Could a business obtain separate retail and wholesale BPOL treatment without records reconciling its claimed wholesale receipts to tax returns?

Subject

Adequate documentation not furnished to support the gross receipts reported to IRS

Plain-English summary

A business historically obtained two local BPOL licenses, one as a retail merchant and one as a wholesale merchant. During audit, the county could not verify the gross receipts assigned to wholesale activity. Records submitted in the local appeal did not reconcile to the federal income tax return, so the county assessed the business as a retail merchant.

Virginia declined to reverse that result. A taxpayer conducting multiple businesses at one location had to provide information supporting the distinct businesses and their gross receipts. The local assessment was presumed correct, and the taxpayer submitted no evidence to the Department refuting the county's documentation concerns.

Because the dispute was factual, the Commissioner remanded it to the county. The retail assessment remained in place unless the taxpayer supplied sufficient proof of two businesses within 45 days. Virginia also rejected a requested alternative compromise because only the local commissioner of the revenue had authority to accept one under Va. Code § 58.1-3994.

What this means for you

• Separate BPOL classifications required records that identified and reconciled each business's gross receipts.
• Prior separate licenses did not overcome inadequate books and inconsistent tax-return amounts.
• The taxpayer bore the burden of disproving the local assessment.
• A state-level appeal could not substitute for the local official's statutory compromise authority.

Citations and references

• Va. Code § 58.1-3703.1 A 1, separate licenses for multiple businesses and the one-license election.
• Va. Code § 58.1-3703.1 A 5 a and A 6, appeal requirements, presumption of correctness, and Department review.
• Va. Code § 58.1-3994, local commissioner authority to accept an offer or compromise.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-41

Original ruling text

April 20, 2007

Re: Appeal of Final Local Determination

Locality: *

Taxpayer: *

Business, Professional and Occupational License 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 an assessment of business, professional and occupational license (BPOL) taxes issued to the Taxpayer by the *** (the "County") for tax years 2002 through 2005.

The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 A 6 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct. That is, 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 cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website.

FACTS

The Taxpayer represents that it is engaged in both wholesale and retail sales. Historically, it has applied for and received two separate licenses for BPOL tax purposes: one as a retail merchant and one as a wholesale merchant.

Under audit, the County was unable to verify the gross receipts identified with the Taxpayer's wholesale business and assessed the Taxpayer as a retail merchant. During the appeal to the County, the Taxpayer provided records to show the activity of the wholesale business. The County found that the evidence provided did not reconcile to amounts reported on the Taxpayer's federal income tax return. Accordingly, the County determined that the evidence was not sufficient to accurately account for the Taxpayer's wholesale business, and the assessment was upheld.

The Taxpayer appeals the assessment, claiming that a significant amount of its business during the tax years in question was, in fact, attributed to wholesale sales.

ANALYSIS

Virginia Code § 58.1-3703.1 A 1 provides that multiple businesses conducted by a person at a single location are required to obtain a separate license for each business. This same Code section also allows a taxpayer to elect to obtain one license, provided that the taxpayer meets all the following criteria:

a) each business or profession is subject to licensure at the location and has satisfied any requirements imposed by state law or other provisions of the ordinances of this jurisdiction; (b) all of the businesses or professions are subject to the same tax rate, or, if subject to different tax rates, the licensee agrees to be taxed on all businesses and professions at the highest rate; and (c) the taxpayer agrees to supply such information as the assessor may require concerning the nature of the several businesses and their gross receipts.

Therefore, it is incumbent upon the taxpayer to supply the local assessing official with the information supporting its claim of being engaged in two businesses. By inference, if a taxpayer claims to operate two distinct businesses, the taxpayer bears the burden of proof in substantiating its claim.

Virginia Code § 58.1-3703.1 A 5 a clarifies a taxpayer's appeal rights. It states that an appeal must be (i) filed in good faith, (ii) sufficiently identify the tax periods covered by the challenged assessments, (iii) the amount in dispute, (iv) the remedy sought, (v) each alleged error in the assessment, (vi) the legal grounds upon which the taxpayer relies, and (vii) any other facts relevant to the taxpayer's position. Most importantly, the assessment at issue in the appeal "shall be deemed prima facie correct." The burden of proof in a local license tax dispute is with the taxpayer.

DETERMINATION

In its final local determination, the County states that the Taxpayer did not furnish adequate documentation to "support the gross receipts reported on the federal income tax return or those reported on [the County's] business license tax returns." Therefore, the County declined to accept the Taxpayer's position that it engages in two separate businesses - retail sales and wholesale sales. In its current appeal filed with the Department, the Taxpayer has not provided any evidence to refute the County's position. Therefore, I decline to reverse the County's determination.

Because this is purely a factual issue, I am remanding this matter to the County with the understanding that the current assessment stands unless the Taxpayer supplies the County with sufficient documentation to prove that it indeed is engaged in two separate businesses. The Taxpayer must furnish the County with such information within 45 days of the date of this determination.

You propose that in the absence of additional information, an alternative method and compromise be accepted. Under Va. Code § 58.1-3994, only the local commissioner of the revenue can make a determination to accept such an offer. The Department will not intervene in this decision. Accordingly, I must reject your request.

If you have any questions regarding this determination, you may call * Office of Policy and Administration, Appeals and Rulings at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-720779901H