The county denied my BPOL reclassification request, so I appealed to the Department -- but what I actually want is for the Department to let me use a payroll-apportionment method I never raised with the county. Can the Department rule on that?

Plain-English summary

A business had classified itself as a "business service provider" for BPOL (Business, Professional and Occupational License) tax purposes, then asked its County to reclassify it as a "wholesale merchant" for the 2019 and 2020 tax years. The County denied that request. Instead of appealing that specific reclassification denial to the Department, the business's appeal asked the Department to direct the County to let it situs its gross receipts using a different method -- payroll apportionment -- backed by calculations and supporting documentation.

The Department explained it couldn't reach that request. Virginia's BPOL appeal process is built to resolve issues at the local level first: when an "appealable event" occurs (a classification denial, an assessment increase, a refund denial, and so on), the taxpayer must appeal to the LOCALITY, which fully reviews the claim and issues a written final determination. Only after that local final determination exists can the SAME issue be brought to the Department (with a narrow exception if a local appeal has been pending over a year, at which point the taxpayer can treat it as denied after giving 30 days' written notice).

Here, the payroll-apportionment question had never been the subject of any local appeal -- the business hadn't even attempted to use that method on its actual returns yet, let alone had the County deny it. With no local appealable event and no local final determination on that specific issue, the Department had no jurisdiction to weigh in. The path forward: the business needs to file amended BPOL returns with the County using the payroll apportionment method, within the applicable statute of limitations. If the County then adjusts those returns to disallow the method, that creates a genuine new appealable event -- letting the business appeal that specific denial locally first, and then to the Department if it remains dissatisfied.

What this means for you

Businesses appealing a BPOL classification or apportionment dispute

Confirm that every specific issue you want the Department to rule on was actually presented to, and decided by, your locality first. The Department's appellate jurisdiction only reaches issues that went through the local process and produced a final determination -- it can't rule on something raised for the first time at the state level.

Businesses wanting to try a different apportionment or situsing method

Don't ask the Department to approve a method you haven't actually used yet. File amended returns with your locality using the method you want, within the applicable statute of limitations; if the locality then adjusts or denies them, that's the appealable event that starts the local-then-Department appeal chain on that specific issue.

Anyone with multiple distinct BPOL issues against the same locality

A classification dispute and a separate apportionment-method dispute are treated as SEPARATE appealable events, even against the same locality in the same tax years -- each one needs its own local determination before the Department can address it.

Common questions

Q: Can I ask the Department to rule on a tax issue I never actually raised with my locality?
A: No. The Department's BPOL appellate jurisdiction only covers issues that went through a local appeal and produced a final determination from the locality. An issue never presented locally isn't something the Department can address.

Q: What if I want to try a different apportionment or situsing method the locality has never seen?
A: File amended returns using that method with your locality first, within the applicable statute of limitations. If the locality adjusts your returns to disallow it, that's a new appealable event you can then appeal locally, and later to the Department if you're still dissatisfied.

Q: What is an "appealable event" for BPOL purposes?
A: Generally an increase in a local license tax assessment, the denial of a refund, an assessment where none previously existed, or a taxpayer's appeal of its classification -- each triggering its own local-appeal-then-Department-appeal sequence.

Q: Is there ever a way to skip a slow-moving local appeal and go straight to the Department?
A: Yes -- if a local appeal has been pending for more than a year, you can elect to treat it as denied and appeal to the Department, but you must first give the locality 30 days' written notice of that election.

Citations and references

• Va. Code § 58.1-3703.1(A)(5) (BPOL appealable events; classification appeals; 1-year filing deadline)
• Va. Code § 58.1-3703.1(A)(5)(b) (locality must fully review and issue a final determination on a local appeal)
• Va. Code § 58.1-3703.1(A)(5)(e) (a local appeal pending over 1 year may be deemed denied, with 30 days' written notice to the locality)
• Va. Code § 58.1-3703.1(A)(6)(a) (a Department appeal is available only after a local final determination)
• 23 VAC 10-500-640 (local review, then Tax Commissioner appeal, process)
• P.D. 11-124 (7/1/2001) (Department appeal available only after a local final determination has issued)

Subject

Administration: Appeal - Jurisdiction, Raising New Issue with Tax Commissioner Prohibited

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-76

Original ruling text

April 19, 2022

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License (BPOL) tax

Dear *:

This notice of jurisdiction is issued upon the application for correction filed on behalf of your client, * (the “Taxpayer”), regarding the denial of the Taxpayer’s reclassification request by *** (the “County”) for purposes of the Business, Professional and Occupational License (BPOL) for the 2019 and 2020 tax years.

The following determination is based on the facts presented to the Department and summarized below. The Code of Virginia sections, regulation 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 initially classified itself as a business service provider for purposes of the BPOL tax for the tax years at issue. The Taxpayer subsequently requested that the County reclassify it as a wholesale merchant. The County denied the Taxpayer’s request. The Taxpayer filed an appeal with the Department, asking that it be allowed to present calculations and documentation to support situsing its gross receipts by payroll apportionment.

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.

When an appealable event occurs, a taxpayer must file an appeal with the locality in which such 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.

In this case, the Taxpayer is not appealing the County’s denial of its reclassification request to the Department. Rather, the Taxpayer’s appeal to the Department requests that the County be instructed to review whether it should be allowed to use payroll apportionment. As such, the Department cannot address the Taxpayer’s request for the allowance of a different apportionment method because this issue was not the subject of an appeal to the County.

DETERMINATION

Because the Taxpayer has not yet attempted to use the payroll apportionment method to situs gross receipts, the Department lacks jurisdiction to address the issue. If the Taxpayer wishes to situs gross receipts by payroll apportionment, it must file amended BPOL tax returns with the County if it has not already done so, in accordance with the statute of limitations, utilizing the payroll apportionment method. If the County adjusts the returns to disallow such apportionment methodology, an appealable event will have occurred and the Taxpayer may then file an appeal with the County pursuant to Virginia Code § 58.1-3703.1 A 5 b. The County must then issue a final determination in response to the Taxpayer’s appeal. If the Taxpayer disagrees with the County’s final determination, it may then file an appeal with the Department in accordance with Virginia Code § 58.1-3703.1 A 6 a.

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/4005.B

Related Documents

11-124