March 12, 2018
Re: Appeal: Final Determination
Locality: *****
Taxpayer: *****
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.) 17-159 (9/8/2017) concerning a refund request for Business, Professional and Occupational License (BPOL) tax paid by the Taxpayer to the ***** (the “County”) 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 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. 17-159, the Department determined that the Taxpayer could not claim the out-of-state deduction and, therefore, was not entitled to a refund for BPOL tax for the 2011 through 2013 tax years. The Taxpayer seeks a redetermination, contending the Department did apply the test for determining whether the deduction could be claimed as set forth in Nielsen Company (US), LLC v. County Board of Arlington County, 289 Va. 79, 767 S.E. 2d 1 (2015). In addition, the County asserts that the Department lacks jurisdiction to address the Taxpayer's reconsideration request.
ANALYSIS
Jurisdiction
Virginia Code § 58.1-3703.1 6 a states that an appeal to the Department is to be treated as an application made pursuant to Virginia Code § 58.1-1821. Under Virginia's regulation interpreting Virginia Code § 58.1-1821, the Department will accept a taxpayer's request for reconsideration if one of four requirements is met. See Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F. Because local business tax appeals are handled in the same manner as appeals filed under Virginia Code § 58.11821, the Department may entertain reconsideration requests of local business tax determinations. See P.D. 12-121 (11/2/2012). A taxpayer request for reconsideration must meet one of the following:
- The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner's misstatement of the facts presented or a clarification of the original facts presented in the taxpayer's administrative appeal;
- The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;
- The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or
- The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.
The Taxpayer contends that the Department misstated the facts, did not apply changes in the law and misapplied its policy because it did not cite the test set forth in Nielsen. The County asserts that the grounds for a reconsideration were not met because no facts were misstated and there was no change in the law or the Department's policy.
In Nielsen, the Virginia Supreme Court stated that the deduction could be claimed by the employees at the Virginia definite place of business “participating with employees in other offices in transactions . . . .” The determination in P.D. 17-159 required that the employees from the Virginia definite place of business “earn, or participate in earning receipts attributable to customers in other states . . . .” As such, the Taxpayer's argument that the determination may have misapplied the standard set in Nielsen to claim the deduction falls within the reconsideration criteria in Title 23 10-20-165 F, and the Department has jurisdiction of the redetermination request.
Out-of-State Deduction
In Nielsen, the Virginia Supreme Court upheld the Department's methodology computing the out-of-state deduction when payroll apportionment is used to situs gross receipts because it “strikes a balance between the competing interests of the licensing jurisdiction and the taxpayer.” It specifically upheld the methodology provided by the Department in P.D. 12-88 that required ascertaining whether “any employees at the Virginia definite place of business participated in interstate transactions by, for example, shipping goods to customers in other states, participating with employees in other offices in transactions, etc.” Accordingly, it would appear that Nielsen would require that employees from the Virginia definite place of business merely take part in interstate transactions and not be required to participate in earning gross receipts with customers located outside of Virginia in order to claim the deduction.
In P.D. 17-159, the Department concluded the out-of-state deduction is only available for a pool of gross receipts from business accrued in a non-Virginia jurisdiction. Further, the Department found the Taxpayer had failed to establish that any receipts were sitused to the definite place of business in the County by apportionment that also qualified for the exception.
The Taxpayer contends that under Nielsen, employees at a Virginia definite place of business need only to participate with out-of-date employees in order to claim the deduction. As such, the deduction could be claimed because employees located in the County participate with employees located in ***** (State A) in transactions involving the transport and testing of lab samples. The County asserts that the gross receipts attributed to the Taxpayer's out-of-state employees were removed from the pool of gross receipts attributable to its County office prior to the deduction.
The Virginia Supreme Court, however, also stated in Nielsen that the deduction was only eligible for gross receipts from business in non-Virginia jurisdictions in which the taxpayer is subject to an income-based tax liability. Thus, factors other than participation with out-of-state employees must be considered. Because the deduction is for gross receipts, the statute requires that a taxpayer located at a Virginia definite place of business have actually received revenue from an out-of-state jurisdiction. Based on this interpretation, the Department finds it unlikely that a taxpayer could receive revenue from a jurisdiction in which it has no customers.
Accordingly, I find that the Taxpayer could not claim the deduction as provided by Virginia Code § 58.1-3732 B 2 because employees from the County did not participate in earning receipts attributable to customers located in other states. As such, the determination in P.D. 17-159 is upheld.
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/1480.B