Could Virginia decide BPOL and BTPP appeals when the county omitted the required BPOL notice and the taxpayer failed to give 30 days' direct-appeal notice?

Subject

Defective notices prevented state review of BPOL and BTPP appeals

Plain-English summary

Virginia could not reach the merits because both the county and taxpayer failed to complete required BPOL appeal steps. The taxpayer disputed county BPOL assessments for 2006-2011 and BTPP assessments for 2008-2012, arguing that no licensable business existed.

The county's October 2013 letter was not a proper final BPOL determination because it omitted the mandatory language explaining the 90-day state appeal, notice of intent, and collection rules. Attaching guidelines for BTPP and other local business taxes did not substitute for the separate BPOL procedure.

The taxpayer also could not bypass the missing final determination merely by announcing a direct appeal in the filing sent to the Department. When a local appeal has been pending more than a year, the taxpayer must give the locality 30 days' advance written notice before treating it as denied.

The county had adequately attached the local-business-tax guidance for BTPP, but those assessments depended on whether the taxpayer conducted a licensable business. Without BPOL jurisdiction, the Department could not decide BTPP either.

The case was returned to the county for a compliant determination within 30 days. If the county again failed, the taxpayer could give the required 30-day notice and then appeal.

What this means for you

• BPOL and BTPP use related but distinct administrative appeal procedures.
• A locality must include the exact required BPOL appeal notice.
• A taxpayer using the one-year direct-appeal route must give advance notice, not notice inside the state appeal itself.
• A procedural remand does not decide the underlying taxability.

Citations and references

• Va. Code §§ 58.1-3703.1 A 5-6 and 58.1-3983.1 B 5 and D 1.
• 23 VAC 10-500-710 D.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-72

Original ruling text

May 28, 2014

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License (BPOL) Tax

Business Tangible Personal Property (BTPP) 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 the assessment of BPOL tax issued to the Taxpayer for the 2006 through 2011 tax years and the assessment of BTPP tax for the 2008 through 2012 tax years by the *** (the "County").

The local license tax and fee and business tangible personal property tax are imposed and administered by local officials. Virginia Code §§ 58.1-3703.1 A 5 and 58.1-3983.1 D 1 authorize the Department to issue determinations on taxpayer appeals of certain BPOL and BTPP tax assessments, respectively. On appeal, a tax assessment by a local assessing officer 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

In Public Document (P.D.) 13-147 (7/31/2013), the Department determined the County failed to issue a proper final determination for the Taxpayer's BPOL and BTPP tax appeals and the Taxpayer did not give proper notice to the County before appealing the assessments. As such, the Department remanded the case back to the County to make a full review of all relevant documentation and to issue a final determination in accordance with BPOL and BTPP tax procedures.

The County reviewed the documentation and upheld its assessments on the basis that the Taxpayer was engaged in a licensable business activity and had business tangible personal property. The Taxpayer appealed the County's assessments contending that the County failed to issue a proper determination. It also asserts that the Taxpayer was not engaged in a licensable business and therefore owed no BPOL or BTPP tax.

ANALYSIS

Final Local Determination - BPOL

In P.D. 13-147, the issue was remanded back to the County in order for it to review certain Taxpayer documentation and to issue a final local determination in accordance with the BPOL and BTPP regulations and guidelines. The County reviewed the Taxpayer's documentation and issued a final determination letter dated October 2, 2013 upholding the BPOL assessments that were issued for the 2006 through 2011 tax years. The County, however, did not include the language prescribed for BPOL final determination informing the Taxpayer of her right to appeal a local determination to the Department.

Title 23 of the Virginia Administrative Code (VAC) 10-500-710 D provides that every final local determination addressing BPOL tax liability must contain the following language.

You may appeal this Final Local Determination to the Tax Commissioner as follows:

If you wish to appeal, you must act within 90 days from the date of this Final Local Determination by filing an Appeal to the Tax Commissioner at the following address:

Appeals and Rulings

Virginia Department of Taxation

Post Office Box 27203

Richmond, Virginia 23261-7203

Collection activity may commence or resume at any time after the date of this Final Local Determination and will not be suspended until a Notice of Intent to Appeal or an Appeal to the Tax Commissioner is timely filed and the local assessing officer receives a copy. If you intend to appeal, you should immediately provide a written Notice of Intent to Appeal to the local assessing officer and to the Tax Commissioner so that collection activities are not reinstated or do not begin. Collection activity may begin or resume if you do not file a complete application for review within 30 days of filing the notice of intent to appeal. A form for preparing a notice of intent to appeal are located in 23 VAC 10-500-802.

The BPOL Regulations (23 VAC 10-500) and the applicable Code of Virginia sections for preparing an Appeal to the Tax Commissioner are available at the General Assembly's website.

The County attached the Guidelines for Appealing Local Business Taxes (the "Guidelines" ), issued as P.D. 04-28 (6/25/2004), to its October 2, 2013 letter. The Guidelines apply only to appeals of local business taxes under Va. Code § 58.1-3983.1. The local business taxes include the machinery and tools tax, business tangible personal property tax and merchant's capital tax.

Virginia statutes include two separate processes for appealing BPOL and local business taxes to the Department. Appeals of BPOL tax assessments are governed by Va. Code § 58.1-3703.1 and Title 23 VAC 10-500-10 et seq . While procedures for BPOL and local business tax appeals contain many similarities, they are separate processes under Virginia law. As such, the Guidelines cannot be substituted for the procedures for filing BPOL tax appeals. Consequently, the County's letter dated October 2, 2013, failed to include the required language of a final local determination for a BPOL tax appeal.

Appeals Pending More than One Year - BPOL

Under Va. Code § 58.1-3703.1 A 6 a, taxpayers may file an appeal with the Department only after a final determination has been issued by a locality. 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, a taxpayer can elect to consider the local appeal to have been denied. A taxpayer is required to give a locality 30 days written notice of such an election. The purpose of giving 30 days notice is to allow the locality an opportunity to issue a final determination prior to an appeal to the Tax Commissioner.

In this case, the Taxpayer recognized the County had failed to follow Virginia's regulations for issuing a final BPOL tax determination. In its appeal to the Tax Commissioner, the Taxpayer states its intent to file an appeal with the Tax Commissioner under Va. Code § 58.1-3703.1 A 5 e. Including such notice within an appeal that was filed with the Department fails the statutory 30-day notice requirement.

Final Local Determination - BTPP

Virginia Code § 58.1- 3983.1 B 5 requires that a final local determination addressing BTPP tax liability must be accompanied by a written explanation of the taxpayer's right to file an administrative appeal of the final local determination to the Department. Under § 1.7.3 of the Guidelines , the Department sets forth rules for issuing final determinations for local business taxes. The County attached a copy of the Guidelines to its October 2, 2013 letter. While the Department would prefer that a locality follow the format for composing a local final determination under § 1.13.1 of the Guidelines , the County will be considered to have complied with the local business tax appeal procedure with regard to the BTPP tax assessments.

In this case, the BTPP tax assessments are dependent upon the BPOL final determination. If the Taxpayer is engaged in a licensable business, then it is likely that the BTPP tax assessments would be correct. On the other hand, if it is found that the Taxpayer is not engaged in an activity for which it would be required to obtain a local business license, the associated tangible personal property would not be subject to BTPP tax.

DETERMINATION

For the reasons stated above, the County again failed to issue a proper final determination for the Taxpayer's BPOL tax appeal. Furthermore, the Taxpayer did not give proper notice to the County before appealing its BPOL assessments to the Department. As such, the Department lacks jurisdiction to address the Taxpayer's BPOL tax appeal. In addition, the taxability of the tangible personal property is dependent on the determination in the BPOL tax appeal as to whether or not the Taxpayer is engaged in a licensable business activity. Therefore, the Department cannot at this time make a determination with regard to the BTPP tax assessments.

Accordingly, this case will be returned to the County in order for it to issue a final local determination containing the required language required for local BPOL tax determinations under Title 23 VAC 10-500-710 D and the required language for local business tax determinations under 1.13.1 of the Guidelines . Such determination should be issued within 30 days of the date of this letter.

If the County fails to issue a final determination in accordance with applicable laws, regulations and guidelines within the 30-day period, the Taxpayer may give the County 30 days notice that it will file its administrative appeal with the Department. After all appropriate procedures have been followed, if the Taxpayer disagrees with the County's final local determination, it may file appeals to the Department in accordance with Va. Code § 58.1-3703.1 A 6 and § 58.1- 3983.1 D.

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/1-5601611706.B