Ford Motor Credit v. Chesterfield County

Present: Kinser, C.J., Lemons, and Mims, JJ., and Carrico,
*
Russell, Lacy, and Koontz, S.JJ.

FORD MOTOR CREDIT COMPANY
OPINION BY
v. Record No. 092158 CHIEF JUSTICE CYNTHIA D. KINSER
March 4, 2011
CHESTERFIELD COUNTY

FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
Michael C. Allen, Judge

In this appeal, Ford Motor Credit Company (FMCC) challenges

the assessment of Business, Professional and Occupation License

(BPOL) taxes by Chesterfield County (the County) on the gross

receipts that the County attributed to a branch office of FMCC

located in the County (the Richmond Branch) for the tax years

2001 through 2004. The Court must determine whether the circuit

court erred in holding that the County included in the taxable

measure only those gross receipts attributable to the exercise

of the licensed privilege at a definite place of business in the

County. Because the Court concludes that the circuit court so

erred, we will reverse its judgment for the County.

MATERIAL FACTS AND PROCEEDINGS

Pursuant to Code §§ 58.1-3702 and –3703(A), and

Chesterfield County Code § 6-4, the County levied BPOL taxes

against FMCC in the amounts of $327,137.85, $306,435.65,

*
Justice Koontz presided and participated in the hearing
and decision of this case prior to the effective date of his
$432,620.96, and $449,740.59 for the tax years 2001, 2002, 2003,

and 2004, respectively. In February 2007, following the

County's 2004 denial of FMCC's request for a partial refund of

BPOL taxes paid for the years in question, FMCC filed in the

circuit court an "Application for Correction of Erroneous

Assessment of Business, Profession[] and Occupation License

Tax," seeking a refund of BPOL taxes in the amount of

$1,515,935.05. 1 See Code § 58.1-3984. Citing Code § 58.1-

3703.1(A)(3)(a)(4) and (A)(3)(b), FMCC alleged that, in the

foregoing years, it had "mistakenly paid BPOL tax[es] to [the]

County on the entire gross receipts of loans related to its

Richmond Branch," instead of apportioning the receipts "to

reflect the limited contribution of the Richmond Branch to

[FMCC's] nationwide business." FMCC asserted that the

assessments violated the attribution requirement of Code § 58.1-

3703.1, the deduction requirement of Code § 58.1-3732(B)(2), and

the Commerce Clause's fair apportionment requirement. Cf. U.S.

Const. art. I, § 8.

The material facts are uncontested. FMCC is a subsidiary

of Ford Motor Company and is headquartered in Dearborn,

retirement on February 1, 2011; Justice Kinser was sworn in as
Chief Justice on February 1, 2011.
1
FMCC initially filed its application in 2004, but
subsequently nonsuited that action. It refiled the application
in 2007.

2
Michigan. It is a "financial services provider, primarily to

the automobile purchase or loan lessee environment," but it also

"finance[s] dealer floor plan[s]" and "dealer capital loans." 2

The capital necessary to make loans originates from FMCC

headquarters in Michigan, as do the policies and criteria

governing loan approval, contract terms, and other management

issues.

Until its closing in 2007, the Richmond Branch was one of

FMCC's 300 sales branches and, at one time, was one of three

operating in the Commonwealth. Approximately 75 percent of the

Richmond Branch's business was "retail and lease contracts from

dealerships," generally referred to as consumer financing for

the purchase of vehicles, but its business also included FMCC's

other revenue-producing activities: "floor plan loan financing

and dealership loan financing." 3 The Richmond Branch was tasked

with contacting and training dealers to increase vehicle sales

and the number of loans made by FMCC, approving loan

applications, determining loan interest rates, and providing

2
FMCC also had a division called "Primus" that provided
loans for the purchase of "non-Ford vehicles." There were only
"negligible differences" between the way FMCC and Primus
operated at the branch level.
3
"Dealership loan financing," also referred to as "dealer
capital loans," involved financing for physical plant
improvements and dealership property acquisitions.

3
programs and training for dealers concerning FMCC's financing

programs.

During the period in question, the Richmond Branch reported

to a regional office in Chantilly, Virginia, while offices in

Baltimore, Maryland; 4 Nashville, Tennessee; Omaha, Nebraska;

Mesa, Arizona; and Livonia, Michigan also played a role in

managing and administering loans that originated in FMCC's

Richmond Branch. The Chantilly office managed all the branches

within the region and approved certain larger loan amounts, such

as dealer floor plan financing. The Baltimore office operated

as a "service center[]" and was responsible for processing loan

payments to insure that customer payments were credited to the

correct account, maintaining customer contact records, working

with customers on late payments and refinancing, and handling

the titling of vehicles when loans were initially made and then

paid in full. The Baltimore service center did "the bulk of the

work" that went into ensuring receipt of monies from loans

closed by the Richmond Branch. The Nashville office was also a

service center, but handled Primus loans exclusively as the

headquarters of FMCC's Primus division. Some Primus loans were

processed through FMCC's Richmond Branch. Finally, the service

4
The Baltimore service center is located in Columbia,
Maryland and is alternatively referred to as the Columbia
service center.

4
center located in Omaha, Nebraska "handle[d] overflow business

only."

FMCC also had centers that dealt with loans originating in

the Richmond Branch, and elsewhere, that subsequently went into

default. One such office in Mesa, Arizona, "the national

recovery service center," was responsible for "ensur[ing] that

[FMCC] obtain[ed] payment for any loans or leases that [were] in

default." Its objective was to "get all the monies due [FMCC]

under the loans or the leases." The other collection office

that served the Richmond Branch was the Livonia office, which

housed "the bankruptcy specialists." All the loan receivables

"managed by FMCC [were] the receivables owned by FMCC."

With regard to the installment financing of vehicle

purchases, the Richmond Branch reviewed loan applications from

customers who sought to "purchase or lease a vehicle" from a

Ford Motor Company dealership, and decided "whether or not to

approve the loan . . . based on procedures set out by [FMCC

headquarters in] Dearborn." The Richmond Branch also determined

interest rates, sometimes approving a lower rate for a customer

with a good credit score. However, most of the interest rates

were set by the headquarters in Michigan. When the Richmond

Branch approved a loan application, it notified the dealership,

where the customer actually executed the installment loan

contract. After the documents were signed and returned to the

5
Richmond Branch, it collected "all the paperwork" and forwarded

the documents to a service center, which "then t[ook] over the

duties of . . . get[ting] the title for the vehicle" and

"maintain[ing] the loan." When a "contract package [came back]

into the branch," information was entered into a database, an

activity that signaled the headquarters in Michigan "to wire

funds electronically . . . to the dealership's bank account."

The money was used to finance either the customer's purchase or,

in the case of a lease, FMCC's purchase of the vehicle from the

dealership.

The process of deciding whether to approve a loan

application, and then processing an approved application and

completed loan usually took "20 to 30 minutes for one

application for one customer," while the "standard Ford Credit

loan or lease usually stay[ed] on the books right at 30 months."

The entire process "from the time that the loan application

[came] in until the time the paperwork [was] completed and

shipped out" took "three days to a week." After "the packet of

documents [was] sent off," the Richmond Branch had no further

involvement with the loans. The Richmond Branch did not process

funds, receive payments, engage in collection or other customer

service activities, or handle delinquent debts. During the

years in question, the Richmond Branch processed "around 20,000

[retail loans and leases] a year."

6
 The Richmond Branch performed similar activities with

respect to "floor plan financing," with rates and approval

guidelines set by, and money sent from, FMCC's headquarters.

But, the regional office and headquarters exercised a greater

degree of control over how much money was loaned to a particular

dealer. Once such a loan was approved, the Richmond Branch's

"responsibilities were limited to auditing the [dealer's]

inventory" and occasionally facilitating inventory trades

between dealerships.

Likewise, the Richmond Branch's role as to "dealership loan

financing" or "dealer capital loans" was comparable to its role

with "floor plan financing." But, in the case of "dealership

loan financing," the Richmond Branch actually received payments

on the loan amount, noted their receipt, and then forwarded the

payments "to a Ford Credit lockbox for posting to the account."

FMCC's witness who qualified as an "expert in the field of

accounting" and "in state and local . . . business license

taxes" summarized in detail how a consumer installment loan to

purchase a vehicle was processed, maintained, and serviced by

FMCC:

A loan gets made at the dealer level and the
paperwork goes to the branch, it's approved at the
branch. Branch personnel make sure that the
underwriting standards are in keeping with the
parameters of the company. They then approve the loan
and then within 30 days, that loan package is then

7
 forwarded on to a service office. In this case, it
was Columbia during the four years in question.

At the service office, the loan is administered.
If there are late payments, someone follows up. They
record the payments. If there is a need for
administrative changes in the loans, such as change of
address, they handle that. If there's a problem with
a loan, if refinancing is a requirement, if a payment
needs to be skipped, they handle these matters. They
also handle matters relating to the loan if the loan
goes into default, and then they bring in either the
Livonia office, which would handle the bankruptcy
proceeding, if one was involved, or – and/or one of
the recovery centers, and recovery centers handle
repossession of the underlying security, the
automobile, and then also the disposal of that
automobile in recovery of the principal on the debt.

The headquarters serves a very important function
as well. They handle the marketing of the company.
They handle the general overall strategy of the
company. They set the audit or, rather, the
underwriting standards so that they can mitigate the
risk on the loans in the loan portfolios that are made
by FMCC. They also work within the marketplace to
secure capital so that the capital can be loaned to
individuals to buy automobiles. They also handle
securitization for those loan packages, and
securitization is merely a secondary market activity
where they securitize the loans and then receive funds
in exchange for the securitization so that they can
reloan those funds to the borrowers.

The accounting expert also testified that FMCC used an

accrual accounting method, meaning that FMCC recorded loans as

receivables on a balance sheet when they were made, and "booked"

revenue on an income statement when payments of interest and

fees were due. In the event of a default on a loan, "revenue

would be booked when the security [was] sold and the principal

satisfied on the note," resulting in "either . . . a gain or a

8
loss on the loan." Loans approved and closed by the Richmond

Branch were not "booked" there for Virginia or federal income

tax, or any other, purposes.

The expert testified that the "internal accounting system"

relied on by the County to justify their attribution of gross

receipts to the Richmond Branch, known as "MAPS" or "management,

analysis, and performance system," was accurate but was a

"contract revenue-based system." He stated that MAPS

"associates revenue attributable to loans . . . and leases . . .

that . . . come from the business that FMCC conducts with its

dealers," allowing FMCC to determine at which dealers the loans

"were completed," and which branches processed the loans.

However, according to the expert, MAPS was "not an activity[-

]based system at all" and thus did not attribute revenue based

on the activities or work of personnel at the Richmond Branch,

or anywhere else, or even track "which office is responsible for

what activities with respect to a particular loan[.]" The

expert doubted whether "a system could be devised . . . to track

and attribute revenue based on where services are performed,"

concluding "it would be very difficult to do." He explained

that "[t]here's no way to take . . . one payment or . . . one

dollar of interest . . . and take that and distribute it among

all of the activities that may come into play on that loan."

Thus, he concluded that it was "impossible or impractical to

9
utilize . . . the general rule" of attribution and that "payroll

apportionment" was the appropriate method to determine the BPOL

tax FMCC owed the County during the years in question. The

expert explained that payroll apportionment reflects all the

activities that generated revenues when FMCC loaned money to

customers, received payments from customers, addressed inquiries

from customers, and repossessed vehicles from customers.

Having completed a payroll apportionment calculation,

FMCC's expert stated that either the sum of $1,428,534 or

$1,414,913 should be refunded to FMCC. He believed that FMCC

erred in reporting gross receipts for all loans originating in

the Richmond Branch and failing to take into account "that other

offices [came] into play to administer those loans and those

leases and the important functions that Dearborn provide[d] in

order for the business to be viable." Explaining the deduction

allowed in Code § 58.1-3732(B)(2), he also stated that FMCC

failed to take the deduction "for receipts that [were]

attributable to the conduct of business in other states where

the company [was] liable for an income tax."

A regional sales manager for FMCC testified that without

the work of the various offices that dealt with loans

originating in the Richmond Branch, FMCC would not collect the

full amount due under its loan contracts. Similarly, FMCC's tax

counsel opined that the service centers "add value" to the loans

10
because their activities "generat[e] monies." He further stated

that tracking revenue based on services provided by FMCC was not

possible.

In contrast, the County's Commissioner of Revenue (the

Commissioner) stated that FMCC provided "a product to their

customers, the product being money in the form of loans.” He

further testified that for purposes of BPOL taxation for a

financial services company like FMCC, "[g]enerating gross

receipts is the set of activities or things that a business does

to actually get the receipt into the business," i.e., "the

activities . . . directly related to creating the receivable"

such as having "a customer sign on the dotted line and issue the

loan, giv[ing] the money to the dealer so that customer can

drive that car home." But, according to the Commissioner,

"[c]ollecting gross receipts" is not a "set of activities . . .

that a business does to actually get the receipt into the

business" but is only a "necessary process of any business that

has a receivable." He also stated that "[g]enerating is taking

the necessary actions to create a receivable or to make the sale

so that somebody pays you" and that "receipt occurs after

somebody collects what they want to collect." FMCC's centers

outside the Richmond Branch did not, in the Commissioner's

opinion, "generate gross receipts." Nevertheless, he admitted

that he had never seen a document that tracked FMCC's revenues

11
based on the location where services were provided. The

Commissioner admitted that "there is no proper way to apportion"

FMCC's gross receipts.

Upon reviewing the evidence, presented through exhibits and

testimony, the circuit court denied FMCC's application and

dismissed it with prejudice. In a letter opinion incorporated

in its final order, the circuit court found that FMCC's business

was that of providing "retail financing, wholesale financing

(also called 'floor plan financing'), and a . . . catchall

category referred to as 'other financing.'" According to the

court, "the Richmond Branch operated as a loan origination

office" for all three types of financing, and "marketed and

closed" primarily "consumer loans for individual new and used

cars."

The circuit court concluded that "the Richmond Branch's

marketing and closing operations generated gross receipts in the

form of interest and fees." FMCC then "recorded the loans as

receivables and forwarded them to service centers for servicing

and collection." The court found that MAPS "allowed the company

to accurately track the gross receipts generated by each sales

office," thereby attributing to the Richmond Branch only the

gross receipts generated there. The court expressly rejected

FMCC's argument that "the MAPS figures for the Richmond Branch

were intended for internal management purposes only" and did not

12
reflect where the gross receipts were actually generated.

Instead, the court found "that the MAPS figures accurately

reflect the gross receipts generated as [a] result of the

distinct efforts of the Richmond Branch." Thus, the court

concluded that "[b]ecause the Richmond Branch generated gross

receipts from a definite place of business in Chesterfield

County, imposition of BPOL tax on the gross receipts generated

[there is] consistent with" Code § 58.1-3703.1(A)(3)(a)(4).

Although the circuit court also found that "[a]fter

closing, loans generated by the Richmond Branch were transferred

for portfolio management to 'service centers' organized and

operated by FMCC in three other states[,]" it nevertheless

concluded, "[t]he service centers neither created new loans nor

added value to existing loans--they simply managed loans

generated and closed by the Richmond Branch[; t]he service

centers did not generate gross receipts." (Emphasis added.)

Likewise, the court concluded that although the Richmond Branch

was "overseen by a regional office . . . and by FMCC corporate

headquarters," which provided "management policy" assistance to

the Richmond Branch and were "known as 'cost centers,'" "neither

office generated gross receipts." (Emphasis added.)

Further, the circuit court found that no "gross receipts

generated by the Richmond Branch were taxed by, or rendered

subject to taxation by, any other jurisdiction," as "FMCC

13
reported none of the gross receipts taxed by [the] County for

taxation in any other state." However, the parties did

stipulate that for all the relevant tax years, "FMCC filed state

income tax or income tax-like returns in 47 states and the

District of Columbia."

The circuit court, thus, also rejected FMCC's argument that

the gross receipts must be "apportioned by payroll," concluding

that "determination of the gross receipts generated by the

Richmond Branch . . . is neither impractical nor impossible."

The circuit court expressly noted that "MAPS[] provides a

reliable and accurate accounting of the gross receipts generated

by the Richmond Branch," and that none of the "service centers"

or "cost centers" located elsewhere "generated gross receipts

within the meaning of applicable BPOL guidelines," but only

"served the interests of FMCC." Therefore, it held that "the

assessments in this case were based solely on gross receipts

generated by the Richmond Branch for services performed within

the County."

Also, the circuit court rejected FMCC's challenge to the

assessments as violating the fair apportionment prong of the

four-part Commerce Clause test for local taxation set forth in

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).

The circuit court determined that "the income attributed to the

Richmond Branch was not 'out of all appropriate proportion' to

14
the business transacted in the locality," and that FMCC faced no

risk of "double taxation." The circuit court, accordingly,

entered an order denying FMCC's application, affirming the

assessment (with the County's requested increase), 5 and

dismissing the action. We awarded FMCC this appeal.

ANALYSIS

Although FMCC raises multiple assignments of error

challenging the circuit court's judgment, the dispositive issue

is whether the circuit court erred in holding that the County

properly attributed all gross receipts for loans that originated

in the Richmond Branch to FMCC's services provided in the

County, without apportionment or deduction. Because this issue

presents a mixed question of law and fact, we conduct a de novo

review. Luria v. Board of Dirs. of Westbriar Condo. Unit Owners

Ass'n, 277 Va. 359, 365, 672 S.E.2d 837, 840 (2009).

"In our review of the circuit court's application of the law to

the facts, we give deference to the circuit court's factual

findings and view the facts in the light most favorable to the

[County], the prevailing party below." Id.

The provisions of Code § 58.1-3703(A) set forth the sole

grant of authority for localities to levy BPOL taxes. In

pertinent part, the statute states:

5
The circuit court actually increased the County's BPOL
assessment to $1,791,438.13, which is the subject of an

15
 The governing body of any county, city or town
. . . may levy and provide for the assessment and
collection of county, city or town license taxes on
businesses, trades, professions, occupations and
callings and upon the persons, firms and corporations
engaged therein within the county, city or town.

See Code § 58.1-3702 ("The provisions of this chapter[, Chapter

37, titled License Taxes, of Subtitle III, titled Local Taxes,

of Title 58.1, titled Taxation,] shall be the sole authority for

counties, cities and towns for the levying of the license taxes

described herein.")

When reviewing whether a particular subject of taxation, in

this case, gross receipts, falls within a locality's statutory

power to tax, we apply the rule that such

[s]tatutes imposing taxes are to be construed most
strongly against the government, and in favor of the
citizen, and are not to be extended by implication
beyond the clear import of the language used. Whenever
there is a just doubt, "that doubt should absolve the
taxpayer from his burden."

City of Winchester v. American Woodmark Corp., 250 Va. 451, 456-

57, 464 S.E.2d 148, 152 (1995) (Woodmark I) (quoting

Commonwealth Natural Res., Inc. v. Commonwealth, 219 Va. 529,

537-38, 248 S.E.2d 791, 796 (1978)); accord Commonwealth v.

Appalachian Electric Power Co., 193 Va. 37, 46, 68 S.E.2d 122,

127 (1951).

Nevertheless, "a tax assessment made by the proper

authorities is prima facie correct and valid, and the burden is

assignment of error.

16
on the taxpayer to show that such assessment is erroneous."

Commonwealth v. American Radiator & Standard Sanitary Corp., 202

Va. 13, 18, 116 S.E.2d 44, 47 (1960); see also Code § 58.1-

3984(A) (in proceedings to correct erroneous assessment of local

levies, "the burden of proof shall be upon the taxpayer to show

that . . . the assessment is . . . invalid or illegal"); LZM,

Inc. v. Virginia Dep't of Taxation, 269 Va. 105, 109, 606 S.E.2d

797, 799 (2005) (applying presumption of validity to an

assessment of sales tax and stating that "the burden is on the

taxpayer to show that such assessment was the result of

'manifest error' or in 'total disregard of controlling

evidence' ") (citation omitted); Department of Taxation v. Lucky

Stores, Inc., 217 Va. 121, 127, 225 S.E.2d 870, 874 (1976)

(holding in a challenge to the imposition of income taxes that

"the taxpayer [was] confronted with a presumption of validity

attached to the decision" of the taxing authority and that "the

burden [was] on the taxpayer to prove that the assessment [was]

contrary to law or that the [taxing authority] abused [its]

discretion and acted in an arbitrary, capricious or unreasonable

manner").

The General Assembly has imposed certain restrictions on

the assessment of BPOL taxes. The provisions of Code § 58.1-

3706 impose limits on the rate of taxation that localities may

impose on gross receipts. Further, any local ordinance "levying

17
such license taxes [must] include the provisions of [Code]

§ 58.1-3703.1." Code § 58.1-3703(A); see also Code § 58.1-

3703.1(A).

Code § 58.1-3703.1 contains the primary limitations

governing BPOL taxation, and provides a "[g]eneral rule" for the

situs of gross receipts in subsection (A)(3)(a):

Whenever the tax imposed by this ordinance is
measured by gross receipts, the gross receipts
included in the taxable measure shall be only those
gross receipts attributed to the exercise of a
privilege subject to licensure at a definite place of
business within this jurisdiction.

Code § 58.1-3703.1(A)(3)(a). That subsection then specifies

four different situs rules applicable to four types of

businesses, including one for service businesses: "The gross

receipts from the performance of services shall be attributed to

the definite place of business at which the services are

performed or, if not performed at any definite place of

business, then to the definite place of business from which the

services are directed or controlled." Code § 58.1-

3703.1(A)(3)(a)(4).

Neither party contests that FMCC was a service business for

purposes of Code § 58.1-3703.1(A)(3)(a)(4). Specifically, FMCC

provided "[f]inancial services," meaning "the buying, selling,

handling, managing, investing, and providing of advice regarding

money, credit, securities, or other investments." Code § 58.1-

18
3700.1; see also 23 VAC § 10-500-10 (defining "financial

services" as "the buying, selling, handling, managing, and

investing [of] money, credit, securities, or other investments

for others, as well as providing advice to others on such

matters") (emphases added); 23 VAC § 10-500-390 (providing a

list of financial services, including "[i]nstallment financing,"

"[i]nventory financing," "[c]onsumer financing," and "[l]oan or

mortgage companies"). Thus, the general rule of attribution set

forth in Code § 58.1-3703.1(A)(3)(a)(4) applies to FMCC unless,

as the licensee, it "has more than one definite place of

business and it is impractical or impossible to determine to

which definite place of business gross receipts should be

attributed under the general rule." Code § 58.1-

3703.1(A)(3)(b). In that instance, gross receipts must be

"apportioned between the definite places of business on the

basis of payroll." Id.

Both parties, and the circuit court, also agreed that FMCC

had several definite places of business outside the County that

managed FMCC generally, oversaw the Richmond Branch's

operations, and administered the loans originating at the

Richmond Branch. See Code § 58.1-3700.1 (defining "definite

place of business" to mean "an office or a location at which

occurs a regular and continuous course of dealing for thirty

consecutive days or more"). FMCC, however, disputes the circuit

19
court's holding that the gross receipts in question were solely

"generated by the Richmond Branch for services performed within

the County." Because, according to FMCC, most of the gross

receipts were not "directly attributable to the taxable

privilege exercised within [the County]" but rather to the

performance of financial services at various FMCC offices across

the nation, it contends that it was "impractical or impossible

to determine to which definite place of business gross receipts

should be attributed." Code § 58.1-3703.1(A)(3)(b). Thus, FMCC

asserts that "the gross receipts of [FMCC's Richmond Branch

must] be apportioned between the definite places of businesses

on the basis of payroll," pursuant to Code § 58.1-

3703.1(A)(3)(b).

Relying on language appearing in the Virginia

Administrative Code, the County, however, contends that the

financial service FMCC provided was "the 'selling' of 'money'

through installment loans 'to others.' " 23 VAC § 10-500-10.

FMCC's service centers and cost centers, according to the

County, did not provide " 'financial services' to others."

(Emphasis added.) Instead, argues the County, those out-of-

state centers merely served FMCC's interests by collecting the

receivables generated when the Richmond Branch sold and closed a

loan, with the terms and amount of repayment being fixed at

closing. Thus, the County contends that only the Richmond

20
Branch's activities qualified as a financial service business

that generated gross receipts.

Because FMCC, as a financial services business, had

definite places of business in multiple jurisdictions outside

the County, this Court must determine, first, whether the

circuit court erred in its application of the law to the facts

of this case by holding that all the gross receipts taxed by the

County were attributable "to the exercise of a privilege subject

to licensure at a definite place of business within" the County.

Code § 58.1-3703.1(A)(3)(a); see also 23 VAC § 10-500-10

(defining "gross receipts" as "money . . . received . . . as a

result of transactions with others . . . and that are derived

from the exercise of the licensed privilege"). If we answer

that question affirmatively, we then must decide whether the

circuit court erred in holding that it was "neither impractical

nor impossible" to attribute the gross receipts to the

performance of services at a specific, definite place of

business, and that payroll apportionment was not required. In

other words, the questions are whether FMCC carried its burden

to prove that the gross receipts taxed by the County were not

attributable solely to the performance of financial services at

a definite place of business in the County, Code § 58.1-

3703.1(A)(3)(a)(4), and whether the County's BPOL assessment

must be "apportioned . . . on the basis of payroll" because "it

21
is impractical or impossible to determine to which definite

place of business gross receipts should be attributed." Code

§ 58.1-3703.1(A)(3)(b).

In determining whether the gross receipts in question were

attributable solely to FMCC services rendered in the County, we

turn for guidance to this Court's decision in City of Winchester

v. American Woodmark Corp., 252 Va. 98, 471 S.E.2d 495 (1996)

(Woodmark II). In that case, the City of Winchester had imposed

BPOL taxes on "100% of American Woodmark's revenues" although

only its corporate headquarters were located in the City, and

"manufacturing and distribution centers as well as service and

sales offices" numbering "24 facilities in 13 different states"

were also part of American Woodmark's business operations. Id.

at 103, 471 S.E.2d at 498. American Woodmark had alleged, and

the trial court agreed, that the assessments violated the

Commerce Clause "because the City had not fairly apportioned the

assessments to tax only those gross receipts attributable to

[its] business activities within the City." Id. at 101, 471

S.E.2d at 497. In resolving this challenge, the Court applied

the relevant Commerce Clause test, which requires that the BPOL

tax apply "only to the 'portion of the revenues from the

interstate activity which reasonably reflects the in-state

component of the activity being taxed.' " Id. at 102, 471

S.E.2d at 497 (quoting Goldberg v. Sweet, 488 U.S. 252, 262

22
(1989)). The Court concluded that "[c]ommon sense compels the

conclusion that these [out-of-jurisdiction] operations added

value to American Woodmark's business product and were revenue

producing activities." Id. "[I]t [was] equally axiomatic that

the value added to the product by the Winchester operations

could not possibly produce 100% of the revenues." Id. Thus, in

resolving American Woodmark's Commerce Clause challenge to the

BPOL taxes, the Court held that "American Woodmark [had] met its

burden of proof by presenting clear and cogent evidence that the

income which the City through its assessments attributed to

operations conducted in Winchester [were] 'out of all

appropriate proportions to' and [had] 'no rational relationship'

to the business transacted in Winchester." Id. Although a

statutory challenge 6 was not presented in Woodmark II but only a

challenge under the Commerce Clause, the Court's holding, by

implication in the context of the present case, means that the

gross receipts the City had included in the taxable measure were

not "only those gross receipts attributed to the exercise of a

privilege subject to licensure at a definite place of business"

in the City of Winchester. Code § 58.1-3703.1(A)(3)(a). See

6
The BPOL situs statute then in effect was former Code
§ 58.1-3707, which limited the localities' power to tax based on
"volume" to "the volume attributable to practice in" the
relevant locality, with "volume" meaning "gross receipts or any
other base for measuring a license tax which is related to the
amount of business done." Former Code § 58.1-3707(A) and (D).

23
Woodmark II, 252 Va. at 103, 471 S.E.2d at 498 (holding that

because the out-of-jurisdiction activities were "revenue

producing," "[b]y definition, assessments based on 100% of

American Woodmark's revenues included revenues realized from

value produced in locations other than in the taxing

jurisdiction").

Turning to the case before us, we recognize that when a

consumer or dealer executed an installment loan contract with

FMCC and the loan documents were returned to the Richmond Branch

and then forwarded to a service center, FMCC's entitlement to

monies (principal, interest, and fees) with respect to that

particular loan was fixed by the loan contract's terms. In the

County's nomenclature, money had been sold at that point, but

FMCC had only a receivable, not gross receipts. As the County's

Commissioner of Revenue acknowledged, "[t]here is" "a difference

. . . between a gross receipt . . . and a receivable," and Code

§ 58.1-3703.1(A)(3)(a)(4) renders that difference significant

here. When, as in this case, the BPOL tax "is measured by gross

receipts," the gross receipts that the County could include "in

the taxable measure" were "only those gross receipts attributed

to the exercise of" the licensed privilege, financial services,

at a definite place of business in the County. Code § 58.1-

3703.1(A)(3)(a). And when financial services provided in other

jurisdictions contribute to the derivation of the gross

24
receipts, those services must be accorded some proportion of the

gross receipts, and the BPOL “taxable measure” reduced

accordingly.

Thus, we do not agree with the County's position that gross

receipts were generated when, for example, a customer simply

signed "on the dotted line" and the loan was made. The gross

receipts derived from the exercise of FMCC's licensed privilege

to conduct a financial services business – to provide

installment and inventory financing – were not attributable

solely to the performance of financial services at the Richmond

Branch. To accept the County's position and the circuit court's

holding would mean that all services necessary to FMCC's

deriving gross receipts from its consumer installment and

inventory financing operations were provided at the Richmond

Branch. But, such are not the facts of this case.

The money to sell to consumers and dealers through

installment and inventory financing came from FMCC's

headquarters in Michigan. Part of the headquarters' operations

was the securing of capital so that money could be loaned to

consumers to purchase vehicles and to dealers for floor-plan

financing and physical plant improvements. FMCC's headquarters

also obtained securitization of loan packages. The operations

of FMCC's service centers included, among other things, helping

consumers with administrative changes in their loans such as

25
changes of address and re-financings. FMCC also served its

customers by titling vehicles, tracking loan repayment progress,

providing statements, and logging payments. All these

activities were an integral part of the financial service of

installment and inventory financing and were proven by “clear

and cogent evidence.” Woodmark II, 252 Va. at 103, 471 S.E.2d

at 498. In other words, the operations of the Richmond Branch

did not produce 100 percent of the gross receipts that the

County taxed. 7 See id.

Thus, we conclude that the circuit court erred in holding

that all the taxed gross receipts were "attributed to the

exercise of a privilege subject to licensure at [the Richmond

Branch] within [the County]." Code § 58.1-3703.1(A)(3)(a). We

find support for the conclusion we reach today in the rulings of

the Virginia Department of Taxation (the Department). See Code

§ 58.1-205(3) (directing courts to "accord[] judicial notice" to

the Department's duly promulgated rulings). In Public Document

(P.D.) 97-284 (June 25, 1997), the Tax Commissioner advised a

7
Nothing in our analysis of Code § 58.1-3703.1(A)(3)(a)
should be read to control when gross receipts may be taxed, but
only which gross receipts, whenever taxable, a locality may tax
under Code § 58.1-3703.1(A)(3)(a). Even though gross receipts
may be reported based on the accrual method, see, e.g., Monument
Assocs. v. Arlington Cnty. Bd., 242 Va. 145, 147-78, 408 S.E.2d
889, 890 (1991), the BPOL taxable measure can only include
"those gross receipts attributed to the exercise of a privilege
subject to licensure at a definite place of business" in the
taxing jurisdiction. Code § 58.1-3703(A)(3)(a).

26
locality with regard to the assessment of BPOL taxes on a

business that operated a laboratory for collecting specimens.

The business sent the collected specimens to facilities outside

the locality for "actual testing," and the business' billing and

collection operations occurred at its headquarters located in

another state. The Tax Commissioner concluded that "both the

collection and the testing of specimens [were] part of the

services performed by the taxpayer." Thus, the locality could

impose a BPOL tax on the gross receipts that were attributed to

the specimens' collection, but not on the gross receipts

attributable to the specimens' testing. The Tax Commissioner

further stated that if it was "impossible or impractical to

determine which gross receipts [were] attributed to the

collection of the specimens and which gross receipts [were]

attributed to the testing of the specimens," the locality should

apportion gross receipts on the basis of payroll.

The operations of FMCC's headquarters in securing capital

for loans to consumers and dealers are comparable, for our

purposes, to the laboratory's collecting of specimens.

Obviously, specimens cannot be tested until they are collected

and, similarly, loans cannot be made unless there is available

capital. Moreover, loans, by definition, cannot be made without

any mechanism for repayment and administrative changes. In

short, those activities – obtaining capital, collecting

27
payments, and helping customers make changes in their loans –

provide a financial service "to others." 23 VAC § 10-500-10.

Thus, we reject the County's argument that FMCC's service

centers "serve[d] only the taxpayer's interest, and no other,"

and thus did "not give rise to gross receipts." 23 VAC § 10-

500-60; see P.D. 99-92 (Apr. 30, 1999) (stating that a locality

may attribute gross receipts to a "[b]usiness's 'bookkeeping'

operation" if the bookkeeping "includes soliciting orders for

coal, offering bookkeeping services to others, or engaging in

transactions involving customers"); see also 23 VAC § 10-500-10

(requiring that "financial services" be provided "to others").

The Tax Commissioner followed a similar rationale regarding

attribution of gross receipts in P.D. 99-87 (Apr. 23, 1999).

There, a locality requested an advisory opinion on the

attribution of gross receipts regarding a financial services

business that "originates loans and forwards all responsibility

for loan servicing, customer relations and possible sale to an

office of the business located in another locality or state."

The Tax Commissioner stated that he lacked "sufficient facts to

determine the definite place of business to which the receipts

should be attributed," but did offer that "the receipts . . .

appear to be derived from activities conducted at definite

places of business both within and without your jurisdiction."

(Emphasis added.) The Tax Commissioner, accordingly, directed

28
that the locality "ascertain the nature of the business

activities conducted at the different places of business and the

extent to which these activities contribute to the different

types of receipts." This opinion, contemplating attribution of

gross receipts to activities such as “loan servicing” and

“customer relations” by a financial services business is

inconsistent with the bright-line rule pressed by the County,

which is that all gross receipts received by FMCC for the loans

that originated and were closed at the Richmond Branch were 100

percent attributable to that situs.

Our conclusion is not altered by FMCC's internal accounting

system, MAPS. As explained by FMCC's expert, that was a

"contract revenue-based system" and did not track gross receipts

based on financial services rendered to others. Even the

Commissioner of Revenue admitted that he was not aware of any

document that tracked FMCC's revenues based on the location

where financial services were provided. Therefore, the fact

that MAPS assigned revenue to the Richmond Branch does not

determine where gross receipts properly were attributable

pursuant to Code § 58.1-3703.1(A)(3)(a).

Further, the circuit court erred in concluding that it was

not "impractical or impossible to determine to which definite

place of business gross receipts should be attributed" under the

rule that the "gross receipts from the performance of services

29
shall be attributed to the definite place of business at which

the services are performed." Code § 58.1-3703.1(A)(3)(a)(4) and

(b). As already noted, there was uncontradicted evidence that

MAPS tracked revenues by contract, but did not track the

financial services performed over the life of the loan. And,

FMCC's expert testified that "[t]here's no way to take . . . one

payment or . . . one dollar of interest . . . and take that and

distribute it among all of the activities that may come into

play on that loan." Therefore, having concluded that the facts,

as found by the circuit court, demonstrated that financial

services outside the County contributed to the realization of

FMCC's gross receipts, we further conclude that it would be

impossible or, at least, impractical to perform that process on

every one of the approximately 20,000 loans processed annually

by the Richmond Branch, spanning the tax years of 2001, 2002,

2003, and 2004. See P.D. 04-80 (Aug. 25, 2004) (holding that

"payroll apportionment" is "the most appropriate method of

assessing the Taxpayer for BPOL purposes" "[g]iven the

Taxpayer's multistate activities and the fact that its

accounting procedures are contract driven, rather than service

driven"); accord P.D. 05-117 (July 19, 2005) (same).

Accordingly, we hold that because the gross receipts in question

were attributable to services performed outside the County, and

that "it is impractical or impossible to determine to which

30
definite place of business gross receipts should be attributed,"

FMCC's BPOL tax assessment must be calculated using payroll

apportionment. See Code § 58.1-3703.1(A)(3)(b).

Finally, when FMCC's BPOL tax assessment is re-calculated,

FMCC's entitlement to a deduction under Code § 58.1-3732(B)(2)

must be determined. That statute provides that "[a]ny receipts

attributable to business conducted in another state or foreign

country in which the taxpayer (or its shareholders, partners or

members in lieu of the taxpayer) is liable for an income or

other tax based upon income" "shall be deducted from gross

receipts . . . that would otherwise be taxable." Code § 58.1-

3732(B)(2). FMCC contends that the stipulation to its filing

"income or income-like tax returns in 47 states and the District

of Columbia" means that it was entitled to deduct all gross

receipts "attributable to business conducted" in those states.

Cf. 23 VAC § 10-500-80(A)(2) ("A Virginia taxpayer is liable for

an income or other tax based upon income if the taxpayer files a

return for an income or income-like tax in that state or foreign

country.") While a "taxpayer . . . need not actually pay any

tax to take the deduction," 23 VAC § 10-500-80(A)(2), a taxpayer

may deduct gross receipts attributable to business conducted in

another state only if the taxpayer demonstrates that it

"actually reports those receipts . . . on its out-of-state

31
income tax returns." 8 P.D. 07-142 (Sept. 5, 2007) (emphasis

added).

CONCLUSION

For the foregoing reasons, we will reverse the judgment of

the circuit court and remand the case for further proceedings. 9

Reversed and remanded.

SENIOR JUSTICE LACY, with whom SENIOR JUSTICE CARRICO joins,
dissenting.

The majority opinion holds that to determine the Business,

Professional, and Occupational (BPOL) license tax assessment for

the Richmond Branch of Ford Motor Credit Company (FMCC or the

company), an international lending institution, Chesterfield

County must apportion the gross receipts generated by the

Richmond Branch 1 by the payroll apportionment method based on

FMCC’s entire payroll. To reach this result, the majority holds

that (1) even though the company itself considers its gross

receipt revenues as generated by the location where the loan

contract was originated and designates other locations and their

activities as “cost” or “service” centers, other activities of

8
We express no opinion regarding FMCC's entitlement to a
deduction under Code § 58.1-3732(B)(2) or regarding what portion
of FMCC's payroll should be included in a payroll apportionment
calculation.
9
In view of the Court's decision, it is unnecessary to
address the remaining assignments of error.
1
FMCC produced an exhibit showing that the amount of the
gross receipts generated by the Richmond Branch ranged from 4.0

32
the company, such as those directed at collecting monies owed

the company pursuant to an executed contract, are activities

contributing to the “realization” or the “derivation” of the

company’s gross receipts, a standard not heretofore applied by

this Court or the Tax Commissioner; and (2) because the company

only utilizes a tracking system that assigns gross receipts to

the site at which the contract securing those receipts is

executed, it is “impractical or impossible” to determine what

part of the gross receipts revenue came from the locations at

which these other activities and services were conducted.

I cannot join the majority opinion for the following

reasons. First, as the majority recites, the Richmond Branch of

FMCC “was tasked with contacting and training dealers to

increase vehicle sales and the number of loans made by FMCC,

approving loan applications, determining loan interest rates,

and providing programs and training for dealers concerning

FMCC’s financing programs.” The company’s gross receipts, fees

and interest are generated and established at the time the loan

contract is executed. These executed contracts are the result

of activities undertaken by the Richmond Branch.

In my opinion, collection activities of a company do not

add value or generate any further gross receipts. This view is

percent to 5.3 percent of the company’s total gross receipts for
the years in question.

33
consistent with the views of the Tax Commissioner as set out in

the guidelines promulgated and opinions rendered for the

application of the BPOL tax. See Virginia Department of

Taxation, Business, Professional and Occupational License Tax:

2000 BPOL Guidelines (Jan. 1, 2000) (hereinafter BPOL

Guidelines). In Chapter 1 of the BPOL Guidelines the “[s]itus

of gross receipts” is defined as “the definite place of business

that generated taxable gross receipts.” (Emphasis added.)

Section 2.4 of the BPOL Guidelines provides that “[a]ctivities

of a taxpayer which serve only the taxpayer’s interest, and no

other, do not give rise to gross receipts.” BPOL Guidelines

§ 2.4. The collection activities at issue here, in my opinion,

do not benefit the borrower and do not generate or add value to

the product whose sale produces gross receipts for the company.

These collection services are only a cost of doing business for

the lending company.

Our case law has recognized services or activities that

enhance the product delivered to the consumer as services that

generate gross receipts. For example, in City of Winchester v.

American Woodmark Corp., 252 Va. 98, 471 S.E.2d 495 (1996)

(Woodmark II), the products manufactured and sold were cabinets.

We determined that American Woodmark’s cabinet manufacturing and

distribution centers, as well as its service and sales offices,

added value to its product and generated revenue. Id. at 103,

34
471 S.E.2d at 498. These activities enhanced American

Woodmark’s product bought by the consumer. Id. In this case,

the collection activities cited by the majority do not in any

way enhance the loan or its interest and fees “purchased” by the

consumer. Similarly, although the majority looks to the

corporate headquarters as providing the funds for the loans, the

record also contains evidence that those funds were generated by

offices, such as the Richmond Branch, that originated the loans.

Further, neither the evidence, the company nor the majority

identifies any enhancement or value added by the regional center

to which the Richmond Branch office reported.

The majority’s holding also relies heavily on a distinction

between a “receipt” and a “receivable.” Certainly, the actual

funds generated by the loan contracts are received at locations

other than the Richmond Branch. Applying this distinction,

however, leads to a curious result. If the assessment of the

BPOL tax depends on the actual receipt of the gross receipts

there could be no assessment at the Richmond Branch because the

payments are sent elsewhere. This has never been suggested as

part of the law governing the application of the BPOL tax. More

important, the receipt of the interest and fees is a collection

activity, not a generation activity. Nevertheless, using this

distinction, the majority concludes that such financial

collection services are activities that “contribut[e] to the

35
realization of gross receipts” and, thus, are relevant

activities for BPOL assessment purposes. This is not the

standard that we have heretofore applied. As recited above, for

BPOL assessment purposes, an activity must have “produc[ed]” the

gross receipts or “added value” to the product sold. Woodmark

II, 252 Va. at 103, 471 S.E.2d at 498. “Realization” or actual

receipt of a company’s gross receipts has not been, and I submit

should not be, the standard.

The second reason I cannot join the majority relates to the

burden of proof that must be applied in this case. Even if one

accepts the thesis that these auxiliary activities generate some

part of the company’s gross receipts, the company still carries

the burden of showing that it is “impractical or impossible” to

determine attribution of the gross receipts. Code § 58.1-

3703.1(A)(3)(b). In this case, the company itself relied upon

an accounting and tracking system (MAPS) that it had devised for

tracking revenue – assigning the revenue to the originating

locations, such as the Richmond Branch, and designating the

collection activities and other services as “cost centers.” The

majority discounts this accounting system because the system is

a “contract revenue-based system” and because a company witness

testified that it would be “very difficult” to create a system

allocating gross receipts to these other services. That a

system might be difficult to create does not make it impractical

36
or impossible to create. There is no evidence that FMCC,

sophisticated enough to create its extensive accounting system,

MAPS, ever attempted to apportion the gross receipts based on

its new theory of revenue generation, even though it could

identify those locations which it now claims are not cost

centers but revenue centers with regard to gross receipts

originated by the Richmond Branch. Although the company clearly

identifies which of these “cost centers” were involved with the

Richmond Branch, 2 the majority allows FMCC to use the payroll

allocation method based on FMCC’s entire national and

international payroll for assessing the BPOL tax due on the

gross receipts originating at FMCC’s Richmond Branch.

In summary, for the years 2001 through 2004, FMCC paid

Chesterfield County $1,515,935.05 in BPOL taxes based on the

gross receipts reported by FMCC for the Richmond Branch. In

this lawsuit, FMCC seeks a refund of $1,414,913.05,

approximately 93 percent of those payments, based on the

application of the payroll apportionment method, using all

employees on FMCC’s payroll regardless of their location or

2
The offices identified by FMCC included the home office in
Dearborn, Michigan; a regional office in Chantilly, Virginia;
loan administration offices in Baltimore, Maryland, Nashville,
Tennessee, and Omaha, Nebraska; a national recovery center in
Mesa, Arizona; and a bankruptcy specialist office in Livonia,
Michigan. Other than the home and regional office, these other
locations were engaged in administering the loans generated by
the Richmond Branch.

37
connection to the loans, fees and interest generated by the

Richmond Branch. In my opinion, FMCC is not entitled to such a

refund because the gross receipts at issue were generated by the

Richmond Branch as originally reported by FMCC, and even under

the majority’s approach of “contribut[ing] to the realization”

of the gross receipts at issue, FMCC did not carry its burden to

justify the use of the payroll apportionment method of

assessment including its entire national and international

payroll. Accordingly, I respectfully dissent.

38