October 2, 2015
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business, Professional and Occupational License Tax
Dear *****:
This final state determination is issued upon the application for correction filed on behalf of ***** (the "Taxpayer") with the Department of Taxation. You seek a reconsideration of Public Document (P.D.) 15-68 (4/15/2015) concerning the Business, Professional and Occupational License (BPOL) tax assessments issued to the Taxpayer by the ***** (the "County") for the 2009 through 2014 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 regulation section 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
In P.D. 15-68, the Department remanded the Taxpayer's case back to County with instructions to reconsider the Taxpayer's request to change its classification from a professional service to a business service. In its determination letter, the Department addressed both the Taxpayer and County's arguments for the classification of a taxpayer when professional services are subcontracted to an unrelated third party by citing P.D. 05-119 (7/18/2005). The Taxpayer seeks a reconsideration to clarify the Department's interpretation of P.D. 05-119.
ANALYSIS
In P.D. 15-68, the Department stated "the Taxpayer would be classified in accordance with the service it subcontracted out. As such, if it contracted out engineering services, it would be classified as an engineer. If it contracted out business services, it would be classified as a business service provider." In its request for reconsideration, the Taxpayer argues that the business of a going concern determines its classification, not the business of its employees or subcontractors.
Title 23 of the Virginia Administrative Code 10-500-120 states "[T]he classification of a business generally depends on the nature of the goods or services offered to the customers of the business for consideration." Thus, it is the activities of the business that will determine its classification.
When viewed outside the context of the case in its entirety, the Department can understand that its statement in P.D. 15-68 could be misinterpreted. The Taxpayer was contracting with the Department of Defense to provide an array of services. Based on the Department's understanding of the facts, the Taxpayer subcontracted some of these services to other businesses. Because it was ultimately responsible for the services subcontracted to other entities, the activities included in the subcontracts must be considered in determining the nature of the services the Taxpayer offered to its customer. Thus, the Taxpayer could be classified, at least in part, in accordance with services it contracted out.
DETERMINATION
In P.D. 15-68, the Department remanded the case back to the County to reconsider the Taxpayer's proper classification for the 2009 through 2014 tax years based upon additional documentation to be provided by the Taxpayer. The County should continue its reconsideration utilizing the requested documentation from the Taxpayer and the clarification of P.D. 15-68 provided in this determination letter.
If you have any questions regarding this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6055544973.B