other states or countries in a partnership situation is calculating the deduction based on the location of each lawyer and paralegal when billable hours for client services are recorded. The Taxpayer has demonstrated that its internal accounting system does record such data. Unlike the Taxpayer's various state and foreign income tax returns, this data bears a strong correlation to the gross receipts attributed to actual services performed in other states and foreign countries. For this reason, I find this approach, modified as set forth below, to be the most appropriate in this particular case.
The Taxpayer has demonstrated that it can segregate its gross receipts by hours billed for work attributed to its office in the City. The Taxpayer also can identify those hours its City-based partners bill for services performed in other states where the Taxpayer or its partners are subject to an income or an income-like tax. The deduction provided for out-of-state receipts only applies to the Taxpayer and its partners. It does not apply to the Taxpayer's employees. In this case, employees would include attorneys of counsel, associates, paralegals, administrative assistants, etc. Only those receipts directly related to a partner's business, i.e., the partner's billable hours, conducted in other states or countries would qualify for the deduction.
The City may request copies of returns filed by the Taxpayer or its partners in other states or foreign countries to determine the amount of gross receipts qualifying for the deduction.
DETERMINATION
The Taxpayer is entitled to the out-of-state deduction for the receipts of its partners attributed to other states where the partners were liable to file and filed an income tax or an income tax-like return. Given the facts presented, I find the methodology using "hours worked," as modified above, is most appropriate in the Taxpayer's case.
This determination is based upon the specific facts and circumstances presented. A change in the facts or circumstances may result in a different conclusion.
I am returning this matter to the City with the direction to correct the assessment in accordance with the guidelines set forth above. The Taxpayer must supply the City with the appropriate schedule of hours worked, and gross receipts earned from those hours by the affected partners in the Taxpayer's offices in the City.
If you have any questions regarding this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/50948H
SUPERSEDED BY PD 07-66
Related Documents
Rulings of the Tax Commissioner