Did a county audit letter styled as a final determination permit an immediate Virginia Department appeal when the taxpayer had not first filed a local BPOL appeal?

Plain-English summary

Virginia lacked jurisdiction because the taxpayer had not yet completed the local BPOL appeal process. A county audit employee had issued a refund-denial letter labeled as a final determination, but the letter merely responded to amended returns; it did not decide a local administrative appeal.

The refund denial itself was an appealable event. The taxpayer therefore had one year from communication of that denial to file an appeal with the county. After the county issued a genuine final local determination, the taxpayer could seek Department review.

The ruling did not decide whether fees from an affiliate should be excluded or whether an out-of-state-receipts deduction applied.

Common questions

Does the title “final determination” control? No. The document must actually decide a properly filed local appeal.

What was the taxpayer's next step? File the local BPOL appeal within the statutory period.

Could a taxpayer ever go to the Department before a local decision? The cited statute allows an election after a local appeal has remained pending more than one year, with 30 days' written notice.

Citations and references

• Va. Code § 58.1-3703.1 A 5 b, A 5 e, and A 6 a
• 23 VAC 10-500-720
• P.D. 11-124 (July 1, 2011)

Subject

Final determination letter from the locality for purposes of the BPOL appeals process with the State.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-60

Original ruling text

May 2, 2017

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License (BPOL) Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of your client, * (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the denial of a refund of BPOL tax from *** (the “County”) for the 2012 and 2013 tax years.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public document 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 had a definite place of business in the County during the tax years at issue. The Taxpayer filed amended BPOL tax returns for the 2012 and 2013 tax years, claiming that certain gross receipts should have been excluded from the taxable measure because they originated from fees received from an affiliated entity. The Taxpayer later amended the returns again to claim a deduction for receipts attributable to business conducted in other states. The County conducted a review of the Taxpayer's refund claim and issued a document styled as a final determination denying the refund. The Taxpayer filed an appeal with the Department, contending that fees received from an affiliated entity should have been excluded from the taxable measure of gross receipts and the deduction for receipts attributable to business conducted in other states should have been allowed.

ANALYSIS

Virginia Code § 58.1-3703.1 A 5 b provides that any person assessed with a local license tax as a result of an appealable event may file an administrative appeal of the assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of the appealable event, whichever is later, with the commissioner of the revenue or other local assessing official. An appealable event is an increase in the assessment of a local license tax payable by the taxpayer, the denial of a refund, or the assessment of a local license tax where none previously was assessed.

This statute also provides the procedure that a taxpayer must use to appeal a final local license tax assessment. A taxpayer must first file an appeal with the locality in which the appealable event occurred. Once an appeal is filed, the locality's assessing officer will fully review the taxpayer's claims and issue a final determination letter setting forth the facts and arguments in support of its decision. See Va. Code § 58.1-3703.1 A 5 b.

Under Va. Code § 58.1-3703.1 A 6 a, a taxpayer may file an appeal with the Tax Commissioner only after a final determination has been issued by a locality. See Public Document (P.D.) 11-124 (7/1/2001). Virginia Code § 58.1-3703.1 A 5 e, however, does allow a taxpayer to appeal directly to the Department if an appeal to a locality has been pending for more than one year. Under such circumstances, the taxpayer can elect to consider the local appeal to have been denied. The taxpayer is required to give a locality 30 days written notice of such an election.

In this case, the County's determination letter was written by a member of the County's audit staff in response to the Taxpayer's amended returns for the 2012 and 2013 tax years. The County conducted a review to verify the refund claim and issued a response to the Taxpayer that was styled as a final determination letter. The letter, however, was not a response to any local appeal the Taxpayer had filed with respect to the denial of the refund. As such, that letter cannot be considered a final determination letter for purposes of the BPOL appeals process.

DETERMINATION

Pursuant to the BPOL statutes, the denial of the refund created an appealable event. Once that decision was communicated to the Taxpayer, the Taxpayer had one year from that date to file an appeal with the County. The Taxpayer, therefore, should file a local appeal with the County. Once the County issues its final determination, the Taxpayer may appeal pursuant to Title 23 of the Virginia Administrative Code (VAC) 10­-500-720 if it disagrees with any of the County's conclusions.

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/808.M