Did one executive's Virginia home office create a definite place of business and BPOL-taxable receipts for a foreign online-game company?

Subject

Executive's home office did not create BPOL situs on the stated facts

Plain-English summary

Virginia advised that a foreign online-video-game company did not appear to have a definite place of business in the city merely because one executive worked from his home there. The executive performed administrative tasks, but the company's management and operations were principally abroad, and it did not hold itself out as conducting business from the home.

A definite place of business generally requires a regular and continuous course of dealing at a location. Relevant indicators include an office and phone, mail, employees, records, continuous presence, and whether the business presents itself as operating there. An executive worked from the home, but the facts did not show the broader course of business activity in the city.

Virginia also explained that a definite place alone would not be enough. As a retailer, the company's receipts would be attributed where sales solicitation occurred or, if none occurred at a definite place, where solicitation was directed or controlled. Neither activity occurred at the executive's home, so the company's receipts were not sitused there even if the home qualified as a definite place.

What this means for you

• A remote executive or employee does not automatically create a BPOL definite place of business.
• Virginia examines the full course of activity at the location, including public business presence, records, mail, staffing, and operations.
• BPOL liability also requires receipts that are properly sitused to the locality.
• For retailers, sales solicitation and where it is directed or controlled are central situs facts.

Common questions

Did the home office conclusively fail the definite-place test?

Virginia said it did not appear to be a definite place on the stated facts; the opinion was expressly fact-dependent.

Would a definite place have made all receipts taxable there?

No. The locality also needed receipts sitused to that place under the retailer solicitation rules.

Where did the relevant solicitation occur?

The ruling stated that solicitation neither occurred at nor was directed or controlled from the Virginia home office.

Citations and references

• Va. Code §§ 58.1-3700.1 and 58.1-3701.
• Va. Code § 58.1-3703.1(A)(3)(a)(2).
• Virginia Public Document 97-201.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-154

Original ruling text

July 28, 2010

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 as to whether a business is subject to the Business, Professional and Occupational License (BPOL) tax.

The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to 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 and public document 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 company based in *** (Country A) that produces and distributes on-line video games worldwide. The Taxpayer's management and operations are located principally in Country A. It has one executive who resides and works from his home office in a Virginia locality (the "City") and provides administrative tasks. The Taxpayer requests an advisory opinion as to whether it is subject to the BPOL tax in the City.

OPINION

The BPOL tax is a local license tax imposed on the privilege of doing business. It is based on an entity's gross receipts. For BPOL tax purposes, "gross receipts" are defined as "the whole, entire, total receipts, without deduction." See Virginia Code § 58.1-3700.1. The general rule for establishing sites 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.

Virginia Code § 58.1-3700.1 defines a "definite place of business" as an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following on- site activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See Public Documents (P.D.) 97-201 (4/25/1997).

In the instant case, the employee works out of a home office in which he performs management and administrative tasks. While the Taxpayer may have a continuous presence, office and employee in the locality, the Taxpayer is not holding itself out as a business; operating from the employee's home. Most of the Taxpayer's activities that would demonstrate a regular and continuous course of dealing occur in Country A. As such, it does not appear that the Taxpayer has a definite place of business in the locality.

Even if the home office constituted a definite place of business, the locality would not be able to impose a license tax on the Taxpayer unless gross receipts could be sitused to the locality. Based on the description provided, the Taxpayer's business would be classified as a retailer.

The gross receipts of a retailer are attributed to the definite place of business at which sales solicitation activities occur, or if sales solicitation activities do not occur at any definite place of business, then to the definite place of business from which sales solicitation activities are directed or controlled. See Va. Code § 58.1-3703.1 A 3 a 2.

Based on the facts presented, solicitation of sales neither occurs at the home office nor is directed or controlled from the home office. As such, gross receipts generated by the Taxpayer would not be sitused to the employees' home office located in the locality.

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

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-42332118412.B