Virginia Tax Commissioner Allows Deduction For Gross Receipts Attributable To Business In Other States For BPOL Purposes

The Virginia Tax Commissioner has held that, for business, professional and occupational license (BPOL) tax purposes, a multistate business service provider was entitled to an apportioned deduction from gross receipts for receipts attributable to business conducted in other states, after the company's gross receipts were sitused for BPOL tax purposes using payroll apportionment.1 The case was remanded to the county that imposed the BPOL tax to adjust the taxpayer's liability for the tax periods at issue.

Background

In Virginia, localities are authorized to impose a BPOL tax generally based on the taxpayer's gross receipts for the privilege of conducting business.2 The tax is imposed and administered by local officials at different rates according to a taxpayer's classification.3 Generally, taxable gross receipts include only those receipts attributed to a definite place of business within a jurisdiction, which for a service provider is based upon the place where services are performed or from which they are directed or controlled.4 If a licensee performing services has more than one definite place of business and it is impractical or impossible to determine to which place of business gross receipts should be attributed under the general rule, the receipts may be apportioned between the definite places of business on the basis of payroll.5 Taxpayer appeals of BPOL assessments issued by local authorities may ultimately be addressed by the Virginia Department of Taxation, which is authorized to issue final determinations.6 However, local assessments are deemed prima facie correct.

The taxpayer at issue, a business service provider, had a definite place of business in the assessing county, as well as offices located in other states and other Virginia localities. In computing BPOL tax liability, a deduction from total gross receipts is permitted for receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based upon income.7 The taxpayer sitused gross receipts to compute the deduction using payroll apportionment for the taxable years at issue. Specifically, in 2011, the taxpayer calculated out-of-state deductions for tax years 2008 through 2010 and requested a refund of the corresponding BPOL tax. The taxpayer also filed its 2011 and 2012 BPOL tax returns claiming out-of-state deductions. The county imposing the BPOL tax8 disallowed the deductions claimed by the...