Could a Virginia business appeal its wholesale-versus-retail BPOL classification directly to the Tax Commissioner based on the county auditor's letter?

Plain-English summary

The Tax Commissioner did not decide whether the taxpayer's distribution-center receipts belonged in the wholesale classification, the retail classification, or both. The appeal was premature because the county had not completed the required local BPOL appeal process.

The county audited the taxpayer's amended 2014-2017 returns, rejected the claimed wholesale activity, and assessed all receipts at the retail rate. Its letter was labeled a final determination, but it communicated the initial audit decision, not a decision on a local appeal. It was also signed by a tax-administration employee rather than the chief assessing officer, and the record did not establish an express designation authorizing that employee to issue the final determination.

The classification decision and additional assessments were appealable events. The taxpayer therefore had one year from communication of the audit decision to file an appeal with the county. Only after the county issued a proper final determination could the taxpayer appeal to the Department.

If a local appeal remained pending more than one year, the taxpayer could elect to treat it as denied and appeal to the Department after giving the county 30 days' written notice.

What this means for you

Businesses disputing a BPOL classification

Start with the locality. A letter calling itself "final" does not bypass local review if it is merely the original audit result.

Local assessing authorities

A final determination should respond to a local appeal, contain the required language, and be signed by the chief assessing officer or a properly documented designee.

Tax professionals

Track both clocks: the one-year period for filing the local appeal and, after a local appeal has been pending more than one year, the 30-day notice required before treating it as denied.

Common questions

Q: Did the Tax Commissioner rule that the taxpayer was a wholesaler?
A: No. The substantive classification was not reached.

Q: Why was the county's letter not a final local determination?
A: It was the initial audit decision rather than a response to a local appeal, and the signatory was not shown to be the chief assessing officer or an authorized designee.

Q: What did the taxpayer have to do next?
A: File a local appeal with the county.

Citations and references

• Va. Code § 58.1-3703.1(A)(5) and (6)
• 23 VAC 10-500-640, 10-500-710, and 10-500-720
• P.D. 11-124, P.D. 17-60, and P.D. 18-140

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-193

Original ruling text

November 30, 2018

Re: Appeal of Final Local Determination

Taxpayer: *

Locality Assessing Tax: *

Business, Professional and Occupational License (BPOL) Tax

Dear *:

This notice of jurisdiction is issued upon the application for correction you filed on behalf of your client, * (the “Taxpayer”), with the Department of Taxation. The Taxpayer appeals the assessment of BPOL tax issued to the Taxpayer by *** (the “County”) for the 2014 through 2017 tax years.

The following determination is based on the facts presented to the Department and 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 website.

FACTS

The Taxpayer operated several business locations in the County, including a distribution center. The Taxpayer did not originally report gross receipts attributable to the distribution center to the County. It later filed amended BPOL tax returns for the 2014 through 2017 tax years to situs gross receipts attributable to the distribution center to the County under separate wholesale and retail classifications. The County conducted an audit and concluded in a document purporting to be a final determination letter that the Taxpayer failed to substantiate its wholesale activity. As a result, the County issued an assessment on all the gross receipts at the retail classification rate.

The Taxpayer appealed to the Department, contending that it should have been classified as both a wholesaler and a retailer with respect to the business activities occurring in the County.

ANALYSIS

The Code of Virginia created a review process designed to encourage resolution of local license tax issues through an appeal process that includes review by the local assessing officer and appeal to the Tax Commissioner. Through this process, a taxpayer who disagrees with an audit assessment may apply to the local assessing officer for review. If the taxpayer is dissatisfied with the results of the local review, the taxpayer may appeal the local decision to the Tax Commissioner who will make a determination of the issues raised by the taxpayer. See Title 23 of the Virginia Administrative Code (VAC) 10-500-640.

Specifically, Virginia Code § 58.1-3703.1 A 5 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. In addition, an appealable event includes a taxpayer’s appeal of a classification, regardless of whether it is in conjunction with an assessment, examination, audit or any other action taken by the locality.

This statute also provides the procedure that a taxpayer must use to appeal a final local license tax assessment. A taxpayer must 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.

Under Virginia 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 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.

Under Title 23 VAC 10-500-710, “local assessing officer” means the Commissioner of Revenue or chief assessing officer or his designee. Therefore, to qualify as final local determinations, such letters should normally be signed by the Commissioner of Revenue or chief assessing officers and not employees working at their direction, unless the individual has been expressly designated by the Commissioner of Revenue or chief assessing officer and evidence of such designation is included with the final local determination. See P.D. 18-140 (3/30/2018). Additionally, Title 23 VAC 10-500-710 contains specific language that must be included in any final written determination.

In this case, the County conducted an audit and concluded that the Taxpayer should be classified only as a retailer. As a result, additional tax was assessed for each of the 2014 through 2017 tax years. Accordingly, the appealable event did not occur until the results of the audit were communicated by a letter styled as a final determination to the Taxpayer. The letter, however, was not a response to any local appeal the Taxpayer had filed with respect to the classification decision or the assessments for additional tax. In addition, the letter was signed by an employee of the County’s tax administration division and not the head of that division. As such, that letter cannot be considered a final determination for purposes of the BPOL appeals process. See P.D. 17-60 (5/2/2017).

DETERMINATION

The County’s decision to classify the Taxpayer only as a retailer and issue additional assessments was 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. By labeling the auditor’s initial decision as the final local determination, the County has denied the Taxpayer the right to local review. The Taxpayer, therefore, should file a local appeal with the County. Once the County has issued its final determination, the Taxpayer may file an appeal with the Department pursuant to Title 23 VAC 10-500-720 if it disagrees with any of the City’s conclusions. The Taxpayer may also appeal to the Department if its local appeal is pending with the County for more than one year, provided the Taxpayer gives the County 30 days written notice that it is electing to treat the appeal as denied.

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/1738C