Tax Type
BPOL Tax
Description
Appeal of an audit assessment
Topic
Appropriateness of Audit Methodology
Local Power to Tax
Local Taxes Discussion
Date Issued
01-15-2002
January 15, 2002
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 Commissioner of the Revenue of ***** (the "County").
The local license tax and fee are imposed and administered by local officials. Code of Virginia § 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.
FACTS
The Taxpayer is a multi-national professional services corporation specializing in information systems and engineering, strategic planning, logistics and technology applications. Its national headquarters is located in Virginia, and it has operating groups in three Virginia locations: the County, County A and City B.
Historically, the Taxpayer's revenues attributable to the County, County A and City B could not be determined, so pursuant to an opinion issued by the County in 1994, it has used the payroll method of apportionment for local license tax purposes. However, the Taxpayer maintains that beginning in 1997, the revenues generated in County A could be identified and, therefore, should not have been included in the County's license tax calculations using Virginia payroll. Furthermore, the Taxpayer contends that the revenues generated in County A are subject to the deduction in Code of Virginia § 58.1-3732(B)(1), so these receipts should not be included when applying the payroll apportionment method to the Taxpayer's gross receipts.
The County states that the Taxpayer's application of the payroll apportionment method has not been consistent with the 1994 agreement, in that it is allocating actual gross receipts from certain contracts and using a payroll apportionment method for other receipts. In fact, this was precisely the Taxpayer's method of determining BPOL taxes due to the various Virginia localities. In a letter dated January 23, 2001, the County stated that it would not use the payroll apportionment method in its determination of business license taxes due for tax years 2000 going forward.
At Issue
The Taxpayer has complied with the County's method of calculating actual gross receipts for each definite place of business for tax years 2000 and 2001. At issue are tax years 1997, 1998 and 1999. The questions before the department are: (1) when a taxpayer has multiple locations and multiple lines of business, can it use actual gross receipts in jurisdictions where they can be determined, and use the payroll factor less the payroll attributed to any jurisdiction in which the actual gross receipts can be determined? (2) If the answer is no, how are the deductions allowed in Code of Virginia § 58.1-3732(B)(1) to be applied? (3) Are the deductions to be apportioned across statewide income, or are they to be apportioned only to the jurisdiction where the Taxpayer's particular line of business permitted the deduction?
DETERMINATION
Deductions from Gross Receipts
Under Code of Virginia § 58.1-3700.1, gross receipts are defined as "the whole, entire, total receipts, without deduction." However, the law does enumerate a few deductions, one of which involves sale of computer software and hardware to governmental entities and is subject to certain stipulations.
Code of Virginia § 58.1-3732(B)(1) provides a deduction from gross receipts or gross purchases that would ordinarily be taxable for:
-
- Any amount paid for computer hardware and software that are sold to a United States federal or state government entity provided that such property was purchased within two years of the sale to said entity by the original purchaser who shall have been contractually obligated at the time of purchase to resell such property to a state or federal government entity.
The Taxpayer has stated that it can account for its gross receipts in County A, that it has been paying its license tax to County A, taking advantage of the above-cited deduction. The County has included the payroll attributable to County A in the apportionment formula without taking the deduction provided by Code of Virginia § 58.1-3732(B)(1) into account.
Statutory Authority for Apportionment by Payroll
Under the situs rules governing the BPOL tax liability of services, Code of Virginia § 58.1-3703.1(A)(3)(a)(4) states that: "[t]he 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."
In those instances where 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, localities shall apportion the gross receipts of the business between the definite places of businesses on the basis of payroll. However, Code of Virginia § 58.1-3703.1(A)(3)(b) provides that:
-
- [g]ross receipts shall not be apportioned to a definite place of business unless some activities under the applicable general rule occurred at, or were controlled from, such definite place of business.
It is not clear from the facts presented in this case that the activities in County A are directed and controlled from the County. Indeed, the national corporate headquarters is located in a fourth location in the Commonwealth. The operations in County A appear to be clearly defined and separate from the operations in other jurisdictions where it is more difficult to segregate the receipts on a jurisdictional basis.
It would appear that the methodology employed by the Taxpayer was at odds with the local commissioner of the revenue's 1994 ruling. It also would appear, that in failing to take into account the provisions of Code of Virginia § 58.1-3732(B)(1) in its apportionment method, the County was depriving the Taxpayer of a statutory deduction from taxable gross receipts.
Conclusion
Based on the information provided, the Taxpayer files its BPOL applications as one entity. Therefore, the deductions in Code of Virginia § 58.1-3732(B) must be taken from the entire Virginia payroll. Those deductions may not be attributed to a specific jurisdiction in cases where the payroll method of apportionment is the agreed upon means of apportionment.
It is my determination that the Taxpayer was in error in attempting to segregate gross receipts earned in County A and exclude those receipts from payroll apportionment. On the other hand, the County was in error in excluding the deductions from its apportionment formula and, ultimately, its final assessment. Therefore, for tax years 1997, 1998 and 1999, I am returning this matter to the County to correct its assessment to include in the aggregate Virginia payroll the deductions provided for in Code of Virginia § 58.1-3732(B)(1).
I would note that this final determination is case specific, based upon the facts and documentation presented. If you have any questions regarding this letter, you may contact *****, Tax Analyst, in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/33749H
Rulings of the Tax Commissioner