Tax Type
BPOL Tax
Description
Deduction provided for out-of-state receipts for Taxpayer and its partners
Topic
Basis of Tax
Partnerships
Taxable Income
Date Issued
05-10-2007
Supersedes Public Document 05-58
May 10, 2007
Re: Request for Reconsideration of Final State Determination
Locality Assessing Tax: *****
Taxpayer: *****
Business, Professional and Occupational License Tax
Dear *****:
This is in response to your request for reconsideration of the Tax Commissioner's determination issued as Public Document 05-58 (04/12/05) to ***** (the "Taxpayer" or the "firm"). Public Document 05-58 addresses the appropriate methodology to be used in calculating the deduction from gross receipts under Va. Code § 58.1-3732 B 2 for business conducted in another state or foreign country. The facts of that public document are incorporated by reference.
The Taxpayer, a limited liability partnership, initially appealed a final local determination of a Business, Professional and Occupational License (BPOL) tax assessment made by the ***** (the "City"). In reviewing that appeal, the Tax Commissioner determined that the City's application of the BPOL tax to the Taxpayer was inappropriate and permitted a deduction for out-of-state receipts based on the Taxpayer's ability to segregate its gross receipts by hours billed by the partners assigned to its office in the City. The determination states, "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 Taxpayer requests reconsideration of the Department's determination that the deduction is limited to receipts attributed to the Taxpayer or its partners and does not include the Taxpayer's hourly charges attributable to the attorneys' work, the work of paralegals and other employees. The Taxpayer contends that the deduction should include receipts attributable to hours worked outside of Virginia by its employees.
Virginia Code § 58.1-3732 B 2 states that the following shall be deducted from gross receipts or gross purchases that would otherwise be taxable:
The statute allows a taxpayer a deduction from gross receipts for 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 in that state or foreign country. The statute does not limit the deduction to the partner's receipts that are subject to an income-like tax in another state or foreign country.
In this case, the taxpayer entitled to the deduction is the firm, not its individual lawyers and its employees. The firm is entitled to a deduction for its gross receipts that are attributable to business conducted in another state or foreign country. The only condition precedent to the allowance of this deduction is that either the firm, or its partners in lieu of the firm, establishes that they are liable for an income or other tax based on income (i.e., they have filed income tax returns in such other state or foreign country.
After carefully reviewing the statute at issue and the Taxpayer's position, it is my determination that the deduction authorized under Va. Code § 58.1-3732 B for partnerships should properly apply to all receipts attributable to business conducted in another state or foreign country where the partnership or its partners are liable for an income tax or other tax based on income. The deduction is not limited to only those receipts directly related to a partner's business, i.e., the partner's billable hours. As stated in P.D. 05-58, a taxpayer must be able to support any deductions taken as measured by hours performed by its partners and employees during its work in other states or a foreign country.
This determination supersedes Public Document 05-58 to the extent that the deduction authorized under Va. Code § 58.1-3732 B is interpreted to include any gross receipts attributable to any business performed by the Taxpayer's partners or its employees. The deduction is measured by hours worked and billed to clients in states where the Taxpayer or its partners are liable for an income tax or other tax based on income.
If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
Janie E. Bowen
Tax Commissioner
AR/57040H
Supersedes Public Document 05-58
May 10, 2007
Re: Request for Reconsideration of Final State Determination
Locality Assessing Tax: *****
Taxpayer: *****
Business, Professional and Occupational License Tax
Dear *****:
This is in response to your request for reconsideration of the Tax Commissioner's determination issued as Public Document 05-58 (04/12/05) to ***** (the "Taxpayer" or the "firm"). Public Document 05-58 addresses the appropriate methodology to be used in calculating the deduction from gross receipts under Va. Code § 58.1-3732 B 2 for business conducted in another state or foreign country. The facts of that public document are incorporated by reference.
FACTS
The Taxpayer, a limited liability partnership, initially appealed a final local determination of a Business, Professional and Occupational License (BPOL) tax assessment made by the ***** (the "City"). In reviewing that appeal, the Tax Commissioner determined that the City's application of the BPOL tax to the Taxpayer was inappropriate and permitted a deduction for out-of-state receipts based on the Taxpayer's ability to segregate its gross receipts by hours billed by the partners assigned to its office in the City. The determination states, "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 Taxpayer requests reconsideration of the Department's determination that the deduction is limited to receipts attributed to the Taxpayer or its partners and does not include the Taxpayer's hourly charges attributable to the attorneys' work, the work of paralegals and other employees. The Taxpayer contends that the deduction should include receipts attributable to hours worked outside of Virginia by its employees.
ANALYSIS
Virginia Code § 58.1-3732 B 2 states that the following shall be deducted from gross receipts or gross purchases that would otherwise be taxable:
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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 on income.
The statute allows a taxpayer a deduction from gross receipts for 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 in that state or foreign country. The statute does not limit the deduction to the partner's receipts that are subject to an income-like tax in another state or foreign country.
In this case, the taxpayer entitled to the deduction is the firm, not its individual lawyers and its employees. The firm is entitled to a deduction for its gross receipts that are attributable to business conducted in another state or foreign country. The only condition precedent to the allowance of this deduction is that either the firm, or its partners in lieu of the firm, establishes that they are liable for an income or other tax based on income (i.e., they have filed income tax returns in such other state or foreign country.
CONCLUSION
After carefully reviewing the statute at issue and the Taxpayer's position, it is my determination that the deduction authorized under Va. Code § 58.1-3732 B for partnerships should properly apply to all receipts attributable to business conducted in another state or foreign country where the partnership or its partners are liable for an income tax or other tax based on income. The deduction is not limited to only those receipts directly related to a partner's business, i.e., the partner's billable hours. As stated in P.D. 05-58, a taxpayer must be able to support any deductions taken as measured by hours performed by its partners and employees during its work in other states or a foreign country.
This determination supersedes Public Document 05-58 to the extent that the deduction authorized under Va. Code § 58.1-3732 B is interpreted to include any gross receipts attributable to any business performed by the Taxpayer's partners or its employees. The deduction is measured by hours worked and billed to clients in states where the Taxpayer or its partners are liable for an income tax or other tax based on income.
If you have any questions about 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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Janie E. Bowen
Tax Commissioner
AR/57040H
Supersedes Public Document 05-58
Related Documents
Rulings of the Tax Commissioner