January 21, 2020
Re: Appeal of Final Local Determination
Taxpayer*****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) tax
Dear *****:
This final state determination is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”), with the Department of Taxation. You appeal assessments of Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by ***** (the “County”) for the 2017 and 2018 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 Laws, Rules and Decisions section of the Department’s web site.
FACTS
The Taxpayer was a limited liability company that describes its activities as investing in real estate. The Taxpayer purchased, renovated and sold two properties in the County during the tax years at issue. The County assessed BPOL tax on the gross receipts attributable to those sales. The Taxpayer appealed to the County. In a response, the County issued a letter indicating the Taxpayer had been operating a contracting business in the County during the license years at issue and upheld the assessments. The Taxpayer appealed to the Department, but the case was returned to the County to issue a valid final local determination. See Public Document (P.D.) 19-59 (5/23/2019). The County issued its final local determination in July 2019, and the Taxpayer filed another appeal with the Department, contending its business activities in the County did not meet the statutory definition of a contractor.
ANALYSIS
The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is imposed at different rates according to the classification of an enterprise. See Virginia Code § 58.1-3706. These classifications are regulated under Title 23 of the Virginia Administrative Code (VAC) 10-500-10 et seq. Classification of a specific business must be determined based on consideration of all the facts and circumstances. Some of the factors to be considered include:
1. What is the nature of the enterprise’s business?
2. How the enterprise generates gross receipts.
3. Where the enterprise conducts its business.
4. Who are the enterprise’s customers?
5. How the enterprise holds itself out to the public.
6. The enterprise’s NAICS code.
Even though the Taxpayer did not have a definite place of business in the County during the tax years at issue, the County assessed BPOL tax under Virginia Code § 58.1-3715, reasoning that the Taxpayer had done more than $25,000 in business as a contractor in the County. The Taxpayer argues that it was not a contractor because it was not the business that was actually accepting or offering to accept contracts for work on the properties.
Under Virginia Code § 58.1-3706, the same rate for the BPOL tax has been set for contractors and businesses “constructing for their own account for sale.” Under Title 23 of the Virginia Administrative Code (VAC) 10-500-240 A, a contractor is a person who accepts contracts to perform, or regularly performs, or engages others to perform any of the work listed in Virginia Code § 58.1-3714. Under Virginia Code § 58.1-3714 D, activities of contractors include offering contracts for building or repair activities associated with real estate. Thus, Title 23 VAC 10-500-240 B provides that contractors include “persons who subdivide and improve real estate, and speculative builders who build houses or other buildings with the intention to offer the subdivided lots or completed buildings for sale.” Accordingly, a business does not need to actually perform the construction or rehabilitation work itself in order to be subject to the contractor tax rate under Virginia Code § 58.1-3706. See Public Document (P.D.) 97-423 (10/17/1997), P.D. 04-83 (8/25/2004), P.D. 13-76 (5/23/2013), P.D. 13-221 (12/13/2013), and P.D. 17-10 (2/24/2017).
DETERMINATION
While the Taxpayer contends that it should not be classified as a contractor, it offers no alternative as to how its business activities would be classified. Based on the facts presented, the Department concludes the Taxpayer was engaged in the activity of purchasing and rehabilitating real property for sale in the County and was subject to tax at the same rate as a contractor. Therefore, the County’s classification of the Taxpayer as a contractor is upheld.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2208.M