Could Virginia decide whether a real-estate investor was a BPOL-taxable contractor when the county's final letter was signed by an unauthorized employee?

Plain-English summary

A real-estate investment LLC sold properties, and a county assessed BPOL tax after classifying it as a contractor. The LLC argued it was not a statutory contractor, made too few sales to be in business, and faced double taxation because hired contractors already paid BPOL tax.

The Department did not decide those issues. The county letter was not a valid final local determination because the signer lacked documented authority.

Why the letter was invalid

Virginia's BPOL process requires local review first, followed by a final determination stating the facts and legal grounds. Department review ordinarily begins only after that final local decision (Va. Code § 58.1-3703.1; 23 VAC 10-500-640).

Under 23 VAC 10-500-710, the final letter should normally be signed by the Commissioner of the Revenue or chief assessing officer. A subordinate may sign only when expressly designated, with evidence of that designation included.

The August 14, 2018 county letter was signed by an employee and contained no designation. The Department therefore could not treat it as final.

What happens next

The county had to issue a valid final determination. The taxpayer would then have 90 days to appeal to the Department if dissatisfied.

If the local case had already been pending more than one year, the taxpayer could elect to treat it as denied after giving the county the required 30 days' written notice.

What this means for you

• A substantive county ruling can still be procedurally nonfinal. Check signer authority before calculating the Department deadline.
• Department review waits for a valid local decision. The merits are not reached until jurisdiction exists.
• Classification arguments remained open. Virginia did not decide whether property sales made the LLC a contractor or licensable business.
• Delay has a statutory remedy. More than one year plus 30 days' notice can permit direct appeal.

Common questions

Q: Did Virginia agree that the LLC was not a contractor?

A: No. It did not decide the classification issue.

Q: What defect required remand?

A: The employee signer had no written designation included with the purported final determination.

Q: How long after a valid final decision could the LLC appeal?

A: 90 days.

Citations and references

• Va. Code § 58.1-3703.1(A)(5)-(6) — local BPOL appeal and Department review
• 23 VAC 10-500-640 — review process
• 23 VAC 10-500-710 — final determination signer and language requirements
• Related Virginia rulings cited: P.D. 11-124, P.D. 18-140

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-59

Original ruling text

May 23, 2019

Re: Notice of Jurisdiction

Taxpayer: *

Locality Assessing Tax: *

Business, Professional and Occupational License (BPOL) tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed by * (the “Taxpayer”), with the Department. The Taxpayer appeals assessments of Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by *** (the “County”) for the 2017 and 2018 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 at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.

FACTS

The Taxpayer was a limited liability company that describes its activities as investing in real estate. The County assessed BPOL tax on the gross receipts from the Taxpayer’s sale of real estate for the 2017 and 2018 tax years. The Taxpayer appealed to the County. In a letter purporting to be a final local determination which was signed by an employee of the Commissioner of the Revenue’s office, the County determined that the Taxpayer had been operating a contracting business in the County during the taxable years at issue and upheld the assessments. The Taxpayer appealed to the Department, contending that it did not meet the statutory definition of a contractor, that it had not conducted enough sales transactions to be considered to be doing business and that the County was double taxing the activity because the contractors the Taxpayer hired to perform work on the properties already pay BPOL tax.

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.

DETERMINATION

The County issued a letter dated August 14, 2018, purporting to be a final local determination. That letter, however, was not signed by the County’s Commissioner of the Revenue, and it did not include a designation granting the employee who signed the letter authority to issue a final local determination on the Commissioner’s behalf. Therefore, the Department cannot consider the letter to be a final local determination.

Accordingly, the case will be returned to the County so that the Commissioner of the Revenue can issue a valid final local determination. Once that is done, the Taxpayer will have 90 days to file an appeal with the Department if it disagrees with the outcome of that determination. If the case has been pending with the County for more than one year, the Taxpayer may also appeal to the Department after giving the County the requisite notice.

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/2005.M

Related Documents

11-124

18-140