Tax Type
BPOL Tax
Description
BPOL tax; Deduction of out-of-state revenue from gross receipts
Topic
Local Power to Tax
Date Issued
12-19-1997
December 19, 1997
Re: Request for Advisory Opinion: BPOL
Dear*************
This will respond to your letter of October 8, 1997, in which you request an advisory opinion as to the meaning of the deduction from gross receipts provided in Code of Virginia § 58.1-3732 B 2.
The license tax is a local tax that is imposed and administered by local officials. The Code of Virginia limits the involvement of the Department of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
While addressing the questions raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
Code of Virginia § 58.1-3732 B 2 (copy enclosed) states that "any receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based upon income" shall be deducted from gross receipts or gross purchases otherwise taxable. This section is operative for license years beginning on and after January 1, 1997.
OPINION
It is your view that this deduction should be interpreted so as to cover revenue derived from customers in a country or state (other than Virginia) in which the taxpayer files an income tax return. Further, you conclude that adjusted income or other financial information reported on an income tax return filed in another state or country should not be used to compute the amount of the BPOL deduction, but should only be used for two purposes: (1) to establish that the taxpayer has nexus in states and countries other than Virginia in order to qualify for the deduction; and (2) that the return filed in the other state or country was for an income tax or other tax based upon income.
You point out that in some cases the actual revenue or gross receipts generated by a company located in Virginia from customers outside of Virginia may not be fully taxed by another state or country even though clearly derived from business conducted in that other state or country. This is because some states and countries assign a lesser weight to sales factors (i.e., sales and services which also are the basis of the BPOL tax) as opposed to payroll and property factors in apportioning taxable income. Further, other states and countries may not even use a sales factor to apportion taxable income.
You contend that the deduction is for "receipts attributable to business conducted in another state or foreign country" and conclude that this means revenue derived from customers in other states or countries in which the taxpayer files an income tax return. You conclude that the BPOL deduction should be for the amount of revenue attributed to other states and countries regardless of whether the full amount has been reported on an income tax return.
Receipts Covered by the Deduction
Subject to limits set forth in Code of Virginia § 58.1-3703 C, localities may charge a fee for issuing BPOL licenses and 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 (copies enclosed.)
Before a Virginia locality can impose a license tax on a person undertaking a taxable privilege, gross receipts derived from that licensable privilege must first be attributed to a definite place of business within the locality. Gross receipts are attributed by using the situs rules of Code of Virginia § 58.1-3703.1 A 3 (copy enclosed) and as otherwise specified by law.
After a locality has attributed gross receipts to a definite place of business within its borders, it must provide a deduction for those taxable gross receipts which are also "attributable to business conducted in another state or foreign country in which the taxpayer is liable for income or other tax based upon income." Code of Virginia § 58.1-3732 B 2.
Virginia Taxable Gross Receipts Attributable to Another State or Foreign Country
The Code of Virginia does not supply rules identifying which of a taxpayer's BPOL taxable gross receipts are also attributable to business conducted in another state or foreign county. However, the words of the deduction itself define the breadth of its coverage.
The deduction is for "receipts attributable to business conducted in another state or foreign country." Clearly, there is a difference between gross receipts attributable to another state or foreign country and adjusted income or other financial information reported on an income tax return filed in another state or country. 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. It is logical for the General Assembly to craft the deduction to cover gross receipts because the income tax policies of other states and countries are so diverse that a common basis for the deduction can only be arrived at by using gross receipts. 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.
Who can Take the Deduction?
While it may be proper to measure the deduction with reference to revenue derived from customers located outside Virginia, the statute limits the availability of the deduction to those taxpayers liable for an income or other tax based upon income. A taxpayer is liable for an income or other tax based upon income if the taxpayer files a return for such tax in another state or country. 1997 BPOL Guidelines, at § 3.3.4. (copy enclosed). Thus, in order to take the deduction, the taxpayer must be required by the laws of another state or foreign country to file an income tax return or other return for a tax based upon income.
It may be in some cases that a Virginia taxpayer deriving revenue from customers outside Virginia may not be able to deduct such revenue or gross receipts from taxable gross receipts related to the exercise of the same privilege in Virginia.
This will occur where the Virginia taxpayer is not required by the laws of another state or foreign country to file an income tax return or other return for a tax based upon income.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13056C
Rulings of the Tax Commissioner