August 24, 2021
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 by you on behalf of your client, ***** (the “Taxpayer”), with the Department of Taxation. You appeal assessments of the Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by ***** (the “County”) for the 2015 through 2019 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 provided monitored security system services from several centers in the United States, none of which were located in Virginia. It also had an office in the County from which employees sold security equipment and conducted installations. Gross receipts from the equipment sales and installation activities were reported to the County and are not the subject of this appeal.
The Taxpayer has also had a business services license for its monitoring services performed for its customers located in the County. The County audited the Taxpayer for the 2015 through 2019 tax years. As a result of the audit, the County concluded that the Taxpayer’s gross receipts derived from its security monitoring services should have been sitused to its definite place of business in the County because the sales of the services were initiated, directed and controlled from the County. As a result, assessments were issued.
The Taxpayer appealed to the County, contending that gross receipts derived from its security monitoring services should be not be sitused to the County because the services were not performed there. The County denied the Taxpayer’s appeal and upheld the assessments. The Taxpayer appealed to the Department for relief.
ANALYSIS
In determining the situs of gross receipts, Virginia 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.
The Taxpayer contends that the gross receipts at issue were attributable to customer payments for security monitoring services. It asserts that because the services occurred outside the County, the gross receipts should not have been sitused to the County. The County argues that the gross receipts should have been sitused to the County because it is where the sales of the security system monitoring services were initiated, directed and controlled.
The County relies on Public Document (P.D.) 18-181 (10/24/2018) to support its final local determination. P.D. 18-181 addresses an issue where a taxpayer sold monitored security equipment and services on behalf of another company, which performed the monitoring services. Upon executing a contract with a customer, the taxpayer transferred it to the security monitoring company, and received a fee and a percentage of the monthly service charges, effectively, as a sales commission. Accordingly, the Department reasoned that the taxpayer was in the business of selling a monitored security service. Ultimately, the Department determined that the local office was the place from which such sales services were directed and controlled, because employees from those offices were responsible for reviewing the premises where the installations would occur and attempting to sell additional services and equipment to meet customers’ needs. They also provided the equipment and performed the ancillary installation and necessary follow-up activities. In addition, they obtained the signed contracts from the customers. As the Department observed in P.D. 18-181, the taxpayer’s business model was unique and presented a special challenge in applying the BPOL situsing rules. The facts of this case, however, are different than those of P.D. 18-181. In this case, while it is true that the Taxpayer sold monitoring services, the sales were not being conducted on behalf of another business. Instead, the Taxpayer performed the monitoring services that it sold.
As such, the proper question for purposes of situsing gross receipts in this case is where were the monitoring services being performed or directed or controlled by the Taxpayer, not where was the Taxpayer initiating sales of the services. Information provided indicates the monitoring services were performed or directed or controlled in definite places of business outside of the County.
DETERMINATION
Because the monitoring services were not performed at a definite place of business in the County or directed and controlled from there, I find that the gross receipts derived from the Taxpayer’s security monitoring services were not subject to the County’s BPOL tax for the 2015 through 2019 tax years. Therefore, the County is instructed to adjust the BPOL tax assessments for the tax years at issue in accordance with this determination.
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/3722.B