February 17, 2015
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 "City") denying the Taxpayer's request for a refund of Business, Professional and Occupational License (BPOL) tax for the 2010 tax year and the denial of refund interest for the 2011 through 2013 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, and public document 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 information and technical services, had definite places of business in the City, the ***** (the "County"), and in the state of ***** (State A). The Taxpayer's chief executive officer (CEO) and administrative assistant were the only Taxpayer employees that worked in the City office.
The Taxpayer filed and paid BPOL taxes to the City for the 2010 through 2013 tax years based on the Taxpayer's entire gross receipts. In December 2013, the Taxpayer requested refunds, asserting that there was no BPOL tax liability because all gross receipts should have been sitused to either the County or State A.
In its final determination, the City allowed refunds for the 2011 through 2013 tax years, but denied the refund request for the 2010 tax year because the Taxpayer was unable to provide a 2009 State A income tax return. The Taxpayer filed an appeal with the Department, contending that all gross receipts should have been sitused to either the County or State A under the general situsing rules. It also asserts that the City did not issue refund interest for the refunds it had issued.
ANALYSIS
Situs - Gross Receipts
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 definite place of business from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine the definite place of business where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business. Virginia Code § 58.1-3703.1 A 3 b also states that gross receipts may not be apportioned to a definite place of business unless some business activities occurred at, or were controlled from, such definite place of business.
In this case, the Taxpayer contends that all revenue generating services were performed at the County and State A locations because the CEO and administrative assistant only provided administrative functions. As such, no gross receipts should have been sitused to the City. The City asserts that all gross receipts should properly be sitused to its locality and an out-of-state deduction claimed if applicable.
The City requested that the Taxpayer provide a 2009 State A income tax return to show that gross receipts were generated in State A. No return was filed for the 2009 tax year. Rather, the Taxpayer provided a voluntary disclosure agreement (the "Agreement") with State A in which it agreed to file income tax returns for the 2010 through 2012 tax years.
Virginia Code § 58.1-3703.1 A 5 provides that the burden is on the Taxpayer to provide sufficient documentation that a locality's assessment is incorrect. The Taxpayer has not provided any documentation to show that its revenue generating activities occurred in State A or another Virginia locality during the 2009 tax year. While it may appear that the Taxpayer performed services in State A and the County, the Agreement is insufficient proof of the Taxpayer's activities within those locations.
Under Va. Code § 58.1-3703.1 A 3, if gross receipts cannot be sitused to a definite place of business where the services occur, then they are to be sitused to the locality where they are directed and controlled. The City contends that because the Taxpayer was unable to show that its gross receipts came from services performed in State A during the 2009 tax years, then the gross receipts must be sitused to its definite place of business located in the City. The Taxpayer asserts that only administrative activities occurred at the office located in the City. As such, no revenue generated in services were directed or controlled for the Taxpayer's definite place of business located in the City.
The Taxpayer has the burden to show that its services were not directed and controlled from its office located in the City. The Taxpayer has provided no documentation showing that only administrative functions occurred in the City office. Further, because the Taxpayer's CEO worked out of the City office, there is a question as to whether he directed any of the Taxpayer's services from the City's office.
Interest
Virginia Code § 58.1-3703.1 A 2 e requires that interest be paid on the refund of any BPOL tax from the later of the date of payment or due date. The statute sets no limits on the types of refunds eligible for interest. As such, the City must issue interest on any BPOL tax refunded to the Taxpayer.
DETERMINATION
The Taxpayer has sitused all of its gross receipts to the County and State A for the 2010 tax year. The City has determined that the gross receipts should be sitused to the definite place of business within its locality. The Taxpayer may have been providing services at other definite places of business, but it has not provided sufficient documentation to meet its burden of proof. Based on this determination, I am remanding this case to the City in order to review any evidence the Taxpayer can provide to demonstrate that gross receipts should not be sitused to the City. If the Taxpayer can provide clear and cogent evidence that gross receipts should be sitused to either the County or State A, the City must issue a refund of BPOL tax paid for the 2010 tax year. Such evidence must be provided within 30 days of the date of this letter. In addition, the City must issue refund interest to the Taxpayer for the 2011 through 2013 tax years in accordance with Va. Code § 58.1-3703.1 A 2 e.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5818199207.B