We're a cable company subsidiary that's already lost this exact BPOL situsing argument for earlier tax years in two prior published rulings -- can we get a different result for later years by raising a new federal court case?

Plain-English summary

A Virginia corporation, a wholly-owned subsidiary of a large out-of-state cable company, maintained two physical locations in a Virginia county under its cable franchise agreement: a customer service center where subscribers could pay bills and pick up equipment, and a separate dispatch location for repair technicians who worked in the county and one neighboring locality. The parent company's actual programming decisions, network operations, and executive management all happened at the parent's out-of-state headquarters and other facilities, with the local subsidiary essentially running the customer-facing and field-service side of the business.

For BPOL (business license) tax purposes, the subsidiary wanted to "situs" (assign) only a portion of its gross receipts to the county, using a payroll-based apportionment method, arguing the real revenue-generating work happened at the parent's out-of-state facilities. The county disagreed and assessed BPOL tax on 100% of the receipts tied to customers in the county and the neighboring locality, on the theory that the subsidiary's Virginia locations were the actual definite places of business generating those receipts. This wasn't a new fight: the Department had already sided with the county on the exact same issue for this same taxpayer's 2013-2016 tax years, in two earlier published rulings, rejecting payroll apportionment, finding no Commerce Clause problem, and finding the BPOL tax wasn't capped by the federal Cable Act's 5%-of-franchise-fee limitation. For this new round covering 2017-2020, the taxpayer repeated the same three arguments and added one more: a 2021 federal appellate decision it argued should change the Cable Act preemption analysis.

The Department wasn't persuaded. It read the new federal case narrowly -- that case involved a city trying to impose a separate, disguised fee to get around the franchise-fee cap on the same right-of-way, a materially different situation from Virginia's general BPOL tax -- and found no reason to reconsider its Cable Act conclusion. Because nothing about the company's actual operations had meaningfully changed since the earlier rulings, and the taxpayer was simply repeating arguments already addressed, the Department reached the identical result again: all gross receipts were properly sitused to the Virginia locations, and the assessments for all four years were upheld (with any penalty waiver left to the county's discretion, consistent with the earlier rulings).

What this means for you

Cable, telecom, or other franchise-based businesses with a local subsidiary and an out-of-state parent

Don't assume you can apportion BPOL gross receipts away from your Virginia customer-facing locations just because your parent company's higher-level decisions happen elsewhere. This ruling reinforces that receipts tied to Virginia customers served from a Virginia definite place of business generally stay sitused there in full.

Any business that's already lost a BPOL situs argument in a published ruling and faces the same issue in later years

If your operations haven't meaningfully changed, expect the Department to apply its own prior published ruling again rather than revisit settled ground -- a new legal argument or case citation needs to be genuinely on point (not just adjacent) to change that outcome.

Cable operators watching for federal preemption arguments against local taxes

This ruling shows the Department reads federal cable-law preemption cases narrowly and fact-specifically. A win for a different cable operator in a different jurisdiction, on a different type of local fee, won't automatically extend to Virginia's BPOL tax without a close factual match.

Common questions

Q: Can a business apportion its BPOL gross receipts using payroll if its parent company's key decisions are made out of state?
A: Not automatically, based on this ruling. If the taxpayer itself maintains definite places of business in Virginia that actually serve the customers generating the receipts, the county can situs the full receipts there rather than requiring payroll apportionment.

Q: Does the federal Cable Act's franchise fee cap limit how much BPOL tax a Virginia locality can assess on a cable company?
A: Not according to this ruling and the prior rulings it relies on -- the Department has determined the BPOL tax is not subject to the Cable Act's 5% franchise fee limitation.

Q: If the Department already ruled against me on an issue in an earlier published ruling, can I get a different outcome for later tax years?
A: Possibly, but only if your facts have genuinely changed or you present a new legal argument that's factually on point. This ruling shows that repeating the same arguments on unchanged facts, or citing a case the Department finds distinguishable, won't move the needle.

Citations and references

• Va. Code § 58.1-3703.1 (Department's authority to decide taxpayer appeals of local BPOL assessments)
• P.D. 20-3 (1/7/2020) (this taxpayer's prior ruling: all gross receipts properly sitused to the county, no Commerce Clause violation, penalty waiver left to county discretion)
• P.D. 20-107 (6/23/2020) (this taxpayer's prior ruling: BPOL tax not subject to the Cable Act's 5% franchise fee limitation)
• City of Eugene v. FCC, 998 F.3d 701 (6th Cir. 2021) (a city's separate information-services fee, not its BPOL-type tax, was found to unlawfully circumvent the Cable Act's franchise fee cap; distinguished by the Department as factually different)

Subject

Situs : Apportionment - Including Payroll of a Parent Entity Prohibited

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-161

Original ruling text

December 28, 2021

Re: Appeal of Final Local Determination

Taxpayer: *

Locality Assessing Tax: *

Business, Professional and Occupational License (BPOL) tax

Dear *:

This final state determination is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”), with the Department of Taxation. You appeal the assessment of Business, Professional and Occupational License (BPOL) tax issued by *** (the “County”) for the 2017 through 2020 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 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, a Virginia corporation, was a wholly owned subsidiary of * (the “Parent”). The Parent was engaged in the business of providing cable service. The Parent’s headquarters were located in *** (State A), and it had significant operations in numerous other states. The Parent licensed programming from content providers and broadcasted through its network operation centers, which were located outside of the County. The Parent’s policy, procurement and operational decisions were made by executives at the State A headquarters. Customer service personnel, who could be reached by telephone or the company site portal, were located outside of the County.

The Taxpayer maintained two locations in the County pursuant to requirements in a franchise agreement. It had a customer service center where cable subscribers could make payments, purchase self-installation kits, and request repairs or return equipment. There was a separate location where customer service technicians were dispatched. Technicians performed all work in the County and in * (Locality A), an adjacent locality. The personnel working at the County locations were employed by *** (Company A).

The gross receipts reported by the Taxpayer on its income tax returns for the 2017 through 2020 tax years consisted of cable subscription and other fees paid by all customers located in the County and Locality A. The Taxpayer filed BPOL tax returns with the County for the tax years at issue, situsing a portion of its gross receipts out of Virginia using payroll apportionment. The County audited the Taxpayer and determined that all of its gross receipts should have been sitused to its two locations within the County. As a result, assessments of BPOL tax, penalty and interest were issued.

The Taxpayer filed an appeal for the 2017 tax year and then for the 2018 through 2020 tax years with the County, contending that payroll apportionment was the proper method to situs its gross receipts. In its final local determinations, the County held that all of the Taxpayer’s gross receipts were subject to tax and that payroll apportionment was unnecessary. The Taxpayer appeals the County’s final determinations to the Department, asserting that: 1) payroll apportionment is the correct method to situs gross receipts because it was impossible or impractical to determine where its services were performed; 2) situsing all gross receipts to the County violates the Commerce Clause; 3) the federal Cable Act caps the amount of BPOL tax that the County could assess; and 4) that the penalties should be abated.

ANALYSIS

The Taxpayer previously appealed the County’s BPOL tax assessments for the 2013 through 2016 tax years which were upheld by the Department in Public Document (P.D.) 20-3 (1/7/2020) and in P.D. 20-107 (6/23/2020). In P.D. 20-3, the Department determined that all of the Taxpayer’s gross receipts were properly sitused to the County, that payroll apportionment was not required and that there was no violation of the Commerce Clause. The case was, however, remanded back to the County to consider the waiver of the penalty. The Department further determined in P.D. 20-107 that the BPOL tax was not subject to the 5% franchise fee limitation imposed by the Cable Act.

The Taxpayer cites the recent case of City of Eugene v. FCC, 998 F.3d 701 (6th Cir. 2021), a federal opinion issued after P.D. 20-107, to argue that the County was preempted from assessing a BPOL tax over and above the 5% franchise fee the Taxpayer already paid to the County. In City of Eugene , the Sixth Circuit Court of Appeals held that the city’s fee for broadband services was not a franchise fee subject to the 5% cap because it was not imposed on the operator’s provision of cable services. See 998 F.3d at 714. The court, however, did rule that the city could not require payment of an information services fee, which included a fee for broadband services, as a condition to obtaining a cable franchise. See id . at 715. Further, the court concluded the city had impermissibly attempted to circumvent the limitation when it imposed the fee under its general police power. See id .

Because the holding of City of Eugene focused on the city’s unlawful imposition of a specific information services fee to use the same right-of-way it was already paying a cable franchise fee for, that case is distinguishable from the facts at issue. In any event, the Department does not find a sufficient basis to reverse its conclusion in P.D. 20-107 that imposition of the BPOL tax was preempted by the Cable Act.

There was no substantive change to the Taxpayer’s operations as addressed in P.D. 20-3 and P.D. 20-107 for the tax years at issue, and the Taxpayer otherwise reiterates the same arguments it previously made, all of which were addressed by those determinations. As such, the Department finds no basis for reaching a different conclusion than it did in P.D. 20-3 and P.D. 20-107.

DETERMINATION

After carefully considering all the facts of this case and the applicable statutes and prior rulings, I find that the County properly sitused all of the Taxpayer’s gross receipts to its definite places of business and the assessments of BPOL tax for the 2017 through 2020 tax years are upheld. As stated in P.D. 20-3, the waiver of penalty is in the discretion of the County.

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/3853.B

Related Documents

20-3

20-107