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December 16, 2009 7:00 AM CST

When Cash-Strapped States and Localities Come Knocking

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The economy has affected the budgets of not just individuals and entities, but also state and local governments. In these hard economic times, states and localities face serious shortfalls of revenue, made worse by the plunging value of real estate, shriveling sources of funding and growing budget deficits. This is why states and municipalities have begun to proactively check and enforce compliance with all taxes, including business taxes.

You are likely aware of your requirement to have a business license.But you may not know that you could be required to obtain a nonresident construction license if you work in other states, such as Maryland. Additionally,you could be subject to further business tax obligations above and beyond your business license fee, such as sales or gross receipts taxes and use taxes.

One of the most notable examples of business taxes can be found in Virginia, where counties, cities and towns are authorized to levy Business, Professional and Occupational License (BPOL) taxes. BPOL taxes are geared toward a company’s gross receipts, making these taxes controversial and, often, the subject of political attack.Most local governments in Virginia, including those in northern Virginia, have opted to impose BPOL taxes.

Generally, BPOL taxes are levied where the company has its “definite place of business.” However, special provisions apply to contractors, with one such provision allowing a locality outside the contractor’s definite place of business to impose BPOL taxes if the contractor does more than $25,000 of business in a year in that locality. Because there is no centralized administration of BPOL taxes, you must contact each applicable locality to ensure you are in full compliance with your BPOL taxes.

In an effort to encourage businesses and individuals who are behind on or noncompliant with payments, some jurisdictions will extend a form of amnesty.

The District of Columbia has an ongoing Voluntary Disclosure Program through its Office of Tax and Revenue (OTR). With this program, the District may agree to a three- to five-year lookback period and may waive civil penalties if the tax and interest is paid in full. You can find information and a form Voluntary Disclosure Agreement on OTR’s Website at http://otr.cfo.dc.gov/otr/frames.asp?doc=/otr/lib/otr/information/pdf/Voluntary_Disclosure_Program.pdf.

Because state and local governments currently are hungry for tax revenue and actively enforcing compliance with local taxes, it is vital to ensure you are in full compliance with your licensing and business tax obligations.


About the Author

Heidi Meinzer is a Shareholder with the law firm of Bean, Kinney & Korman in Arlington, Va. She can be reached at hmeinzer@beankinney.com or 703-525-4000.

This article is not intended to provide specific legal advice but, instead, as a general commentary regarding legal matters. Consult with an attorney regarding your legal issues, as the advice will depend on your facts and the laws of your jurisdiction.

 

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