Could one Virginia city tax all 2006 receipts from a call center, fulfillment center, and IT center located in three localities?

Subject

Definite place of business ; Methodology for attributing gross receipts.

Plain-English summary

The call center, fulfillment center, and IT center were separate definite places of business. The fulfillment and IT facilities had continuous operations, employees, offices and phones, and performed services and recordkeeping at their own locations.

That meant the call-center city could not tax all receipts associated with the three centers. Service receipts generally followed the location where the service was performed. If work was split between locations and could not be divided directly, payroll apportionment could be necessary. The city also could not tax receipts attributable to another locality merely because that locality did not impose a BPOL tax.

The taxpayer's worksheet did not conclusively establish the correct 2006 allocation, so the Department remanded the case and allowed 30 days for evidence showing receipts derived from the call center.

What this means for you

• Separate operating facilities can each be definite places of business for BPOL purposes.
• A locality cannot tax receipts legally attributable to a business location in another jurisdiction.
• The other jurisdiction's choice not to impose BPOL tax does not transfer those receipts to the taxing city.
• Mixed-location service contracts may require direct allocation or payroll apportionment.

Common questions

Did direction from the call center make fulfillment receipts taxable there?

Not automatically. The actual fulfillment services occurred at the fulfillment center, although work performed at both locations could require an allocation.

Was the final 2006 tax amount decided?

No. The ruling remanded the factual allocation for more evidence.

Citations and references

• Va. Code §§ 58.1-3700.1(3), 58.1-3703, and 58.1-3703.1(A)(3)(a)(4), (A)(3)(b).
• P.D. 97-201 and P.D. 06-143, discussed in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-231

Original ruling text

September 29, 2010

Re: Appeal of Final Local Determination

Locality: *

Taxpayer: *

Business, Professional and Occupational License Tax

Dear *:

This final state determination is issued upon the application for correction filed by * (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals an assessment of Business, Professional and Occupational License (BPOL) taxes issued to the Taxpayer by the *** (City A) for the 2006 tax year.

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 Tax Policy Library section of the Department's web site.

FACTS

The Taxpayer operated a call center in City A. The call center performed customer service, took telephone orders and performed various other customer support activities for unrelated third party customers. The Taxpayer also operated a fulfillment center in * (the "County"). The fulfillment center performed distribution services, such as, receiving, pick-pack-ship, returns handling, cycle counts, gift wrapping, package inserts and various other distribution services for unrelated third party customers. Customers contracted with the Taxpayer for services that were provided by either the call center or the fulfillment center, or services that were performed by both the call center and the fulfillment center. In addition, the Taxpayer operated an information technology (IT) center in the *** (City B) that provided IT support services to unrelated customers. Customers contracted with the Taxpayer for services that were provided by either the call center, the fulfillment center, or IT support center or any combination of the services that were performed by all three.

As in previous tax years, the Taxpayer used payroll apportionment to determine the situs of gross receipts in City A for computing its 2006 BPOL tax. Under audit, City A obtained documentation showing gross receipts attributable to the call center under the statutory method. City A adjusted the Taxpayer's gross receipts and assessed additional BPOL tax for the 2006 tax year.

The Taxpayer agrees that it was able to attribute gross receipts to City A for the 2006 tax year, but filed an appeal with City A contending that City A included gross receipts from the call center in City A, the fulfillment center in the County, and the IT center in City B in the BPOL tax assessment. In its final local determination, City A upheld the audit assessment, concluding that the Taxpayer did not have a definite place of business in the County and the IT Center in City B did not generate gross receipts. The Taxpayer appeals City A's final determination to the Tax Commissioner, contending the license tax should be based only on those gross receipts attributable to the call center.

ANALYSIS

Definite place of business

Virginia Code § 58.1-3700.1 3 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 for a person engaged in business may include a location leased or otherwise obtained from another person on a temporary or seasonal basis and real property leased to another.

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; and (6) advertising or otherwise holding oneself out as engaging in business at the particular location. See Public Document (P.D.) 97­201 (4/25/1997).

At issue is whether the Taxpayer had definite places of business in the County and City B. Based on the information provided, the fulfillment center had a continuous presence at a facility where its employees conducted the Taxpayer's business. The facility is primarily a warehouse, but it does have an office and phones for administration of the business and initial record keeping. In addition, fulfillment services are performed at the Taxpayer's facility in the County. Also, according to the information provided, the IT center had a continuous presence at a facility where its employees conducted the Taxpayer's business. It had an office and phones for the administration of business and performed its own record keeping. As such, the Taxpayer had a definite place of business in both the County and City B.

Situs

The BPOL tax may be imposed by jurisdictions on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town." See Va. Code § 58.1-3703. In other words, it is a business' situs and its activity within a given jurisdiction that gives rise to its local BPOL tax liability. The question becomes whether the measure of the Taxpayer's business activity is related to its presence in City A.

In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state 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 impracticable to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.

According to the Taxpayer, the services provided by the call center and the fulfillment center are part of one business activity. Some customers contracted for services from the call center, some for services from the fulfillment facility and others for both. The Taxpayer asserts that it was capable of attributing the gross receipts resulting from contract services from both of the Taxpayer's centers, but City A erred in attributing all of the gross receipts from the two centers to City A.

During City A's audit, the Taxpayer provided a worksheet with a list of gross receipts, by customer, that was titled in the name of City A. Because the totals on this worksheet support the total reported on the Taxpayer's consolidated federal income tax return, City A asserts that the total gross receipts reported should be sitused to City A.

The subject worksheet does appear to include a category of gross receipts attributed to City A. The worksheet also includes categories of gross receipts attributed to other facilities located outside Virginia. The worksheet, however, includes no categories for gross receipts from the fulfillment center or the IT center. Because the Taxpayer has definite places of business in the City A, City B, and County at which services are performed, it would appear that, a portion of the Taxpayer's Virginia gross receipts must be sitused to each locality. The evidence provided is inconclusive as to whether the worksheet accurately reflects the situs of the Taxpayer's gross receipts.

City A has also asserted that the fulfillment center was directed and controlled by the call center. The actual fulfillment services, however, were conducted from the fulfillment center. If a portion of the service was performed at both definite places of business, a portion of the gross receipts from the fulfillment services may be attributable to the call center. If it is impossible or impracticable to determine what portion of the services were performed at each definite place of business, the gross receipts may need to sitused using payroll apportionment in accordance with Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 31 b.

City A has also indicated that the County did not impose a BPOL on the fulfillment center. A locality may not impose tax on gross receipts attributed to a taxpayer's definite place of business in other jurisdictions, even if those jurisdictions do not impose a BPOL tax. See P.D. 06-143 (12/08/2006). As such, City A may not tax gross receipts attributable to the County or City B even if those localities did not require a business license.

DETERMINATION

In accordance with the foregoing analysis, I find that the fulfillment center and the IT center were definite places of business in their respective localities. However, neither the Taxpayer nor City A has provided conclusive evidence with regard to the situs of the gross receipts. Because the issues involving the Taxpayer's worksheet are a matter of fact, a determination as to whether the gross receipts attributed to City A on the worksheet includes all gross receipts sitused in the Commonwealth remains the prerogative of City A.

Accordingly, I am remanding this case to City A in order to review any evidence the Taxpayer can provide concerning the amount of gross receipts derived from the call center. Such evidence must be provided within 30 days of the date of this letter. If sufficient evidence is submitted within the allotted time, the 2006 tax assessment will be adjusted in accordance with this determination.

If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4014851407.B