Tax Type
BPOL Tax
Description
Internet-based services, definite place of business in the County
Topic
Records/Returns/Payments
Statute of Limitations
Taxpayers' Remedies
Date Issued
07-24-2014
July 24, 2014
Re: Appeal of Final Local Determination
Locality Assessing Tax: *****
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 the final local determination made by the Commissioner of the Revenue of the ***** (the "County") denying the Taxpayer's request for a refund of Business, Professional and Occupational License (BPOL) taxes for the 2009 through 2011 tax years.
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 Laws, Rules and Decisions section of the Department's web site.
FACTS
The Taxpayer, a provider of Internet-based services, had a definite place of business in the County. This facility served as the Taxpayer's headquarters and provided management and administrative functions for the business. Most of the Taxpayer's other employees worked from their homes. The Taxpayer also rented space for servers in several data centers. None of the home based employees or the data centers were located in the County.
The Taxpayer filed and paid BPOL taxes to the County for the 2009 through 2011 tax years based on the Taxpayer's entire gross receipts. In July 2013, the Taxpayer requested refunds, asserting that the BPOL taxes should have been based on the proportion of its payroll attributable to the County.
In its final determination, the County denied the refund requests. The County concluded that the request for the 2009 tax year was filed beyond the statute of limitations. In addition, the County determined that neither the data centers nor the employees' homes were definite places of business. The County, therefore, reasoned that payroll apportionment was not applicable because the only definite place of business to which gross receipts could have been sitused was the facility in the County. The Taxpayer filed an appeal with the Department, contending it should be permitted to situs gross receipts using the payroll apportionment method.
ANALYSIS
Limitations on Appeals of Local Tax Assessments
The Taxpayer filed a request for refunds in July 2013 for all the tax years at issue. Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes:
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- may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof. [Emphasis added.]
The term "tax year" generally applies to the calendar year for which local taxes are assessed under Virginia law. See Public Document (P.D.) 08-136 (7/30/2008). Based on the date the claims were filed, the earliest tax year for which the Taxpayer could have timely filed a refund claim under the statute of limitations would be the 2010 tax year. The refund claim for the 2009 tax year would be barred by the statute of limitations. Accordingly, the Department's determination will be limited to the 2010 and 2011 tax years.
Definite Place of Business
In addition to the definite place of business located in the County, the Taxpayer asserts that the data centers and the employees' homes were definite places of business. In its final determination, the County concluded that neither the data centers nor the employees' homes were definite places of business because the services were initiated, directed and controlled from the facility located within its jurisdiction. A determination
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as to whether a location is a definite place of business, however, does not depend on the situs of gross receipts. Instead, the locations of an entity's definite places of business must be established before the situs of gross receipts to those definite places of business can be determined.
Virginia Code § 58.1-3700.1 defines a "definite place of business" as an office or a location at which occurs a regular and continuous course of dealing for 30
consecutive days or more. "Continuous" for purposes of this definition is analyzed in terms of whether the business has established a location for the exercise of the licensable privilege. The time spent actually conducting business at this location is not important so long as the business is availing itself to the public and conducting its activities at that particular location. Regularly conducting business refers to a periodic pattern of instances in which a business is "open for business." A regularly conducted business may operate daily, weekly, monthly or for some other set time period. See P.D. 97-75 (2/18/1997).
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 or 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 P.D. 97-201 (4/25/1997). Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer's operations must be considered.
Data Centers
The information provided indicates that the Taxpayer rented space in the data centers for the servers that housed the websites used by clients. The Department has held that the mere presence of servers in a locality does not, by itself, create a definite place of business. See P.D. 01-43 (4/16/2001). While some employees occasionally travelled to the data centers to resolve server problems, no evidence has been provided to show the Taxpayer held itself out as conducting business at these locations.
Employees' Homes
Generally, an employee's home would not be considered to be a definite place of business. The definition of a definite place of business in Va. Code § 58.1-3700.1 provides, however, that "[a] person's residence shall be deemed to be a definite place of business if there is no definite place of business maintained elsewhere and the person is not subject to licensure as a peddler or itinerant merchant." This provision does not absolutely preclude an employee's home from being a definite place of business when a taxpayer maintains a definite place of business elsewhere. A home could still be a definite place of business if it is a location at which occurs a regular and continuous course of dealing for 30 consecutive
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days or more. Each location must be separately evaluated under the standards set forth above to determine if it is a definite place of business. Whether a person's home constitutes a definite place of business is a question of fact to be determined by the County.
Although the activities articulated in P.D. 97-201 are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer's operations must be considered. In 1978-79 Op. Va. Att'y Gen 279, the Attorney General determined that a continuous and regular course of dealings at a location would seem to constitute a definite place of business in such location when employees are "more or less" permanently assigned to such a location. In addition, the Department has previously ruled on a similar issue. In P.D. 01-215 (12/12/2001) and P.D. 11-161 (9/20/2011), the Department found that a computer consultant whose work was performed at client locations on a regular and continuous basis in several localities could establish a definite place of business at such locations without all of the characteristics enumerated in P.D. 97-201. While these cases dealt with employees performing services at a customer's location, the Department believes the same reasoning could be applied to an employee working out of their home.
Situs
The Taxpayer asserts it should be permitted to use the payroll apportionment method to situs gross receipts. The County maintains that all gross receipts must be sitused to the facility located within its jurisdiction because all of the services are initiated, directed and controlled from that facility.
In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.
As indicated above, the Taxpayer may have more than one definite place of business. When a taxpayer has more than one definite place of business, gross receipts attributable to services performed at each definite place of business would be sitused there. Only to the extent that services were not performed at a definite place of business would they be sitused to the place from which they were directed or controlled.
Further, although the Taxpayer's chief executive worked primarily out of the County office during most of the period in question, the Taxpayer also indicated that department managers were based in other locations. This raises a question as to the place or places
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from which the services were directed or controlled. Depending on the circumstances, services may not always be directed or controlled from one particular office, even a taxpayer's headquarters. See Example 2 and Example 8 of Title 23 of the Virginia Administrative Code (VAC) 10-500-200.
In addition, pursuant to Va. Code § 58.1-3703.1 A 4 b, payroll apportionment is only to be used as a last resort when it is impossible or impractical to situs gross receipts from services to where the service is performed or directed and controlled. A taxpayer must show that payroll apportionment is necessary to situs gross receipts.
DETERMINATION
Because the statute of limitations expired for the 2009 tax year prior to the Taxpayer's request of a refund, the County properly denied the Taxpayer's refund request for that tax year. Further, based on the evidence provided, the Taxpayer may have had definite places of business other than the facility located within the County.
Accordingly, I am remanding the case back to the County with instruction to reconsider the Taxpayer's refund request for the 2010 and 2011 tax years. The County must examine the Taxpayer's business operations in other jurisdictions to determine whether there were other definite places of business consistent with this determination.
If it is found that the Taxpayer did have more than one definite place of business, the Taxpayer should provide information indicating what amount of gross receipts were attributable to services performed at the definite places of business. Only if the County and the Taxpayer conclude that it is impossible or impractical to situs gross receipts from services to where the service is performed or directed and controlled, may payroll apportionment be used to situs gross receipts.
Further, to the extent any services were not performed at a definite place of business, the Taxpayer should provide the County with information indicating the place or places from which the services were directed or controlled. Only if it is impossible or impractical to situs gross receipts under these methods may payroll apportionment be used. Finally, if it is determined that all of the gross receipts should have been sitused to the definite place of business in the County, the Taxpayer may be entitled to a deduction under Va. Code § 58.1-3732 B 2.
The Taxpayer should provide the County with additional information concerning its business operations and situs of gross receipts. The County should then work with the Taxpayer to establish specific additional information required and set deadlines for the production of documents. Based on its review of all the additional information, the County must make the appropriate adjustments and issue refunds or a new final
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determination for the 2010 and 2011 tax years. If the Taxpayer disagrees with the County's new final determination, it may appeal pursuant to Title 23 VAC 10-500-720.
If you have any questions regarding this determination, you may contact ***** 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/1-5623298027.M
Rulings of the Tax Commissioner