SUBJECT:

MUNICIPAL BUSINESS & OCCUPATION TAX - GROSS INCOME FROM SALES AND SERVICES ACTIVITY CONDUCTED OUTSIDE OF A MUNICIPALITY WHERE THE TAXPAYER DIRECTED THE ACTIVITY OR HAS ITS PRINCIPAL OFFICE MAY BE TAXED BY THAT MUNICIPALITY IF THE ACTIVITY IS NOT TAXED OR TAXABLE BY ANOTHER MUNICIPALITY.

 

INTRODUCTION

A question frequently asked of this Department concerns the measure of tax for the Municipal B & O Tax when a taxpayer has an office located in only one West Virginia municipality, but also engages in sales and service activities in one or more other municipalities which do not, in fact, collect the tax on those activities. The purpose of this administrative notice is to provide guidance to municipalities and taxpayers to ensure that taxpayers are properly taxed, without either being subjected to multiple taxation or escaping from taxation to which they are properly subjected.

The determination made in this Administrative Notice is limited to a narrow set of facts as follows. A taxpayer has its sole West Virginia office in municipality A, which imposes Municipal B & O Tax. The taxpayer's customer has its only office in the same municipality A. The taxpayer had failed to file any Municipal B & O Tax returns in West Virginia until contacted by municipality A, claiming that such receipts are derived from activities which are or may be "taxable" -- but are not in fact taxed -- by another municipality which does impose its own Municipal B & O Tax.

DISCUSSION

The primary source of law concerning the Municipal B & O Tax is W. Va. Code § 8-13-5. Guidance as to how the tax is to be administered is also provided in the Municipal Business and Occupation Tax Regulations, 110 C.S.R. 26, § 1 et seq, which are available from the Office of the Secretary of State for a reasonable fee.

The Municipal B & O Tax may be imposed upon persons for the act or privilege of engaging in business activities within the municipality. The tax is measured by value of products, gross proceeds of sale or gross income of the business, as the case may be. See 110 C.S.R. 26, § 2.1.

West Virginia Code § 8-13-5 states in pertinent part:

(e) Activity in two or more municipalities - Whenever the business activity or occupation of the taxpayer is engaged in or carried on in two or more municipalities of this state, the amount of gross income, or gross proceeds of sales, taxable by each municipality shall be determined in accordance with such legislative regulations as the tax commissioner may prescribe. It being the intent of the Legislature that [1] multiple taxation of the same gross income¹, or gross proceeds of sale, under the same classification by two or more municipalities shall not be allowed, and that [2] gross income, or gross proceeds of sales, derived from activity engaged in or carried on within this state, that is presently subject to state tax under section two-c or two-h [§ 11-13-2c or § 11-13-2h], article thirteen, chapter eleven of this code, which is not taxed or taxable by any other municipality of this state, may be included in the measure of tax for any municipality in this state, from which the activity was directed, or in the absence thereof, the municipality in this state in which the principal office² of the taxpayer is located. [3] Nothing in this subsection (e) shall be construed as permitting any municipality to tax gross income or gross proceeds of sales in violation of the constitution and laws of this state or the United States, or as permitting a municipality to tax any activity that has a definite situs³ outside its taxing jurisdiction. (Emphasis and bracketed numbers are added).

Subsection (e) above places only two (2) restrictions upon the power of a municipality to tax gross income from an activity in another municipality in this State which is not taxed or taxable by that other municipality, and the activity was directed from, or the taxpayer has its principal office within, its boundaries. First, multiple taxation of the same gross income is not allowed. Second, a municipality may not tax any activity that has a definite situs outside its taxing jurisdiction. Aside from those two restrictions, the taxing jurisdiction of a municipality from which the taxable activity was directed, or in which the principal office⁴ of the taxpayer is located, extends beyond that municipality to any place within the State where the activity is not taxed or taxable by another municipality. This includes areas which are not incorporated as municipalities, as well as municipalities in which the activity is not "taxed or taxable."

DETERMINATION

Based upon the actions or inactions of the taxpayer discussed in the Introduction to this Administrative Notice, the West Virginia municipality within which the taxpayer maintains its sole West Virginia office need not independently determine whether and to what extent an activity is properly "taxed or taxable" by another municipality.

The taxpayer has the burden of proving that gross income from West Virginia activities are properly taxed or taxable in another West Virginia municipality to avoid reporting such gross income to the West Virginia municipality in which the taxpayer maintains its sole West Virginia office.

When the taxpayer has not timely filed all proper returns, to the other municipality in which the taxpayer contends it is taxed or taxable, and the other municipality has made no effort to collect taxes on such activities, there is an irrebuttable presumption that the taxpayer is not taxable in the other municipality. Moreover, the doctrine of equitable estoppel should preclude a taxpayer from avoiding taxation on the ground that it was theoretically taxable elsewhere, when the taxpayer did not in actuality comply with the law, or ordinance, requiring it to pay the tax elsewhere.

CONCLUSION

The measure of tax to be paid by a Municipal B & O taxpayer is all of its gross income derived from taxable activity in this State. When more than one municipality may tax a taxpayer on its gross income from activity in those municipalities, the measure of tax of each such municipality is limited to that portion of gross income derived from activity within its jurisdiction. However, when a taxpayer has an office in only one municipality and its activities elsewhere are neither taxed nor taxable by another municipality, the gross income or gross proceeds from those activities are taxable by the West Virginia municipality in which the taxpayer's office is located, and become part of the measure of tax of that municipality. The taxpayer has the burden to establish in good faith that an activity is taxed or taxable in another municipality in accordance with this Notice.

 Notice of this determination will be filed in the State Register.

Issued: March 24, 1994	James H. Paige III, Secretary West Virginia Department of Tax & Revenue
Department of Tax & Revenue Taxpayer Services Division P.O. Box 3784 Charleston, WV 25337-3784	Operator on duty 8:30 am - 4:00 pm Monday through Friday Phone: (304) 558-3333 or 1-800-982-8297 Fax: (304) 558-3296 TDD Service/Hearing Impaired 1-800-282-9833

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¹ "Gross proceeds" refers to proceeds from the sale of tangible personal property, whereas "gross income" refers to "income from whatever source derived, unless excluded by law," and includes gross proceeds from sales of tangible personal property. See 110 C.S.R. 26, § 1a.19 and 1a.20. Therefore, any reference hereinafter to "gross income" also refers to "gross proceeds."

² The term "principal office" is not defined in the Code or Regulations thereto. According to Black's Law Dictionary (6th Ed.), the term "principal office" is synonymous with the term "principal place of business." According to Black's, the meaning of the term "principal" is "chief; leading; most important or considerable; primary; original; Highest in rank; authority, character, importance or degree." Simply put, a company's "principal office" is its main business office in this State. If a company has only one office in this State, that office is its "principal office."

³ The term "definite situs" is not defined in W. Va. Code § 8-13-5 or in the Regulations thereto. It may be helpful to rephrase the term as "a situs which is not indefinite." It appears that the intent of the term is to prevent taxation in the absence of sufficient nexus. See 110 C.S.R. 26, §§ 11, 12, and 13 for specific applications of the definite situs concept, and for its corollary, the incidental services rule, which is a throwback rule for situations where the situs of a taxable service activity is so indefinite that the municipality in which it occurs has insufficient nexus to tax it, but another municipality has sufficient nexus with the taxpayer and the primary services it performs to tax income from the activity.

⁴ It is axiomatic that physical presence creates sufficient nexus to impose tax on a taxpayer where multiple taxation will not result.