Where were a petroleum wholesaler's purchases sitused for BPOL when fuel was delivered from terminals outside its city office?

Subject

Petroleum purchase situs followed the terminal from which delivery was made

Plain-English summary

Virginia said a petroleum wholesaler's BPOL purchase base followed the definite place of business at or from which products were delivered to customers. Sales solicitation and control from the city office did not pull into the city fuel delivered from terminals outside the city, and customer location did not determine purchase situs.

Purchases delivered from third-party terminals were not taxable by the city and could not be thrown back there simply because no other locality taxed them. The terminal locality also could not impose purchase-based BPOL when the wholesaler had no definite place of business at that terminal.

For fuel stored at the wholesaler's city tank farm and then delivered to customers in states where the wholesaler filed income or income-like tax returns, the cost of qualifying purchases could be deducted from the city base. The deduction did not apply when out-of-state customers picked up fuel at the city tank farm.

What this means for you

• Map each wholesale delivery to the terminal or facility from which it originated.
• Sales solicitation and customer destination do not replace the purchase-situs rule.
• A locality cannot use throwback when the statute places situs elsewhere or nowhere taxable.
• Support other-state deductions with delivery records, business activity, income-tax liability, and filed returns.

Common questions

Did the city office control purchases delivered from outside terminals?

No. Delivery origin controlled purchase situs.

Could the third-party terminal locality tax the wholesaler?

Not without the wholesaler having a definite place of business there.

Did customer pickup at the city tank farm qualify for the other-state deduction?

No. The ruling denied the deduction for those pickups.

Citations and references

• Va. Code §§ 58.1-3701, 58.1-3703.1(A)(3)(a)(2), and 58.1-3732(B)(2).
• 23 VAC 10-500-80.
• P.D. 99-199, 07-196, and 06-97.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-1

Original ruling text

January 20, 2009

Re: Request for Advisory Opinion

Business, Professional and Occupational License; Tax

Dear *:

This is in response to your letter in which you request an advisory opinion regarding the applicability of the Business, Professional and Occupational License (BPOL) tax to certain petroleum wholesalers.

The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations 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 wholesale marketer of petroleum products, supplying products to consumers and resellers in the eastern half of the United States. The Taxpayer purchases its products from petroleum suppliers and has them sent through third party owned interstate pipelines to various terminals located in Virginia, three of which are owned by the Taxpayer.

The Taxpayer maintains its only office in * (the "City"), where it obtained a business license and paid the BPOL tax based on purchases. The purchases reported by the Taxpayer included purchases from supply terminals located outside the City, but delivered to customers within the City.

The Taxpayer filed a refund claim for taxes paid on the purchases from the terminal located outside the City. In order to resolve the claim, the City and the Taxpayer agreed to request an advisory opinion from the Department. The request seeks guidance on four questions stated below.

OPINION

1. Should the Taxpayer include in its City wholesale tax base, those purchases of petroleum product sold through solicitation from its City sales office but delivered from third party terminals on board common carrier or Taxpayer fleet tankers or barges directly to wholesale customers?

The general rule establishing situs of gross receipts for purposes of BPOL taxation is that only those gross receipts attributed to the exercise of a licensable privilege at a definite place of business are subject to taxation. See Va. Code § 58.1­3703.1 A 3 a. The situs rules are different for wholesalers in those cases where the tax is measured by purchases. Virginia Code § 58.1-3703.1 A 3 a (2) provides:

a wholesaler or distribution house subject to a license tax measured by purchases shall determine the situs of its purchases by the definite place of business at which or from which deliveries of the purchased goods, wares and merchandise are made to customers.

In this case, while the Taxpayer has a definite place of business in the City where it directs and controls the sale and delivery of petroleum, a large portion of the sales and delivery of the petroleum product occurred at terminals located outside the City. For these transactions, the Taxpayer does not deliver purchased goods to customers at or from the definite place of business in the City.

Public Document 99-199 (7/23/1999) provides that a locality cannot assess a BPOL tax on a wholesaler if the definite place of business of the goods or wares delivered is outside of the locality, even if the wholesaler has a definite place of business in the locality. As such, these wholesale purchases cannot be "thrown back" to the locality even if the purchases are not subject to tax in a different locality.

2. What relevance does the location of the customers play in situsing wholesale purchases originating from third party owned terminals? Do sales solicitation activities occurring in the City relative to these third party transactions cause the wholesale purchases to be subject to the City's BPOL tax?

For localities that measure the BPOL tax for wholesalers based on purchases, a definite place of business must be located at the point of delivery to customers within a locality. The location of the customer has no bearing on situs of a wholesaler's purchases.

3. When the Taxpayer purchases wholesale product from third party owned terminals, offloads this product onto common carrier or Taxpayer owned transportation, and delivers directly to the Taxpayer's wholesale customers, should this category of purchases be subject to tax in a jurisdiction that assesses wholesalers on the basis of purchases?

The Department has previously addressed this issue in Public Document (P.D.) 07-196 (11/27/2007) and P.D. 06-97 (9/29/2006). In these rulings, the Tax Commissioner determined that the locality where the third party terminal was located could not tax the Taxpayer because the Taxpayer did not have a definite place of business in that locality.

4. If the Taxpayer offloads wholesale product stored on an interim basis at the Taxpayer's tank farm located in the City and delivers to wholesale customers in destination states where the Taxpayer files state income or income like tax returns, can the Taxpayer take a Va. Code § 58.1-3732 8 2 deduction?

Under Va. Code § 58.1-3732 B 2 a deduction from gross receipts or gross purchases is permitted for "[a]ny 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." The regulations further explain that the taxpayer must be liable for an income or an income-like tax in the other state and file a return in that state to take advantage of the deduction. See Title 23 of the Virginia Administrative Code (VAC) 10-500-80 A 2.

The statute clearly states that a wholesaler or distribution house subject to a license tax measured by purchases is permitted a deduction under Va. Code § 58.1-3732 B 2. This deduction is limited to the cost of the purchases for sales attributable to business conducted in another state or foreign county where the wholesaler is subject to income tax and is required to file an income tax return. See Example 1 in 23 VAC 10-500-80 B.

Based on the facts presented, the Taxpayer would be able to deduct the cost of the purchases from the City's tax base for deliveries made to customers in states where the Taxpayer files state income or income like tax returns. A deduction would not be permitted for costs of purchases sold to customers from such states that pick up the petroleum at the tank farm in the City.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2809695525.B