Document Number
02-165
Tax Type
BPOL Tax
Description
Limited liability partnership, pass-through entity
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
12-19-2002

December 19, 2002


Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax

Dear *****:

This is in response to a letter from your firm requesting an advisory opinion on the local BPOL tax liability of a pass-through entity. I apologize for the delay in the department's response.

Your firm, ***** (the "Taxpayer") is a limited liability partnership (LLP) with offices located throughout the United States including one in ***** (the "County"). You ask:
    • 1) Should the Taxpayer source its gross receipts from services performed at client locations in instances where the Taxpayer is performing business on a regular and continuous basis for thirty consecutive days or more, or should the gross receipts be sourced to the locality from which the Taxpayer's activities are controlled?
    • 2) Is a pass-through entity entitled to deduct gross receipts earned from services performed in another state in its calculation of taxable gross receipts, provided that the partners or employees of the pass-through entity are subject to income taxes based upon professional services performed in another state?

The local license fee and tax are imposed and administered by local officials. § 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.

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. Copies of the Code of Virginia sections, regulations and public documents cited are enclosed for reference purposes. These and other reference documents are also 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 LLP providing professional services to its clients. It maintains offices throughout the United States, including several offices in Virginia. In addition to performing professional services at its Virginia offices, partners and employees of the Taxpayer perform services at client locations on a regular and continuous basis both within and without Virginia. In some cases, partners and employees may remain at client locations or in other office locations for thirty consecutive days or more.

    For federal income tax purposes, the Taxpayer is treated as a partnership. Income is passed through to the individual partners in proportion with their distributive shares in the Taxpayer. The employees are paid directly by the Taxpayer, and their salaries and benefits are reported as an expense on the Taxpayer's federal income tax return. The gross receipts of the Taxpayer are derived from activities conducted both within and outside of Virginia. For gross receipts earned outside of Virginia, each Virginia partner and employees of the Taxpayer may be subject to income tax in the state in which they perform such services.

    The Taxpayer files a composite or unified income tax return on behalf of the qualifying nonresident partners in more than 40 jurisdictions. Where the Taxpayer submits composite or unified filings, the Taxpayer remits the income tax attributable to the qualifying nonresident partners for the professional services they perform in each jurisdiction. This relieves the qualifying nonresident partner of the responsibility of having to separately file a nonresident income tax return in each jurisdiction in which they perform professional services.

    In the case of nonqualifying nonresident partners and employees and in the states that do not accept the filing of composite or unified filings, the Taxpayer provides each partner and employee with the information necessary to determine the gross receipts earned in each jurisdiction in order that the partner or employee can file a separate nonresident income tax return.

    In sum, the Taxpayer has a record of gross receipts attributable to each jurisdiction where its partners or employees have performed services.
    OPINION

    Definite Place of Business

    The BPOL tax is a local privilege tax based upon gross receipts. Code of Virginia § 58.1-3700.1 defines "business" for BPOL purposes as:
        • 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.

    For purposes of the BPOL tax, "definite place of business" is defined as "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.

    Apportionment

    The 2000 BPOL Guidelines offer an example of an accounting firm that is a LLP that provides professional services to clients in other jurisdictions. § 3.6 of the 2000 Guidelines states:
      • Where a professional service provider performs services at other locations away from an established or principal office where its phone and mailing address is located and does not maintain a continuous presence for more than 30 consecutive days at these other locations, the location of its definite place of business remains its established or principal office. [Emphasis added.]

    In this case, the Taxpayer does conduct its business on a "regular and continuous course of dealing for thirty consecutive days or more" at locations away from the principal office. Therefore, it is subject to local license taxes in that jurisdiction. The gross receipts generated in that jurisdiction are not subject to taxation in the locality where the Taxpayer's principal office is located. This applies whether or not the secondary jurisdiction imposes a BPOL tax. See Code of Virginia § 58.1-3703.1(A)(3)(b). § 4.1 of the 2000 BPOL Guidelines provides further clarification of the rules of apportionment:
      • If an entity's definite place of business is in a locality which does not tax gross receipts, a different locality may not tax these gross receipts simply because the first locality does not have a license tax.

    In Public Document (P.D.) 01-215 (12/12/2001), the department found that a computer consultant whose work was performed at client locations on a continuous basis was not subject to BPOL tax in the jurisdiction of her residence. However, the department also held that the taxpayer must supply proof of a "definite place of business" in other jurisdictions. Specifically, the department held that "absent such proof regarding the Taxpayer's other places of business, the City may include these receipts in its assessment, concluding that the Taxpayer is either 'directing or controlling' its activity from its residence located in the City."

    In this case, the Taxpayer must supply the County with proof of definite places of business in other jurisdictions as defined above.

    Payroll Apportionment

    When a Taxpayer has more than one definite place of business and it is impractical or impossible to determine to which definite place of business gross receipts should be attributed, gross receipts should be apportioned between the definite places of business on the basis of payroll. Code of Virginia § 58.1-3703.1(A)(3)(b). The department has recommended that in those instances in which payroll is used in determining apportionment, that payroll generally should be apportioned by using the payroll of only those employees who directly participate in the business's licensed activity. However, if corporate office employees directly participate in the licensed activity in a particular locality, they should be included for apportionment purposes in that locality. P.D. 97-308 (07/22/97).

    Localities are also authorized to enter into any kind of apportionment agreement between themselves as long as such agreements do not result in taxes on more than 100 percent of the taxpayer's gross receipts. Code of Virginia § 58.1-3703.1(A)(3)(c).

    Unified Nonresident Returns

    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 having to file nonresident individual income tax returns. The application must state a reason for the seeking of such permission. The Tax Commissioner, in his sole discretion, may grant permission for good cause and upon such terms as the parties may agree. Title 23 of the Virginia Administrative Code (VAC) 10-130--20(C)(2). Other states have similar provisions.

    In Virginia, the requirements are quite specific. See P.D. 01-110, (8/24/01) for the conditions in which a taxpayer must comply in order to file a unified return on behalf of its nonresident members. A copy of the letter from the Tax Commissioner granting the Taxpayer authorization to file a unified nonresident income tax return must be attached to the unified nonresident return.

    A key provision in these requirements is that the unified nonresident return applies only to nonresident members, not employees. The unified nonresident return must reflect only the income or loss attributable to Virginia nonresident members who have no income from Virginia sources other than income attributable to the limited liability company.

    Receipts Attributed to Services Performed in Other States.

    You also ask how gross receipts subject to income or income-like taxes in other states should be treated for BPOL tax purposes. Prior to July 1, 2002, a taxpayer conducting business in another state could deduct receipts attributed to that business only if the taxpayer itself were liable for an income or income-like tax in the other state. Code of Virginia § 58.1-3732(b)(2). This Code section was amended in the 2002 Session of the General Assembly to conform the BPOL tax treatment of pass-through entities with that of other businesses. Current law provides for a deduction from gross receipts for:
      • [a]ny 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.

    Therefore, effective July 1, 2002, a jurisdiction must accord the Taxpayer the appropriate deduction for receipts attributable to business conducted in any state in which either the Taxpayer or its partners are liable for (not necessarily pay) an income or other tax based upon income.

    If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

                  • Sincerely,


                  • Kenneth W. Thorson
                    Tax Commissioner



    AR/37941H


    Rulings of the Tax Commissioner

    Last Updated 08/25/2014 16:46