Could Virginia decide BPOL payroll-apportionment disputes when the 2012 appeal was late and the county had not issued a valid final determination for later years?

Plain-English summary

Virginia did not decide whether the taxpayer could apportion BPOL gross receipts by payroll. The 2012 correction request was filed too late under its three-year local-tax deadline, and that statutory route led to circuit-court review rather than an appeal to the Department.

For 2013 through 2016, the county's response was not a valid final local determination. It requested more information, did not clearly declare finality, and omitted the required appeal and collection notices. Virginia returned those years to the county for a compliant final determination, while noting the taxpayer's alternative right to proceed after the statutory notice for a local appeal pending more than one year.

Common questions

Did Virginia approve or reject payroll apportionment? Neither; it did not reach the merits.

Where could the 2012 dispute go? The ruling identified circuit court as the available correction route.

Citations and references

• Va. Code § 58.1-3703.1 A 5 and A 6
• Va. Code §§ 58.1-3980 and 58.1-3984
• 23 VAC 10-500-710 D
• The public documents cited in the ruling on appealable events and tax years

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-139

Original ruling text

July 12, 2018

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 * (the “Taxpayer”) with the Department of Taxation. The Taxpayer appeals BPOL tax assessments issued by the *** (the “County”) for the 2012 through 2016 tax years.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections, regulations and public documents cited are available on-line in the Laws, Rules and Decisions section of the Department of Taxation’s web site, located at www.tax.virginia.gov .

FACTS

The Taxpayer operated at a definite place of business in the County during the taxable years at issue. On its BPOL tax returns, the Taxpayer apportioned its gross receipts using payroll apportionment.

For the 2012 tax year, the County disallowed the Taxpayer’s apportionment method and issued an assessment. The Taxpayer filed suit in the County’s circuit court. Pending the outcome of the litigation, the Taxpayer paid the assessment in full and filed a nonsuit. The Taxpayer then filed an application for correction pursuant to Virginia Code § 58.1-3980 A.

Concurrently, the County adjusted the Taxpayer’s BPOL tax liability to disallow payroll apportionment for the 2013 through 2016 tax years and issued assessments. While the initial assessments were adjusted based on additional information provided by the Taxpayer, an appeal was filed with the County pursuant to Virginia Code § 58.1-3703.1 A 3 b.

In its response, the County cited a previous determination issued for the 2012 tax year and considered the assessment closed to appeal. The County also upheld the revised assessments for 2013 through 2016 tax years. The Taxpayer appeals the County’s letter to the Department for the 2012 through 2016 tax years, contending it should apportion its gross receipts using payroll apportionment.

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 a taxpayer, the denial of a refund, or the assessment of a local license tax where none previously was assessed. See Public Document (P.D.) 04-67 (8/20/2004), P.D. 11-91 (6/2/2011), P.D. 13-217 (12/12/2013), and P.D. 16-3 (2/2/2016).

Tax Year 2012

Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes:

may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later , apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof. [Emphasis added.]

The term “tax year” generally applies to the calendar year for which local taxes are assessed under Virginia law. See P.D. 08-136 (7/30/2008). The assessment for the 2012 tax year was issued in October 2012. The last day of the 2012 tax year was December 31, 2012. The Taxpayer filed an application for correction for the 2012 tax year in December 2016, well after the three-year statute of limitations expired.

Furthermore, the Taxpayer appealed the City’s assessments under Virginia Code § 58.1-3980. Under this statute, if a taxpayer disagrees in whole or in part with the local assessing officer’s determination, the taxpayer may seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984. Accordingly, the Department does not have jurisdiction to address the Taxpayer’s appeal for the 2012 tax year.

Tax Years 2013 through 2016

Virginia statutes provide the procedure that a taxpayer must use to appeal a BPOL 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 Virginia Code § 58.1-3703.1 A 5 b.

Virginia Code § 58.1-3703.1 A 6 a allows a taxpayer to file an appeal with the Department only after a final determination has been issued by a locality. Under Title 23 of the Virginia Administrative Code (VAC) 10-500-710 D, a final local determination must set forth the facts and arguments in support of its position. In addition, localities are required to notify taxpayers of their right to appeal a final local determination to the Tax Commissioner. The notification must include the time limitation for filing such an appeal and the address to which such an appeal should be submitted. In addition, the notice must include information about collection activity during the period under which an appeal is under review. In fact, Title 23 VAC 10-500-710 D establishes prescribed language to ensure localities give proper notice to taxpayers.

In a letter responding to the Taxpayer’s appeal, the County found that the Taxpayer was not entitled to use payroll apportionment and requested that the Taxpayer provide gross receipts for the taxable years at issue. While the County’s letter provides its rationale for disallowing payroll apportionment, it also requests additional information from the Taxpayer. Further, the letter failed to indicate that it was a final determination, inform the Taxpayer that it could appeal to the Department, or include all of the information required in the notice. Because the County failed to follow state regulations in responding to the Taxpayer’s appeal, the Department finds it difficult to conclude the County’s letter was a final local determination.

DETERMINATION

The application for correction for the 2012 tax year, filed under the provisions of Virginia Code § 58.1-3980, cannot be appealed to the Department. The Taxpayer may seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.

Further, the Department is prohibited from addressing the Taxpayer's appeal of BPOL taxes for the 2013 through 2016 tax years at this time. Because the County’s December 2017 letter did not meet the requirements of Title 23 VAC 10-500-710, it will not be considered a final determination. Accordingly, the Department is returning this case to the County with instruction to issue a final local determination for the 2013 through 2016 tax years in accordance with the established regulation. In the alternative, the Taxpayer may proceed with an appeal to the Department for the 2013 through 2016 tax years provided it gives the County 30 days’ notice as provided under Virginia Code § 58.1-3703. 1 A 5 e.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1637.B