Could a Virginia county impose gross-receipts BPOL tax on an ancillary plan room for an out-of-state subscription publisher?

Subject

Place of business is ancillary to the Taxpayer's business as a provider of on-line and written subscription services

Plain-English summary

Virginia ordered the county to abate gross-receipts BPOL assessments on the publisher's local plan room. The room was continuously available and staffed by one customer-service employee, making it a definite place of business, but it did not generate publications, information services, or sales.

Subscribers could use a kiosk to access accounts, and the room generated only copying fees. The subscription contract did not promise plan-room access, few customers used it, and the company could close rooms without notice. The substantive information and sales services were performed, directed, and controlled from offices outside Virginia.

Virginia therefore treated the plan room as ancillary to the publisher's principal business. The county could impose a license fee for the local presence, but not a tax measured by the publisher's subscription gross receipts.

What this means for you

• A definite place of business does not automatically source all company gross receipts to that locality.
• Identify where the actual services are performed, directed, or controlled.
• A local customer convenience may be ancillary when it cannot operate independently and no separate charge is made.
• Even an ancillary local office may still be subject to a fixed license fee.

Common questions

Q: Did the plan room count as a definite place of business?
A: Yes. It operated continuously with a local employee.

Q: Why were subscription receipts not taxed there?
A: The substantive information and sales services occurred outside Virginia, while the plan room provided only a supplemental customer convenience.

Q: Could the county charge anything?
A: Yes. The ruling allowed a license fee, but ordered the gross-receipts tax assessments abated.

Citations and references

• Va. Code §§ 58.1-3703 and 58.1-3703.1 A 3 a, A 3 a 4, A 5 a, and A 6 a.
• 2000 BPOL Guidelines § 2.9 A.
• P.D. 97-257, P.D. 04-41, P.D. 99-92, and P.D. 05-168.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-83

Original ruling text

June 6, 2008

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 made on the Taxpayer by the *** (the "County") for tax years 2002 through 2006.

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. 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 and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site.

FACTS

The Taxpayer is a publisher that provides information services to the construction and architectural industries. These services consist of construction project news, plans, specifications and general analytics for construction professionals throughout the United States who subscribe to the Taxpayer's services. The services are available in electronic and written formats.

All corporate decisions, including the development of new enterprises, are made at the Taxpayer's corporate headquarters in * ("State A") or one of its regional offices. The general subscription service that the Taxpayer offers to all of its subscribers includes access to one of more than 100 facilities called "Plan Rooms" that are located throughout the country.

Plan Rooms are equipped with a kiosk computer that provides subscription customers with access to their individual customer accounts. Using their own log-on identification, subscribers may access their accounts and use an application that provides information on other Taxpayer services. Only subscribers are permitted use of the Plain Rooms. There is no provision in the standard contract providing for use of a Plan Room, and in fact, the Taxpayer may, and has, closed Plan Rooms without notification to its customers.

The Plan Room in the County was staffed by a single employee whose primary purpose was to provide customer service. This employee did not engage in the sale of materials. All sales inquiries were referred to the Taxpayer's corporate offices in State A. There was no publishing or information generation work conducted at the Plan Room. The Plan Room was available to subscribers on a continuous basis and, therefore, the Taxpayer did have a definite place of business in the County.

Under audit, the County requested information concerning gross receipts generated at the Plan Room located in the County. When the Taxpayer did not provide the requested information, the County issued statutory assessments for the 2002 through 2006 tax years.

The Taxpayer contests the assessments on the grounds that its activity in the County was ancillary to its actual business as a provider of marketing information services, ,all of which were generated outside the state of Virginia. In its response to the Taxpayer's appeal, the County asserted that neither the County nor the Tax Commissioner had jurisdiction to consider the Taxpayer's appeal.

ANALYSIS

Jurisdiction

The County asserts that the Taxpayer's appeal is invalid because the statutory assessments were not an "appealable event" under Va. Code § 58.1-3703.1 A 5 a. An appealable event includes "an assessment of a local license tax when no return has been filled by the taxpayer." In this instance, the Taxpayer did not file a BPOL tax return during the years in dispute. Clearly, the statutory assessments issued by the County were an appealable event. Therefore, the Taxpayer had the right to appeal the assessments to the County.

Upon receiving the County's final determination, the Taxpayer appealed the determination to the Tax Commissioner, as provided in Va. Code § 58.1-3703.1 A 6 a.

Situs

The BPOL tax may be imposed by jurisdictions on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town." See Va. Code § 58.1-3703. In other words, it is a business' situs and its activity within a given jurisdiction that gives rise to its local BPOL tax liability. The question becomes whether the measure of the Taxpayer's business activity is related to its presence in the County.

The general rule for establishing situs for the BPOL tax is that whenever the tax is measured by gross receipts, "the gross receipts included in the taxable measure shall be only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within [the] jurisdiction." See Va. Code § 58.1-3703.1 A 3 a. Under Va. Code § 58.1-3703.1 A 3 a 4, this general rule is applied to business services as follows:

The gross receipts from the performance of services shall be attributed to the definite place of business at which the services are performed or, if not performed at a definite place of business, then from the definite place of business from which the services are directed or controlled. [Emphasis added.]

In the present instance, the actual information services provided by the Taxpayer were performed in jurisdictions outside Virginia and directed or controlled from a place of business outside Virginia. For this reason, none of the gross receipts generated from these services were attributable to the Taxpayer's office in the County.

Ancillary Activity

The question then is whether the Plan Room was engaged in a separately licensable activity. For purposes of the BPOL tax, an ancillary activity is defined as an activity for which no separate charge is made. Furthermore, any gross receipts attributable to ancillary activities are taxable as part of the primary business. See 2000 BPOL Guidelines §2.9 A. In Public Document (P.D.) 97-257 (6/11/1997), the Tax Commissioner states that the term "ancillary" refers to business activities, which are subordinate, subservient, auxiliary, or in aid of the business' principal business activity. Distinguishing between an ancillary activity and an activity that rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business.

The service provided by Taxpayer's Plan Room in the County was not included in its contract with its subscribers. Furthermore, the Plan Room would not exist independently of the principal business. Rather, the Taxpayer offers a supplemental service via the plan rooms that make its general business more attractive to the consumer (subscriber). The actual provision of the information services and the sales services were directed and controlled from the Taxpayer's offices in State A.

In P.D. 04-41 (8/10/2004), the Department held that when a corporation maintains a definite place of business outside a locality to which receipts are attributed or sourced using this rule [sourcing receipts to the jurisdiction in which the services are performed], these receipts are not subject to taxation by the locality. In the Taxpayer's case, other than some administrative functions, there are no real services performed at the Plan Room. The Plan Room does not generate any independent income (other than copying fees), and in fact is utilized by a very small percentage of the Taxpayer's clients. For further discussion of ancillary activities, please see P.D.s 99-92 (4/30/1999), 04-41(8/10/2004), and 05-168 (12/12/2005).

The Taxpayer directs and controls all of its activities, including that of the business in the Plan Room in the County, from one of three regional offices, or from its headquarters office in State A. The Plan Room offers an ancillary service to the Taxpayer's subscribers.

DETERMINATION

For the reasons stated above, it is my determination that the Taxpayer maintains a definite place of business in the County. This place of business, however, is ancillary to the Taxpayer's business as a provider of on-line and written subscription services. Given this, the nature of the actual business as conducted requires that it be subject only to a license fee, not a tax based on gross receipts. See Va. Code § 58.1-3703.

I am returning this to the County with the instructions to abate the license tax assessments imposed upon the Taxpayer. The County may access a license fee on the Taxpayer for the privilege of conducting business in the locality.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1263053045H