Following a taxpayer’s appeal of a local Virginia county (County) Business, Professional and Occupational License (BPOL) tax assessment, the Virginia Tax Commissioner held that the taxpayer’s remote employees’ payroll was properly excluded from the numerator of the payroll apportionment calculation. The taxpayer was headquartered out of state and maintained offices worldwide, including an office in the County. The taxpayer and County agreed to apportion its gross receipts by payroll. The taxpayer had included in the numerator only the payroll of those employees working at its County location and those remote workers in Virginia who reported to the County location. The County, however, determined that the numerator should include the payroll of all employees working in Virginia.

For BPOL situsing purposes, taxpayers generally must include in the tax base “only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business” within the taxing jurisdiction. Va. Code § 58.1-3703.1(A)3.a. For receipts from the performance of services, if the services are not performed at any definite place of business, they are attributed to the definite place of business from which they are directed or controlled. Va. Code § 58.1-3703.1(A)3.a.(4).  But when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, such receipts are taxed based on payroll apportionment between a taxpayer’s definite places of business. Va. Code § 58.1-3703.1(A)3.b. For purposes of the payroll apportionment calculation, “[g]ross receipts shall not be apportioned to a definite place of business unless some activities under the applicable general rule occurred at, or were controlled from, such definite place of business.” Va. Code § 58.1-3703.1(A)3.b.

The Tax Commissioner held that this statutory language does not require the payroll of remote employees to be sitused to the definite place of business to which they report. Rather, the remote employee’s home may itself constitute a definite place of business. The Tax Commissioner further observed that requiring payroll of remote employees to be apportioned on a direction and control basis “would reintroduce the types of factual complexities that payroll apportionment was designed to avoid.” Thus, the Tax Commissioner rejected the County’s determination and took the taxpayer’s argument one step further, holding that numerator of the payroll apportionment calculation “should not include any employees who worked remotely outside of the County, regardless of what office they reported to.”

Va. Public Document Ruling No. 21-131, Va. Dep’t of Taxation (issued Sept. 28, 2021).