Tax Type
BPOL Tax
Description
Liability for contracting work in a Town that does not impose a BPOL tax
Topic
Basis of Tax
Computation of Tax
Local Power to Tax
Date Issued
02-17-2004
February 17, 2004
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 of a BPOL tax assessment for license tax year 1999 made by the Commissioner of the Revenue of the ***** (the "City").
The local license tax and fee are imposed and administered by local officials. Virginia 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. 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.tax.state.va.us.
FACTS
The Taxpayer holds itself out as being engaged in "development, construction, consulting and property management." For purposes of the BPOL tax, the Taxpayer and the City agree that the Taxpayer's business activities fall into two distinct classifications: "business services" and "contracting." The Taxpayer's principal office is located in the City. During a portion of the tax year in question, the Taxpayer performed contracting work in the ***** (the "Town") for more than 30 days, with a volume of business in excess of $25,000.
At issue is the Taxpayer's BPOL tax liability for contracting work performed in the Town. The Town does not impose a BPOL tax. The City included the gross receipts attributable to the Taxpayer's work in the Town in its assessment of the Taxpayer's BPOL tax assessment. The Taxpayer contends that the gross receipts attributed to the work performed in the Town should be deducted from those gross receipts subject to the City's BPOL tax.
ANALYSIS
For purposes of the BPOL tax, Virginia Code § 58.1-3700.1 defines "definite place of business" as:
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- an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more. A definite place of business for a person engaged in business may include a location leased or otherwise obtained from another person on a temporary or seasonal basis and real property leased to another. A person's residence shall be deemed to be a definite place of business if there is no definite place of business maintained elsewhere ....
Generally, a definite place of business is associated with something physical, be it an office, a trailer with a telephone, a desk with a telephone, etc. See Public Document (P.D.) 02-153 (12/11/02) for the applicability of this interpretation to contractors maintaining worksites as definite places of business.
Situs for Contractors
For the purpose of local license taxation, Va. Code § 58.1-3703.1(A)(3)(a)(1) provides:
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- The gross receipts of a contractor shall be attributed to the definite place of business at which his services are performed, or if his services are not performed at any definite place of business, then the definite place of business from which his services are directed or controlled, unless the contractor is subject to the provisions of § 58.1-3715....
Virginia Code § 58.1-3715 states that a while a contractor generally is obligated to procure a license in the jurisdiction where its principal offices are located, a contractor must obtain a license in a secondary jurisdiction when its business in that jurisdiction is in excess of $25,000. In such instances, the statute provides that:
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- when the amount of business done by any such contractor in any other county, city or town exceeds the sum of $25,000 in any year, such other county, city or town may require of such contractor a local license, and the amount of business done in such other county, city or town in which a license tax is paid may be deducted by the contractor from the gross revenue reported to the county, city or town in which the principal office or any branch office of the contractor is located. [Emphasis added.]
In this case, the Taxpayer and the City agree that: (1) the Taxpayer's definite place of business is in the City, (2) the Taxpayer had a contract in the Town that was in excess of $25,000, and (3) the contract required the Taxpayer's presence for 30 days or more. The Taxpayer did not, however, pay a license tax to the Town because the Town does not impose a local license tax or fee.
The intention of Va. Code § 58.1-3715 as cited above is clear. The deduction for gross receipts earned in another jurisdiction in excess of $25,000 may only be taken in those cases where a license tax has been paid. Because the Town does not impose the license tax, the deduction cannot be taken.
The Taxpayer contends that the second paragraph of Va. Code § 58.1-3715(B) exempts the receipts generated by its business in the Town from the City's license tax. This paragraph states, "That portion of the gross receipts of a contractor subject to the license tax pursuant to this subsection shall not be subject to such tax in any other county, city or town." In this case, the Taxpayer is not "subject to a license tax pursuant to this section" because the Town does not impose such a tax.
An earlier opinion of the Attorney General and subsequent rulings of the Tax Commissioner have reinforced this interpretation of the statute. In a situation in which a contractor had a definite place of business in one locality but did business in another jurisdiction that did not impose the BPOL tax, the Attorney General opined:
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- It is clear from the statutory language that if a license tax is not paid in the other Virginia locality, a deduction is not permitted. Therefore, if the contractor does not pay a license tax in another Virginia locality in which he works, the gross receipts reported to [his definite place of business] would include the receipts from work done in the other Virginia locality. 1995 Report of the Attorney General 245, 246 (1/20/95). See also, Public Documents 97-396 (09/30/97), and 01-47 (04/23/01). [Emphasis in the original.]
The situation addressed by the Attorney General is analogous to the case at hand.
DETERMINATION
Pursuant to Va. Code § 58.1-3715, contractors with a definite place of business in one locality that imposes the BPOL tax may deduct those gross receipts attributed to work performed in other jurisdictions only if the volume of business exceeds $25,000 and the contractor (taxpayer) pays a license tax in that other jurisdiction. It is important to emphasize that: (1) a license tax must have been assessed and paid, and (2) license fees do not qualify for the deduction. (See P.D. 01-47.) Because the Town does not impose the BPOL tax, the Taxpayer's gross receipts attributable to its business activity in the Town are subject to the tax imposed by City, where it has a definite place of business. Accordingly, the assessment issued by the City is correct.
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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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/48251H
Rulings of the Tax Commissioner