Could a retailer reopen BPOL issues and claim wholesale treatment after missing the evidence deadline set in an earlier remand?

Plain-English summary

An earlier decision treated processing fees and warranty and insurance commissions as ancillary to the taxpayer's retail business, but remanded for more evidence about possible wholesale special-order sales, trade-ins, returns, and capital contributions. The taxpayer did not provide the requested special-order and receipt evidence within 30 days.

In the second appeal, Virginia rejected new arguments about the amounts included for warranties, insurance, returns, and capital contributions because they could have been raised earlier. It also refused wholesale classification or different situs for special-order sales because the taxpayer missed the remand deadline and had not proved a separate wholesale business. The city's adjusted assessments were upheld.

Citations and references

• Va. Code § 58.1-3703.1
• P.D. 17-17

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-7

Original ruling text

January 18, 2018

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License Tax

Dear *:

This final state determination is issued upon the application for correction filed by you on behalf of your client, * (the “Taxpayer”), with the Department of Taxation. You appeal assessments of the Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by the *** (the “City”) for the 2013 through 2016 tax years.

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 section 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

In Public Document (P.D.) 17-17 (3/13/2017), the Department determined that the Taxpayer was operating a retail business in the City and gross receipts from ancillary activities such as processing fees and warranty and insurance commissions should be included in the retail classification. The Department also determined that the Taxpayer had not shown sufficient evidence to prove that it was conducting business in another Virginia locality from January through March 2012 or that the City improperly included gross receipts from returns and capital contributions in the taxable measure. The Department remanded the case to the City, however, and instructed the Taxpayer to provide additional evidence within 30 days so the City could determine the extent the Taxpayer's special order sales may have been wholesale sales and the extent the Taxpayer had received any trade-ins.

On May 23, 2017, the City issued a new final determination, agreeing with the Department's determination that processing fees and sales of warranties and insurance were ancillary activities to the Taxpayer's retail business. The City also agreed to classify the Taxpayer's special order sales as retail but found that no wholesale activities had occurred based on the Taxpayer's previous representations and the Taxpayer's failure to provide additional information on remand to support a wholesale classification. Similarly, because the Taxpayer had failed to provide additional evidence regarding returns and capital contributions, the City found no basis to adjust the assessments to exclude such receipts. The City, however, accepted the Taxpayer's evidence regarding trade-ins and adjusted the assessments accordingly.

The Taxpayer appealed the City's new final determination to the Department, contending that the City is taxing all gross receipts attributable to the warranty and insurance sales, not just the commissions. The Taxpayer also disagrees with the City's conclusion that all of its special order sales should be classified as retail. Finally, the Taxpayer asserts that the City's findings regarding returns and capital contributions were based on the original Schedule C of the Taxpayer's 2013 federal income tax return, not the amended return.

ANALYSIS

Warranties and Insurance

The Taxpayer contends that the City's assessments included all of the gross receipts from the sale of warranties and insurance, instead of the gross receipts just from the commissions. In P.D. 17-17, the Department determined that gross receipts from processing fees and warranty and insurance commissions were ancillary to the Taxpayer's retail business and were not a separate business subject to a personal, repair and business service classification. The Taxpayer's previous appeal to the Department only raised the question of classification and did not allege that the City had improperly included any gross receipts from these activities in the taxable measure.

Special Order Sales

Classification

The Taxpayer states that it expected the City to agree with the Department's suggestion in P.D. 17-17 that the Taxpayer's special order sales were wholesale. In P.D. 17-17, the Department observed that wholesale sales may have been occurring because it appeared from the Taxpayer's sample documentation that special order sales were being made to commercial customers, including other car dealerships. The case was remanded to the City, in part, to further examine this issue based on additional evidence the Taxpayer could provide. The Taxpayer was directed to provide such evidence within 30 days of the date of the Department's determination, March 13, 2017. Information provided by the City in response to this appeal indicates that the Taxpayer first contacted the City on May 31, 2017, more than 60 days after the Department's determination was issued and approximately one week after the City had issued its new final determination dated May 23, 2017.

Situs

The Taxpayer states that P.D. 17-17 concluded that the City would not be the situs of its special order sales if the vehicles were shipped directly from a seller outside the City to the customer, without first being sent to the Taxpayer's definite place of business in the City. In P.D. 17-17, the Department made it clear, however, that this was only the case if the Taxpayer was operating a separately licensable wholesale business.

Alternatively, the Taxpayer argues that gross receipts from special order sales from January through March 2012 should not be included in the taxable measure of gross receipts for the 2013 tax year because the Taxpayer was doing business in another Virginia locality at that time. The Department already addressed this issue in P.D. 17-17 and concluded that the evidence provided was inconclusive as to what extent gross receipts should have been sitused to another locality.

Returns and Capital Contributions

The Taxpayer now alleges that gross receipts from returns and capital contributions were not included on Schedule C of its amended 2013 federal income tax return. The Taxpayer argues that the City must have erroneously relied on the original Schedule C in establishing the Taxpayer's total gross receipts. In its previous appeal to the Department, the Taxpayer never alleged that the City did not use the amended Schedule C. The Department reviewed what evidence the Taxpayer provided as to returns and capital contributions and found such evidence to be insufficient to prove whether such gross receipts should have been excluded from the taxable measure. See P.D. 17-17.

DETERMINATION

As to the inclusion in the taxable measure of gross receipts from the sale of warranties and insurance and gross receipts from returns and capital contributions, the Taxpayer raises new arguments that it had an opportunity to present in the previous appeal to the Department but did not. As to the classification of the special order sales and the situs of such sales, P.D. 17-17 did not definitely conclude that the special order sales were wholesale, and situs depends on the classification. The Taxpayer was afforded an opportunity to present additional evidence regarding its special order sales to the City within 30 days of the Department's previous determination and failed to do so. In fact, the Taxpayer did not contact the City again until after the City issued its new final determination, more than 60 days after the date of P.D. 17-17. Because the Taxpayer failed to comply with the Department's directions in P.D. 17-17, the City's assessment is 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/1431.M