Rulings of the Tax Commissioner
Formula for determining the gross receipts for BPOL tax purposes
Local Taxes Discussion; Subtractions and Exclusions; Taxable Income
September 5, 2007
Re: Request for Advisory Opinion
Business, Professional and Occupational License Tax
This is in response to your letter in which you request an advisory opinion regarding the deduction from gross receipts attributable to business conducted in another state or foreign country.
The local license fee and tax are imposed and administered by local officials. Section 58.1-3701 of the
Code of Virginia
authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the Department summarized below. Any change in facts or the introduction of new facts may lead to a different result.
Code of Virginia
, 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.
***** the "Taxpayer") is a single member LLC owned by ***** (LLC A). As a disregarded entity
the Taxpayer is not directly liable for an income or an income-like tax in Virginia and other jurisdictions. Instead, all receipts attributable to the Taxpayer's business are included on LLC A's income tax returns.
LLC A is a member of a family of corporate entities. LLC A has elected to be taxed as a corporation for federal and state income tax purposes. As a member of an affiliated group, depending upon state law, LLC A may file its income taxes on a separate, combined or consolidated basis.
The Taxpayer requests a ruling for BPOL tax purposes that it can deduct those gross receipts attributable to business conducted in other states and foreign countries and reported by LLC A where LLC A files an income or an income-like tax return.
Deductions from Gross Receipts
The BPOL tax is based on a taxpayer's gross receipts, which are defined in
§ 58.1-3700.1 as "the whole entire total receipts, without deduction." There are some specific statutory exclusions and deductions from gross receipts.
§ 58.1-3732 B 2 provides a deduction for "Any receipts attributable to business conducted in another state or foreign country in which the taxpayer (or its shareholders, partners
in lieu of the taxpayer) is liable for an income or other tax based upon income." [Emphasis added.]
The regulations further provide that the taxpayer must be liable for an income or an income-like tax in the other state and file a return in that state to take advantage of the deduction. The Virginia taxpayer, however, need not actually pay any tax to take the deduction. See
2000 BPOL Guidelines
In the present case, the question is, can the Taxpayer deduct from its gross receipts those receipts attributable to business in another state or foreign country that flow through to LLC A? Second, in those instances where LLC A files as a part of an affiliated group, is LLC A considered to have filed an income tax return for purposes of the BPOL tax out-of-state deduction? Finally, how are these receipts to be determined?
1. Can the Taxpayer deduct those gross receipts that flow through to LLC A?
The statute and regulations are clear. Only to the extent to which the Taxpayer does business in other states or foreign countries in which the Taxpayer would be liable for an income or income like tax and LLC A actually reports those receipts on behalf of the Taxpayer on its out-of-state income tax returns, can the Taxpayer deduct those receipts for BPOL tax purposes. It is incumbent upon the Taxpayer to produce figures relating
to gross receipts attributed to its business in other states (not income tax figures) in computing the out-of-state deduction. It does not matter how LLC A is required to file in other states, but it must file an income or income-like tax return in those states.
2. Does deduction apply when LLC A files as a part of an affiliated group?
For BPOL tax purposes, it is of little consequence as to whether LLC A files a separate, combined or consolidated income tax returns in other states. If the Taxpayer can demonstrate to the locality's satisfaction that those gross receipts attributed to the Taxpayer's business in other states are subject to income or income-like taxes and reported by LLC A, either separately or as a member of an affiliated group, those gross receipts must be deducted from gross receipts attributable to Virginia for purposes of the BPOL tax.
3. How are these receipts subject to the deduction determined?
Gross receipts must be attributed to a taxpayer's definite place of business, or absent a definite place of business, to the situs from which a taxpayer's business is controlled. In Public Document (P.D.) 05-1 (1/18/2005), the Department found that for a taxpayer with a definite place of business in Virginia, the out-of-state deductions allowed pursuant to
§ 58.1-3732 B 2 are calculated before the remaining receipts are apportioned among the definite places of business that a taxpayer has in Virginia.
The formula for determining the gross receipts for BPOL tax purposes when a taxpayer has one or more definite places of business in Virginia is as follows: the taxpayer must calculate its world wide gross receipts, determine those receipts that are attributed to Taxpayer's business activity sitused in Virginia, subtract those Virginia gross receipts permitted as an out-of-state deduction, and then apportion the remaining gross receipts among those localities that have a definite place of business in Virginia.
As discussed above, in the Taxpayer's case the deductible gross receipts would be those receipts for which the Taxpayer would ordinarily be liable for an income or income like tax, but, because of the organizational structure of the Taxpayer, are reported by LLC A or the affiliated group.
If you have any questions regarding this opinion, you may call ***** Office of Policy and Administration, Appeals and Rulings at *****.
Janie E. Bowen
The Taxpayer has elected to be treated as a disregarded entity for federal and state income tax purposes. See Public Document (P.D.) 97- 343 (08/28/1997) for further explanation.