Tax Type
BPOL Tax
Description
County's argument supporting assessments against the Parent has no legal basis.
Topic
Local Power to Tax
Taxability of Persons and Transactions
Taxable Income
Date Issued
09-28-2011
September 28, 2011
Re: Appeal of Final Local Determination
Locality: *****
Taxpayer: *****
Business, Professional and Occupational License Tax
Dear *****:
This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals assessments of Business, Professional and Occupational License (BPOL) tax issued to its parent company ***** (the "Parent") by the ***** (the "County") for the 2007 through 2009 tax years.
The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct, i.e., 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 summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site.
FACTS
During the tax years at issue, the Taxpayer was a wholly owned subsidiary of the Parent, which was commercially domiciled in ***** (Country A). The Taxpayer performed marketing, procurement and other business services exclusively on behalf of the Parent at a definite place of business located in the County. The Taxpayer's sole source of gross receipts, resulted from fees received from the Parent.
The Parent was in the business of fulfilling procurement contracts for the United States government. The Parent has no facility, employees, or property located in the County and the contracts are performed outside the County.
Under audit, the County issued assessments against the Parent for the 2007 through 2009 tax years measured by the gross receipts it paid to the Taxpayer. An appeal was filed with the County. In its final determination, the County concluded that the Parent actually performed the licensable activity, and the Taxpayer was merely, an instrumentality of the Parent with no independent existence. The Taxpayer appeals the final local determination, contending that neither it nor the Parent is subject to the BPOL tax because: (1) the Parent does not have a definite place of business in the County, and (2) all of the Taxpayer's gross receipts were derived from an affiliated entity.
ANALYSIS
Separate Business
Virginia Code § 58.1-3703.1 A 1 provides that a separate license shall be required for each definite place of business and for each business. Pursuant to Va. Code § 58.1-37100.1, a "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. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following onsite activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See Public Document (P. D.) 97-201 (4/25/1997).
The County argues that the Parent essentially is engaged in a business at the Taxpayer's place of business. The County avers that it should be permitted to look beyond the legal structure of an entity when it believes an entity would have no reason to exist beyond performing services for affiliated entities.
Under Va. Code § 58.1-3700.1, the definition of "business" includes a rebuttable presumption that an entity is a separate business if it holds itself out as engaged in business or is required to file business or trade tax returns, schedules, and documents. The statute clearly imposes the tax on a legal entity that is conducting a separate business. The controlling factor in Virginia BPOL taxation is what entity is conducting the business within the locality.
In this case, the Taxpayer was a separate legal entity that held itself out as separate business from the Parent. The Parent, on the other hand, conducts no business activities within the County.
Gross Receipts from Affiliated Entities
The Taxpayer further argues that its gross receipts would be exempt from BPOL taxation under Va. Code § 58.1-3703 C 10, which provides an exemption from BPOL taxation for gross receipts received by an entity from an affiliated group, as defined in Va. Code § 58.1-3700.1, of which such entity is a member. The County has made no argument against the Taxpayer's position with regard to its gross receipts.
Virginia Code § 58.1-3703 allows a local taxing authority to impose, by local ordinance, a license fee or a license tax on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within" the locality. While the exemption enumerated in Va. Code § 58.1-3703 C 10 applies to BPOL tax, it does not prohibit the imposition of a license fee.
DETERMINATION
After considering the arguments presented, I can find no legal basis for the County's argument supporting assessments against the Parent. Virginia Code § 58.1-3703.1 A 1 specifically provides that each business must be separately licensed. Accordingly, the County is instructed to abate the BPOL tax assessments issued to the Parent for the 2007 through 2009 tax years.
Further, it is my determination that the County may impose a BPOL fee on the Taxpayer for engaging in a trade of business within its jurisdiction.
If you have any questions regarding this determination, you may call ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4769845707.B
Rulings of the Tax Commissioner