Did Virginia reverse the remand of BPOL and machinery-and-tools assessments when records did not show which of several entities performed each activity at one business location?

Subject

Unclear records required local BPOL and machinery-tax remand

Plain-English summary

Virginia refused to undo an earlier remand because the taxpayers' records still did not show which legal entity performed which activities at their shared business location. When the facts are unclear or disputed, the Department defers factual decisions to the locality.

The city therefore had to determine whether the taxpayers operated additional licensable businesses and what BPOL and machinery-and-tools tax liabilities applied. The taxpayers, in turn, had to provide sufficient documentation for an accurate determination.

Arguments about interactions between the city's auditors and the taxpayers' employees were outside the local tax appeal process. The additional submissions also supplied no new information useful to the legal analysis.

Result: the Department affirmed the remand and said P.D. 15-39 remained its final determination. Further review was available in the appropriate circuit court.

What this means for you

• Keep entity-level records when several legal entities operate from one definite place of business.
• Identify which entity owns property, performs each activity, and earns each receipt.
• Expect the locality to decide disputed factual issues in a BPOL or local-property-tax appeal.
• Use circuit-court review if challenging the Department's final local-tax determination.

Common questions

Q: Did the Department decide the taxpayers' final BPOL and machinery-and-tools liabilities?

A: No. It affirmed the remand so the city could determine those liabilities from sufficient records.

Q: Did complaints about the audit interactions change the result?

A: No. The Department said those disputes were beyond the scope of the local appeals process.

Citations and references

• Va. Code §§ 58.1-3703.1(A)(5), (7), and (9).
• Va. Code §§ 58.1-3983.1(D)(1), (G), and (K).
• 23 VAC 10-500-760.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-161

Original ruling text

August 14, 2015

Re: Appeal of Final Local Determination
Taxpayer: *
Locality: ***
Business, Professional and Occupational License (BPOL) Tax
Business Tangible Personal Property (BTPP) Tax
Machinery & Tools (M&T) Tax

Dear *:

This final state determination is issued upon the application for correction filed by * and (the "Taxpayers"), with the Department of Taxation. The Taxpayers appeal the assessments of BPOL tax issued to the Taxpayer for the 2006 through 2014 tax years and the assessments of BTPP tax for the 2007 through 2014 tax years by the ** (the "City").

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 and public document 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.) 15-39 (4/4/2015), the Department remanded the case back to the City in order for the proper disposition of BPOL tax liability for the 2006 through 2011 tax years and M&T tax liability for the 2007 through 2010 tax years due to each party's insufficient record keeping. The Taxpayers seek reconsideration, contending that the Department did not consider supporting documentation and an additional letter submitted to refute the City's written reply to the appeal.

ANALYSIS

Generally, the Department will limit its analysis to the interpretation of statutes, regulations and rulings regarding the application of the tax to the facts in evidence. Where the facts have been clearly articulated or in cases where both the locality and taxpayer are in agreement as to the facts at issue, the Department can issue clear guidance with regard to specific facts. Where the facts are unclear or in dispute, however, the Department has consistently deferred to the locality as the authority for the final decision on factual issues.

In this case, multiple legal entities are operating out of a single definite place of business and the documentation provided fails to clearly identify which activities are being conducted by which legal entity. As a result, the Department determined, in P.D. 15-39, that "[I]ocal tax officials are responsible for making the determination as to whether a taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other." As such, it was proper for the Department to remand the case back to the City to determine whether the Taxpayer engaged in additional licensable businesses and its local business tax liability. Likewise, it was incumbent upon the Taxpayer to provide sufficient documentation to allow the City to make an accurate determination. See Va. Code § 58.1-3703.1 A 9 and Va. Code § 58.1-3983.1 K.

Throughout the appeals process, it has been evident that the audit was contentious. Both the City and the Taxpayers have made numerous statements about the nature of the interactions between the City's auditors and the Taxpayers' employees. Such disputes are beyond the scope of the local appeals process and will not be considered, nor addressed by the Department.

I have carefully reviewed the Taxpayers' letter responding to the City's reply submitted under Title 23 of the Virginia Administrative Code (VAC) 10-500-760. Both the City's reply and the Taxpayers' letter added no new information helpful to assist the Department in analyzing the application of the law to the facts in this case.

DETERMINATION

Based on the foregoing analysis, the Department appropriately remanded this case to the City to determine the Taxpayers' BPOL tax and M&T tax liabilities. Accordingly, the determination in P.D. 15-39 is affirmed.

Further, P.D. 15-39 constitutes the Department's final determination in this matter. If the Taxpayers wish to pursue an appeal of this matter, it should apply to the appropriate circuit court for judicial review of the determination as provided under Va. Code § 58.1-3703.1 A 7 and Va. Code § 58.1-3983.1 G.

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6007822171.B