Could a leased county residence be a property company's BPOL business location when the records instead supported the owner's city home?

Subject

The City appropriately concluded that the owner's residence was the Taxpayer's definite place of business

Plain-English summary

Virginia upheld the city BPOL assessments because the company failed to prove that its county rental property was a definite place of business. The company bought and leased real estate and argued that business was directed and controlled from a residence it owned in the county.

The evidence did not support that claim. The lease described only residential use and did not reserve space for the company or require renovation work by the tenant. The company showed no county BPOL or business-tangible-personal-property filings. County real-estate records used the owner's city home as the company's mailing address.

Although the county property's 2014 condition did not conclusively prove how it was used in 2011-2013, the company still carried the burden on appeal. With no proven business location elsewhere, the city properly treated the owner's home as the only definite place of business and assigned all gross receipts there.

What this means for you

• A business address on federal or corporation filings is evidence, but it may not establish actual business use by itself.
• Residential leases, mail records, local tax filings, office facilities, employees, records, and public-facing activity all affect the definite-place analysis.
• A later site inspection may be imperfect evidence, but the taxpayer still must prove the local assessment wrong.
• Document each location's regular and continuous business activity during the actual tax years.

Common questions

Q: Why did the county property fail?

A: The lease was residential, the taxpayer reserved no business use, and it provided no county BPOL or business-property returns.

Q: What location did Virginia accept?

A: The owner's city residence.

Q: How much of the company's gross receipts were sitused there?

A: All of them, because it was the only proven definite place of business.

Citations and references

• Va. Code §§ 58.1-3700.1 and 58.1-3703.1.
• P.D. 97-75 and P.D. 97-201.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-78

Original ruling text

April 21, 2015

Re: Appeal of Final Local Determination
Locality: *
Taxpayer: ***
Business, Professional and Occupational License (BPOL) 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. The Taxpayer appeals a final local determination upholding a BPOL tax assessment for the 2011 through 2013 tax years issued by the *** (the "City").

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, i.e. , 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 Laws, Rules and Decisions section of the Department's web site.

FACTS

The Taxpayer was in the business of purchasing and leasing real property. It purchased a residential property in * (the "County") in 2008. In August 2011, the Taxpayer leased the residence to an individual.

Under audit, the City determined that the personal residence of the Taxpayer's owner (the "Owner") located in the City was its only definite place of business during the 2011 through 2013 tax years and sitused all of the Taxpayer's gross receipts to this location for BPOL tax purposes. The Taxpayer appealed, contending that the gross receipts should have been sitused to the residence in the County because it was the definite place of business from which the Taxpayer's business operations were directed and controlled.

The City issued a final determination upholding the assessment. It found that the Taxpayer had one definite place of business in the City, and the evidence provided failed to show that the residence in the County had been a definite place of business.

The Taxpayer filed an appeal with the Department. It contends its only definite place of business was located in the County.

ANALYSIS

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 30 consecutive days or more. "Continuous" for purposes of this definition is analyzed in terms of whether the business has established a location for the exercise of the licensable privilege. The time spent actually conducting business at this location is not important so long as the business is availing itself to the public and conducting its activities at that particular location. Regularly conducting business refers to a periodic pattern of instances in which a business is "open for business." A regularly conducted business may operate daily, weekly, monthly or for some other set time period. See Public Document (P.D.) 97-75 (2/18/1997).

Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following onsite activities: (1) a continuous presence; (2) having an office or phone; (3) the reception of mail; (4) having employees; (5) record keeping; and (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See P.D. 97-201 (4/25/1997). Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer's operations must be considered.

The Taxpayer states that it occupied a portion of the residence in the County while renting out the other part to a tenant while the tenant performed renovation work. The City inspected the County property in July 2014 and found it was uninhabitable and could not be used as an office because it was under renovation. Its inspection occurred after the tax years at issue. As such, it was possible that the County property could have been used both as an office and/or residence during the 2011 through 2013 tax years.

The Taxpayer listed the County address as the business address on its federal income tax returns and State Corporation Commission filings. However, the County's real estate records show the Owner's City residence as the Taxpayer's mailing address.

The lease agreement provided for the property in question pertains only to residential use of the premises and contains no provisions related to business or commercial use. Further, the lease does not provide allowance for the Taxpayer's use of the property, or for the tenant to provide any renovation work. In addition, the Taxpayer has provided no evidence that it filed BPOL or Business Tangible Personal Property (BTPP) tax returns in the County during the tax years at issue.

DETERMINATION

Based on the evidence provided, the Taxpayer has not shown that the real property in the County was a definite place of business during the 2011 through 2013 tax years. Further because the Taxpayer has provided no evidence of a definite place of business maintained elsewhere, the City appropriately concluded that the owner's residence was the Taxpayer's definite place of business. Because the Taxpayer's only definite place of business was in the City during the tax years at issue, the Taxpayer's entire gross receipts were properly sitused to the City. As such, the City's BPOL tax assessments for tax years 2011 through 2013 tax are upheld.

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-5944785776.B