Virginia businesses may be able to deduct their business license tax following a Supreme Court ruling, potentially opening up millions of dollars for refunds.
Business owners who have paid business license taxes may be qualified to see some of their dollars back in light of a Supreme Court decision on how these taxes are calculated.
Known as the business, professional and occupational licenses tax (BPOL), these taxes may be levied on the licensed business’ gross receipts, ranging from a few cents to 31 cents per $100 in receipts across the state.
The Supreme Court case that may turn this tax on its head involves the Nielsen Company, which was operating business in Arlington County, Virginia, but also had established operations in 18 other states. To conduct their operations, Nielsen acquired a business license tax in Arlington County. The company was eventually audited by the Commissioner of Revenue in Arlington County, who found that the company owed money on its business license tax.
Virginia’s Supreme Court ruled that the gross receipts used to calculate BPOL taxes could be deducted under a certain formula for operations that are conducted outside the state, and that Nielsen’s refund of more than $25,000 was valid. In cases where businesses operate both in Virginia and outside the state, BPOL taxes may be calculated through a methodology other than gross receipts.
BPOL taxes vary from county to county, and the governing body of any county, city or town may levy their own BPOL tax and manage their collection from businesses that operate within those borders. The law becomes even more construed for businesses that operate in Virginia and also conduct business in other states. Not all localities enforce BPOL taxes, and most business owners agree they are outdated and unfair.
Karen Simonton, a small business owner of the Orthopaedic Center of Central Virginia in Lynchburg, says the tax puts her at a disadvantage, taking away funds she could use elsewhere.
“Like other taxes, net profits which could be used to cover capital and/or labor investments are diverted to the tax which has no direct value to the practice,” she says.
Since the ruling, tax consultants have urged businesses to file their own appeals for tax deductions. According to KPMG, an international audit, tax and advisory firm, certain taxpayers may be able to file returns for refunds.
Simonton, who is not eligible for a deduction or refund, says she faces a disadvantage with the tax and it limits her business in a competitive market.
“From a competitive standpoint, it is a particular challenge in healthcare where health systems, many of which are nonprofits and therefore not subject to the BPOL, are absorbing private practices at a growing rate,” says Simonton. “It creates an uneven playing field for medical practices as they compete for labor, patients and financing.”
The latest ruling is positive for Virginia businesses and puts emphasis on an outdated tax that has its origins in the War of 1812.
“I can’t imagine a business speaking in favor of a tax!” says Simonton.
