Virginia Supreme Court Upholds State Tax Commissioner’s BPOL Apportionment Methodology Over County Commissioner‘s Objections


Many cities and counties in Virginia impose a Business, Professional, and Occupational License (BPOL) tax which is essentially a tax on Virginia gross receipts. In certain situations, taxpayers may reduce otherwise taxable gross receipts if the taxpayer is liable for income-based taxes outside the Virginia locality imposing the BPOL tax. The Virginia Supreme Court, in Nielsen Company (US), LLC v. County Board of Arlington County, Record No. 140422, (January 8, 2015), addressed the methodology for calculating such deduction for BPOL purposes.


Localities in Virginia are authorized to impose a BPOL tax that is generally measured by a taxpayer’s gross receipts earned in Virginia localities imposing such tax. Taxable gross receipts generally include receipts connected to a definite place of business in the locality. If a taxpayer has more than one definite place of business, the state’s model law provides several methods, including apportionment using a payroll factor, for calculating gross receipts taxable in a specific locality.

The law also provides a deduction from total gross receipts for receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for income or other taxes based upon income. This is irrespective of whether the taxpayer has a definite place of business outside Virginia. The issue addressed in Nielsen related to the methodology used to compute such deduction.

In Nielsen, the taxpayer had an office in Arlington County, Virginia as well as offices in 17 other states. In computing its BPOL tax due, the taxpayer apportioned income, using its payroll factor, to Arlington County. The methodology used to source income to Arlington County was not contested. The taxpayer also used its payroll factor to compute the deduction from gross receipts relating to receipts attributable to jurisdictions outside Virginia in which it was subject to an income-based tax. Arlington County contested such methodology.

Nielsen Company (US), LLC (“Nielsen”) appealed the County’s disallowance of the deduction from gross receipts to the Virginia Tax Commissioner who reversed the County Commissioner and found for the taxpayer. The Tax Commissioner applied a three-part test in determining allowable deductions from gross receipts, as follows:
• Determining whether the taxpayer’s Virginia employees participated in interstate transactions;
• Then determining whether any of the interstate transactions could be specifically tied to the interstate receipts (in which case such receipts are deductible);
• If no, then the taxpayer could use the payroll factor to determine deductible gross receipts.
The County then appealed to the Arlington County Circuit Court, which reversed the Tax Commissioner, essentially finding that taxpayers must use manual accounting to determine deductible gross receipts (e.g., the court held that an estimate is not sufficient in calculating deductions from taxable gross receipts). Nielsen then appealed to the Virginia Supreme Court which reversed the Circuit Court.

In analyzing the statutory provisions, the Court concluded that the relevant statutory authority “does not mandate or prohibit any particular methodology” in determining deductions from gross receipts. In fact, the Court held that the Tax Commissioner’s three step analysis in determining allowable deductions from gross receipts “strikes a balance between the competing interests of the [local taxing] jurisdiction and the taxpayer.” The Court, however, went on to state that taxpayers using the three-part test set forth by the Tax Commissioner still have the burden of proving that “it can satisfy each step of the Tax Commissioner’s analysis in order to take and correctly calculate the deduction” from gross receipts.

What Does CohnReznick Think?
Deceptively simple at first glance, the Virginia BPOL tax contains significant complexities – especially for multi-state service providers. Taxpayers having offices in Virginia, and who are subject to income taxes outside Virginia, should review their BPOL tax filings to ensure they are properly reporting their local Virginia taxable receipts.

For more information, please contact Fred Fanucci, Senior Manager, Tax Services, at 703-286-1723 or

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