Could the Virginia Department of Taxation reconsider BPOL years already governed by a circuit-court order or hear later tax years when the taxpayer had not first filed the required local appeal?

Plain-English summary

Virginia declined jurisdiction over every year in the taxpayer's BPOL application, for two different procedural reasons.

• 2008-2012: The county had appealed the Department's prior determination to circuit court, and the court entered a final order applying the Virginia Supreme Court's Nielsen methodology. Whether the county complied with that order was exclusively a judicial question.
• 2013-2014: The taxpayer had not first filed a local administrative appeal. A county letter labeled as a final determination could not replace the required appeal process.

Court-controlled years

Once a Department determination is appealed to circuit court, the challenged assessment and any relief become matters of judicial concern. The BPOL statute did not authorize a remand from the court back to the Department. The taxpayer therefore could not ask the Department to police the county's compliance with the final court order.

Later years required a fresh local appeal

The fact that later years involved the same methodology did not allow the taxpayer to skip the local process. It first had to file with the local assessing official within the applicable period and obtain a genuine final local determination. Only then could it appeal to the Department within 90 days.

The ruling also notes the separate election available when a properly filed local appeal has remained pending more than one year, after 30 days' written notice to the locality.

Common questions

Did the Department decide whether the county calculated the refunds correctly? No. For the court years, that was a matter for the court.

Could prior litigation automatically cover 2013 and 2014? No. Each later year still required the statutory local appeal procedure.

What did the taxpayer have to do next? File a local appeal for 2013-2014 if still timely, then appeal a final local determination to the Department within 90 days if necessary.

Citations and references

• Va. Code § 58.1-3703.1 A 5 and A 6 — local and Department BPOL appeals
• Nielsen Co. (US), LLC v. County Board of Arlington County, 289 Va. 79, 767 S.E.2d 1 (2015)
• Smith v. Board of Supervisors of Fairfax County, 234 Va. 250, 361 S.E.2d 351 (1987)
• Related Virginia rulings cited: P.D. 14-29, P.D. 17-11, and P.D. 11-124

Subject

Once a determination of the Department has been appealed to a circuit court, the correctness of any challenged assessment becomes a matter for the court to decide.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-90

Original ruling text

June 8, 2017

Re: Appeal of Final Determinations

Taxpayer: *

Locality: *

Business, Professional and Occupational License Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the methodology the *** (the “County”) used in computing refunds for the 2008 and 2009 tax years and making adjustments to outstanding assessments of Business, Professional and Occupational License (BPOL) tax for the 2010 through 2014 tax years.

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

In Public Document (P.D.) 14-29 (3/5/2014), the Department remanded the case to the County to allow for a deduction from gross receipts for business conducted in other states for the 2008 through 2012 tax years in accordance with the methodology set forth in that determination. The County appealed the determination to the circuit court. While the case was pending, the Supreme Court of Virginia (the “Court”) issued its opinion in Nielsen Co. (US), LLC v. County Bd. of Arlington County , 289 Va. 79, 767 S.E.2d 1 (2015) (Nielsen), addressing the methodology for claiming the deduction for business conducted in other states. In its final order, the circuit court directed the County to adjust its assessments or issue refunds, as appropriate, after applying the methodology set forth in Nielsen .

The County subsequently issued a series of determination letters. The first, in September 2016, stated that the County would issue refunds for the 2008 and 2009 tax years. The second was issued on November 7, 2016, adjusting outstanding assessments the Taxpayer had for the 2013 and 2014 tax years. The last was issued on November 15, 2016, adjusting the assessments for the 2010 through 2012 tax years.

The Taxpayer appealed all three determinations to the Department, contending that the County erred in computing the Taxpayer's taxable base of gross receipts using the Taxpayer's total payroll.

ANALYSIS

2008 through 2012 Tax Years

The statute permitting appeals from the Department to a circuit court does not allow remand back to the Department. Thus, when a taxpayer appeals a determination of the Department to a circuit court, “the determination of the correctness of [the] challenged assessment, as well as any grant of appropriate relief, become matters exclusively of judicial concern.” See Nielsen at 289 Va. 79, 98, 767 S.E.2d 1, 22 (quoting Smith vs. Board of Supervisors of Fairfax County , 234 Va. 250, 255, 361 S.E.2d 351, 353 (1987)).

In this case, the circuit court issued a final order directing the County's assessing official to employ the methodology set forth in the Nielsen decision and issue a refund or adjust the assessment for each tax year at issue, as warranted. The tax years at issue in the court case were the 2008 through 2012 tax years. Accordingly, the Department does not have jurisdiction to determine whether the County complied with the court's final order in issuing refunds or adjusting the assessments.

2013 and 2014 Tax Years

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 filed 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 Department only after a final determination has been issued by a locality. See P.D. 11­124 (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.

There is no indication the Taxpayer filed a local appeal with the County with respect to the 2013 and 2014 tax years. The fact that the 2008 through 2012 tax years involved the same issues and were the subject of a prior appeal with the Department does not permit a taxpayer or a locality to circumvent local BPOL tax appeals procedures for later tax years. For the Department to have jurisdiction, such procedures must have been followed even when a locality's response to a taxpayer is styled as a final determination letter. See P.D. 17-11 (2/28/2017).

DETERMINATION

Once a determination of the Department has been appealed to a circuit court, the correctness of any challenged assessment becomes a matter for the court to decide. In this case, as to the 2008 through 2012 tax years, the Taxpayer is effectively requesting the Department to determine whether the County complied with the circuit court's final order to adjust the assessments or issue refunds, as appropriate, in accordance with Nielsen . The Department lacks jurisdiction to make such a determination.

In addition, the Department lacks jurisdiction to issue a determination as to the 2013 and 2014 tax years because a local appeal was not filed by the Taxpayer. The Taxpayer, therefore, should file a local appeal if it is still within the statute of limitations for filing one. Once the County issues its final local determination in response to such appeal, assuming it is timely, the Taxpayer may file an appeal with the Department within 90 days if it disagrees with 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/1170.M