Can a Virginia city impose BPOL license tax on a contractor's gross receipts from services performed entirely on a federal military base located within the city?

Plain-English summary

A contractor provided dispatchers and bus drivers under a government contract to transport soldiers at a U.S. military base located within a Virginia city's boundaries. The contractor's employees worked exclusively on the base -- all other property and infrastructure needed for the work was supplied by the federal government -- while the contractor's only office was in a neighboring locality. The city audited the contractor, determined its gross receipts from the base contract were taxable BPOL (Business, Professional and Occupational License) receipts, and assessed tax for four years. The contractor appealed to the Department, arguing its base activities weren't enough to create a "definite place of business" there, that the city couldn't tax work performed solely on federal property, that it was being discriminated against as supposedly the only private base contractor required to pay the tax, and that the city should have accepted its offer to settle for less than the full assessment.

The Department rejected all four arguments. On the definite-place-of-business question, Virginia law defines that as a location with a regular and continuous course of dealing for 30 or more consecutive days; a prior ruling had already found that a taxpayer whose employees worked exclusively on a military base under a government contract, continuously for more than 30 days, created a definite place of business there. This contractor's facts matched: continuous transportation services at the base for more than 30 consecutive days each tax year, and the contractor even advertised job openings specifically located at the base. On federal jurisdiction, the Department explained that a longstanding legal principle, the federal Buck Act, specifically preserves state and local governments' authority to tax activities and services performed within federal areas -- being on a military base doesn't create a tax-free zone. The city's own charter also expressly defined its boundaries to include federal military and government reservations within the city, and the base was confirmed to fall inside those boundaries. On discriminatory enforcement, the Department explained that the administrative BPOL appeal process is designed only to review whether this taxpayer's own assessment was correctly calculated -- whether the city assessed (or failed to assess) other businesses has no bearing on that question and falls outside what the appeal process can address. Finally, on the settlement offer, Virginia law gives a locality's assessing officer sole discretion to accept or reject a reduced settlement based on genuine doubt about the taxpayer's liability; the Department will not second-guess that discretionary call.

The assessments were upheld across all four tax years.

What this means for you

Contractors performing services exclusively on federal property (military bases, federal buildings) within a Virginia locality

Working solely on federal land doesn't exempt you from local BPOL tax if the locality's boundaries include that federal area, check the specific locality's charter, and your presence there is continuous enough to create a "definite place of business" -- generally, more than 30 consecutive days of regular activity.

Businesses that believe a locality is enforcing BPOL tax inconsistently against competitors

Save that argument for a different forum. The state administrative appeal process for a BPOL assessment only reviews whether your own assessment is correct; it cannot resolve claims that other taxpayers are being treated differently or not assessed at all.

Anyone whose settlement offer to a locality was rejected

A locality's decision whether to accept a reduced settlement of a disputed local tax assessment is entirely discretionary, and the Department will not intervene in or review that decision through the administrative appeal process.

Common questions

Q: Can a Virginia city or county impose BPOL tax on work performed entirely on a federal military base?
A: Yes, if the base falls within the locality's boundaries, many city charters expressly include federal reservations -- the federal Buck Act preserves state and local taxing authority over activity performed in federal areas.

Q: What creates a "definite place of business" for BPOL tax purposes?
A: A location with a regular and continuous course of dealing for 30 or more consecutive days; working continuously at a client's or government site, even without an office, phone, or property there, can be enough.

Q: Can I raise a claim that a locality is discriminating against me by not taxing my competitors, in a BPOL administrative appeal?
A: No -- the administrative appeal process only addresses whether your own assessment was correctly calculated; claims about how other taxpayers are or aren't being assessed are outside its scope.

Citations and references

• Va. Code § 58.1-3700.1 (definition of "definite place of business")
• Va. Code § 58.1-3703.1 (BPOL situs rules; local appeal and Department review process)
• 4 U.S.C. §§ 105-110 (Buck Act; preserves state and local tax authority over activity in federal areas)
• Va. Code § 58.1-3994 (local assessing officer's discretionary authority to compromise a disputed local tax assessment)
• Op. Va. Att'y Gen. 11-029 (2/24/2012) (locality may impose BPOL tax on gross receipts from activity conducted exclusively on federal property)
• 1978-79 Op. Va. Att'y Gen. 279 (continuous, regular course of dealing at a customer's location can constitute a definite place of business)
• P.D. 97-201 (4/25/1997), P.D. 01-215 (12/12/2001), P.D. 10-277 (12/21/2010), and P.D. 11-161 (9/20/2011) (factors indicating a definite place of business)
• P.D. 20-62 (4/21/2020) (continuous work on a military base under a government contract created a definite place of business)
• P.D. 14-2 (1/13/2014) (Department will not review a locality's discretionary settlement decision)

Subject

Definite Place of Business: Government Facilities - Continuous Services at A Federal Military Base Gross Receipts : Situs - Services Administration: Authority to Impose Tax - Federal Area included in City; Discriminatory Enforcement - Beyond the Scope of the Local Appeals Process Officer In Compromise - Locality Discretion

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-164

Original ruling text

December 30, 2022

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 * (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 “City”) for the 2018 through 2021 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 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

During the tax years at issue, the Taxpayer provided dispatchers and bus drivers pursuant to a government contract to transport soldiers at a United States military base located in the City (the “Base”). The Taxpayer provided the service personnel only, and all services were performed only on the Base. All other property required for performance of the services was provided by the federal government at the Base. The Taxpayer states that its only office was located in a neighboring locality.

The City audited the Taxpayer and determined that the Taxpayer should have reported taxable gross receipts to the City. As a result, assessments were issued. The Taxpayer appealed to the City. The City concluded that the Taxpayer’s gross receipts were taxable because they were attributable to services performed at a definite place of business in the City, and that they were not exempt even though the services were solely performed on a United States military base.

The Taxpayer filed an appeal with the Department, contending that its activities on the Base were insufficient to establish a definite place of business and that the City could not tax services that were performed solely on the Base. In addition, the Taxpayer believes that it has been discriminated against, claiming it is the only private entity operating on the Base that has been required to obtain a City license and pay BPOL tax. The Taxpayer also requests that the City accept a payment of less than the full amount assessed in settlement of the full assessment.

ANALYSIS

Definite Place of Business

Virginia Code § 58.1-3700.1 defines a “definite place of business” as “an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more.” A definite place of business can include a location leased or otherwise obtained from another entity on a temporary or seasonal basis. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following on-site activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See Public Document (P.D.) 97-201 (4/25/1997), P.D. 01-215 (12/12/2001), and P.D. 10-277 (12/21/2010).

Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer’s operations must be considered. In P.D. 01-215, the Department found that a computer consultant whose work was performed at clients’ locations on a regular and continuous basis could establish definite places of business at such locations. Similarly, in P.D. 11-161 (9/20/2011), the Department advised that a Taxpayer that maintained a regular and continuous presence at its client’s location for more than 30 consecutive days established a definite place of business even through it did not advertise, own business or personal property, or have a telephone at its customer’s location.

In 1978-79 Op. Va. Att’y Gen. 279, a maintenance contractor serviced hospitals and office buildings. The Attorney General opined that a continuous and regular course of dealing at a customer’s location would seem to constitute a definite place of business in such location when employees are “more or less” permanently assigned to work at the location for the duration of the contract. In P.D. 20-62 (4/21/20), a taxpayer provided support services on a United States military base. The taxpayer’s employees were exclusively located and performed all activities on the base, as mandated by the terms of the government contract. Because the employees were engaged in work on a continuous basis for more than 30 consecutive days during the tax years at issue, the Department determined that the base was a definite place of business of the taxpayer.

The facts of this case are similar to the facts of P.D. 20-62. Here, the Taxpayer and its employees provided transportation services on a continuous basis at the Base, which was mandated by the terms of the contract, and exceeded 30 consecutive days during all tax years at issue. In addition, the Taxpayer’s website advertised available jobs for dispatchers and bus drivers indicating the Base as the location of employment.

Situs

In determining the situs of gross receipts, Virginia Code § 58.1-3703.1 A 3 a (4) and § 58.1-3703.1 A 3 b provide that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the place from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business. In this case, gross receipts were attributable to services performed at the Taxpayer’s definite place of business in the City.

Federal Jurisdiction

The Taxpayer believes that because the work was being performed on the Base which is owned by the federal government, the City was barred from assessing a BPOL tax on activities carried out on federal property. In Op. Va. Att’y Gen. 11-029 (2/24/2012), the Attorney General opined that the City of Virginia Beach was authorized to impose its BPOL tax on gross receipts derived from activities conducted exclusively on federal property. The Attorney General reasoned that the BPOL tax came within the protection of the Buck Act, codified at 4 U.S.C. §§ 105-110, which prevents persons from being relieved of state and local tax obligations that arise from transactions occurring, or services being performed, in federal areas. See also P.D. 20-62.

In addition, the Taxpayer argues that the BPOL tax does not apply to activities conducted at the Base because the Base and other federal areas are not expressly included in the definition of the City used for BPOL purposes in the City’s ordinance. The Charter of the City, § 1.01, however, provides that the boundaries of the City “shall be construed to embrace all United States military and government reservations within such city . . . .” A review of readily available maps demonstrates that the Base is clearly within the City boundaries.

Discriminatory Enforcement

The Taxpayer has requested relief due to its belief that the City has discriminated against it in assessing BPOL tax to the Taxpayer without similarly assessing other private entities operating on the Base. As part of an administrative appeal to a locality of a local BPOL tax assessment, taxpayers are required to allege specific errors in the assessment. See Virginia Code § 58.1-3703.1 A 5 and Title 23 of the Virginia Administrative Code (VAC) 10-500-700 D. The locality’s determination addresses the validity of the taxpayer’s claims as to such alleged errors. See Virginia Code § 58.1-3703.1 A 5 b and Title 23 VAC 10-500-710. Such decision is then subject to administrative review by the Department. See Virginia Code § 58.1-3703.1 A 6 and Title 23 VAC 10-500-720. This process is intended to address whether a locality correctly assessed the taxpayer who has brought the case. As such, the question of whether a locality has correctly assessed other taxpayers, or not assessed them at all, has no bearing on the specific case under review.

Settlement Offer

Virginia Code § 58.1-3994 authorizes an assessing officer to compromise and settle any disputed assessment of local business taxes if there is substantial doubt under applicable law, regulations, or guidelines as to the taxpayer’s liability for such taxes. Further, a local collecting official, with the consent of the local government, may compromise or settle the amount due and payable when they determine the collection of the entire amount due and owing is in substantial doubt and the best interests of the locality will be served by such compromise.

In its appeal to the City, the Taxpayer offered to settle the assessments by making a lump sum payment that was less than the total amount assessed by the City. In its final determination, the City found that there was no substantial doubt that the taxes assessed were due. The City, accordingly, did not accept the Taxpayer’s offer. Such settlement offers are accepted or rejected solely at the discretion of the local assessing official. The Department will not intervene in a decision by a locality concerning a settlement offer. See P.D. 14-2 (1/13/2014).

DETERMINATION

Based on the facts presented, the Taxpayer’s continuous course of dealing on the Base created a definite place of business in the City. As such, the gross receipts generated from the services provided were subject to BPOL tax by the City. The fact that the Taxpayer was providing services solely on federal property has no bearing on the outcome of this appeal. In addition, any claims of discriminatory enforcement by the City are beyond the scope of the administrative appeals process. Further, because the decision whether to accept a settlement offer rests solely with the City, such decision is not subject to administrative review by the Department. Therefore, the assessments are upheld. If the Taxpayer is experiencing a financial hardship as a result of the assessments, the Taxpayer should consult the City as to any further options that may be available.

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/4210.X

Related Documents

97-201

01-215

10-277

11-161

14-2

20-62