Current through Register Vol. 41, No. 3, September 23, 2024
A. If
the taxpayer has more than one definite place of business and it is not
possible or practical to determine at which definite place of business gross
receipts should be taxed, gross receipts must be divided between the definite
places of businesses by payroll. Some activity must occur or be controlled from
a definite place of business for gross receipts to be taxed by the locality of
the definite place of business. If an entity's definite place of business is in
a locality that does not tax gross receipts, a different locality may not tax
these gross receipts simply because the first locality does not have a license
tax.
B. If apportionment has been
used to divide the gross receipts of the business among its definite places of
businesses, then the use of apportionment to assign gross receipts to a
definite place of business is presumed to have compromised the ability of the
taxpayer to determine the situs of the assigned gross receipts for any other
purpose, such as the other-state deduction. For the purposes of this section,
"other-state deducation" means a deduction for receipts attributable to
business in another state in which it is subject to income tax as described in
§
58.1-3732B of
the Code of Virginia. Generally, the same apportionment method used to assign
gross receipts to a definite place of business must be used to subdivide those
receipts unless the taxpayer has demonstrated that some other method is
feasible and more accurate. This requires an analysis of the facts and
circumstances applicable to each taxpayer and its definite places of business.
Both of the following conditions must be satisfied before apportionment can be
used to subdivide receipts assigned to a definite place of business by any
method.
1. The business satisfies the
conditions in subsection A of this section that make it necessary to subdivide
the gross receipts assigned to a definite place of business. For example, in
the case of the other-state deduction this would require determining if any
employees at the Virginia definite place of business participated in interstate
transactions by, for example, contacting or shipping goods to customers in
other states, participating with employees in other offices in transactions,
etc. If there has been no participation in transactions that generate
interstate receipts, then the business is not eligible for the deduction and it
has no need to subdivide the receipts assigned to the definite place of
business.
2. It must be impossible
or impractical to use specific criteria to subdivide the receipts assigned to
the definite place of business. This will normally be the case when gross
receipts have been assigned to a definite place of business by apportionment
because apportionment ignores anything related to a specific transaction other
than the criteria used for apportionment, which usually is payroll.
C. Examples:
1. A large electronics retailer has its main
sales office in City A and maintains a satellite office with its own management
in the distant County B. Sales staff from City A make the initial sales contact
in County B and process all sales related paperwork. Sales staff in County B
make all personal and follow-up sales contacts in County B. The definite place
of business is in both City A and County B since each sales office is equally
responsible for sales solicitations. If it were not possible or practical to
determine which definite place of business gross receipts should be attributed
to, gross receipts must be apportioned between the definite places of business
on the basis of the payroll of the sales staff at each respective place of
business.
2. A group medical
practice has offices in County A and City B. County A does not tax gross
receipts. Patient visits and recordkeeping functions occur in County A, but
physicians see patients in the City B offices on a regular basis. City B may
tax the gross receipts generated from services performed at offices located
within its boundaries. However, City B may not tax the practice's gross
receipts generated from County A simply because the county does not have a
license tax.
3. A service business
has two divisions, one national and the other regional. Both divisions operate
out of an office in County A. While the business can segregate its receipts by
division, it cannot assign the receipts of its national division to each
office, and it uses payroll apportionment to assign receipts to the office in
County A. The receipts of the regional division are assigned to County A using
the criteria in §
58.1-3703.1A 3
a of the Code of Virginia. Assuming that the business meets the requirements to
be eligible for the other-state deduction with respect to both divisions, the
business may use the same payroll apportionment factor of the national division
to subdivide the receipts of the national division assigned to County A. The
business will be required to identify specific receipts of the regional
division assigned to County A that are eligible for the other-state deduction
unless the business can show that it is impractical or impossible to identify
specific receipts for this purpose.
Statutory Authority: §
58.1-3701 of the Code of
Virginia; Chapter 50 of the 2017 Acts of
Assembly.
