Virginia sources online course revenue in BPOL matter


The Virginia Department of Taxation recently issued a ruling concluding that receipts from online courses offered by a for-profit university were properly sourced to the university’s headquarters in an unidentified Virginia city for purposes of the local Business, Professional and Occupational License (BPOL) Tax.1 Following the state’s statutory method for sourcing gross receipts, the Department determined that the university’s headquarters in the city was deemed to be the definite place of business from which services were directed or controlled, absent evidence showing online operations were managed at another location. In doing so, the Department upheld the city’s BPOL tax assessment against the taxpayer.






In Virginia, localities are authorized to impose a BPOL tax generally on the taxpayer’s gross receipts for the privilege of conducting business in the jurisdiction.2 The tax is imposed and administered by local officials at different rates according to a taxpayer’s classification.3 According to state law, taxable gross receipts include those receipts attributable to a definite place of business within a jurisdiction.4 For service providers, a definite place of business is based on where the services are performed, or if not performed at any definite place of business, then the place from which the services are directed or controlled.5 If it is impractical or impossible to determine where the service is performed or from where the service is directed or controlled, receipts are apportioned between definite places of business on the basis of payroll.6

The taxpayer, a for-profit university, operates physical campuses in Virginia and three other states. In addition, the taxpayer offers online courses developed by subject matter experts (SMEs) and taught by faculty located throughout the United States. Under audit, a Virginia city allocated gross receipts from the online courses to the taxpayer’s definite places of business, which included the taxpayer’s headquarters located in the city, and deducted gross receipts qualifying for an out-of-state deduction. This calculation resulted in additional BPOL tax due to the city. The taxpayer appealed the assessment, contesting the city’s allocation of receipts attributable to its online courses. In denying the appeal, the city concluded that its allocation was consistent with the statutory method for sourcing gross receipts of a service business.

The taxpayer appealed the city’s final determination to the Department, asserting that gross receipts from online courses should be sourced based on the students’ location in the states where the taxpayer had physical campuses and the students resided. The taxpayer further argued that in the case of students in states with no physical campuses, online receipts should be sourced in proportion to the revenue of the physical campuses.




Department ruling


In its ruling, the Department rejected the taxpayer’s argument that gross receipts from its online courses should be sourced to the students’ location because such locations are not definite places of business of the taxpayer. The Department determined that the taxpayer did not establish whether and to what extent online services were provided at the taxpayer’s physical campuses or were directed and controlled from those campuses. The Department reasoned that assigning receipts from online courses in proportion to physical campus revenue would contravene the statutory method of assigning gross receipts to a definite place of business where the specific services in question were performed.

Next, the Department addressed the taxpayer’s argument that online services are not headquartered in the city. In support of its argument, the taxpayer asserted that online services are performed, directed or controlled by SMEs who develop the course material and instructors who present the material from various locations throughout the U.S. However, the Department determined that the taxpayer failed to establish whether the SMEs and instructors were classified as employees whose locations constituted a definite place of business.7 Where a definite place of business cannot be established at employee locations, the Department reasoned that it would next look to “the place where decisions are made regarding the courses being offered.” In the absence of evidence showing that the taxpayer’s online operations were managed at another location, the Department concluded that “the Taxpayer’s headquarters in the City appears to be the logical choice.”

Finally, the Department noted that it would be improper to adopt the taxpayer’s proposed alternative method of allocation and depart from the statutory method in the absence of appliable judicial precedent or other statutory authority giving the Department the power to approve alternative sourcing methodologies. Concluding that the taxpayer failed to demonstrate how its gross receipts should be sourced under the statutory method, the Department affirmed the city’s BPOL tax assessment.






The Department’s ruling represents a relatively straightforward application of Virginia’s underlying service gross receipts sourcing statute for BPOL purposes. In the case of educational institutions providing online courses, the ruling establishes that taxpayers are required to provide sufficient evidence to support a position that online operations are managed at a location different from the company’s headquarters. If a definite place of business cannot be established at locations where employees are performing services, then the Department will source receipts to the location from where the services are directed or controlled in accordance with the statutory method. In the case at issue, the Department concluded that the most logical location was the taxpayer’s headquarters, given that decisions about course offerings and content approval are most likely made from this location.

Given the rise of for-profit universities and educational institutions with online course offerings, the ruling carries important implications for those institutions operating in Virginia. The decision provides more certainty as to the proper method of sourcing gross receipts from online courses, potentially supporting a position that such receipts may be sourced outside Virginia for education providers that are operationally based outside the state. However, the ruling may also focus greater attention on where online learning providers choose to locate their operational headquarters for purposes of directing and controlling online course operations, rather than looking at the location of SMEs, instructors, or students. It is possible that as a result of this decision, companies with substantial physical presence in large Virginia municipalities that impose BPOL tax may consider whether to restructure their online learning operations accordingly in order to avoid additional BPOL tax liability.



1 Ruling of the Commissioner, P.D. No. 21-9, Virginia Department of Taxation, Feb. 2, 2021.
2 VA. CODE ANN. § 58.1-3703.A.
3 VA. CODE ANN. § 58.1-3706.A.
4 VA. CODE ANN. § 58.1-3703.1.A.3(a).
5 VA. CODE ANN. § 58.1-3703.1.A.3(a)(4).
6 VA. CODE ANN. § 58.1-3703.1.A.3(b).
7 The Department observed that the activities of individuals performed on behalf of the taxpayer may constitute a definite place of business only when being performed by employees, and not independent contractors. Ruling of the Commissioner, P.D. No. 14-121, Virginia Department of Taxation, July 24, 2014.





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