Tax Type
BPOL Tax
Local Taxes
Description
Medical professional corporations, operation of a plastic surgery center, LLC
Topic
Local Power to Tax
Date Issued
09-13-2000
September 13, 2000
Re: *******
Locality Assessing Tax:
Final State Determination
Appeal of Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This final state determination is issued upon an application for correction of BPOL taxes filed by you on behalf of ****** (the "Taxpayer"). The assessment contested was made by the Commissioner of the Revenue of the City of ***** (the "City").
The BPOL tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to issue determinations on taxpayer appeals of certain BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below. Copies of cited sources are enclosed.
FACTS
The Taxpayer is a professional limited liability company formed by two medical professional corporations to facilitate their joint operation of a plastic surgery center in the City. The Taxpayer provides the professional corporations with office space, medical equipment, office furniture, fixtures and equipment and a business telephone listing. The professional corporations reimburse the Taxpayer for its costs.
In general, all professional services are performed by the professional corporations, not the Taxpayer. Likewise, all fees associated with the performance of professional services are due to the professional corporations, not the Taxpayer. However, in 1996, the Taxpayer received monies from third parties other than the professional corporations for the performance of professional services. These receipts amounted to less than 5% of its the Taxpayer's 1996 gross receipts.
After a review of the Taxpayer's Form 1065 U.S. Partnership Return of Income, the City determined that the Taxpayer had underreported its BPOL gross receipts to the City. The receipts in question were the payments from the two professional corporations reimbursing the Taxpayer for the costs it had incurred on their behalf. The City assessed additional license taxes on account of these unreported receipts. The Taxpayer filed an application for correction of this assessment with the City and filed this appeal when the City rejected its arguments.
The Taxpayer contends that (1) it is not engaged in business, and (2) the receipts in question are not subject to local license taxation as they are derived from transactions that serve only the Taxpayer's interest and no other.
ANALYSIS
Engaging in Business
Code of Virginia § 58.1-3700.1 provides that:
[t]he following acts shall create a rebuttable presumption that a person is engaged in a business: (i) advertising or otherwise holding oneself out to the public as being engaged in a particular business or (ii) filing tax returns, schedules and documents that are required only of persons engaged in a trade or business.
As the Taxpayer files federal partnership tax returns, it is presumed to be engaged in a business. This presumption is supported by the facts presented. The Taxpayer provides two medical corporations with office space, medical equipment, office furniture, fixtures and equipment and a business telephone listing. The professional corporations compensate the Taxpayer for its expenses. Although the compensation may only be sufficient for the Taxpayer to recoup its expenses and not to earn a profit, the Taxpayer is still subject to local license taxation. See Commonwealth v. Wytheville Knitting Mills Employees Welfare Association, 195 Va. 663 (1954).
Gross Receipts
Section 1 of the 2000 BPOL Guidelines defines "gross receipts" to be:
the whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law.
The Taxpayer contends that it is entitled to exclude the receipts in question from its taxable gross receipts because, the Taxpayer argues, the receipts are derived from transactions that serve only the Taxpayer's interest and no other. I disagree. The receipts in question are derived from transactions with the professional corporations that serve the interests of both the Taxpayer and the professional corporations. As discussed in Public Document (P.D.) 98-138 (10/2/98), no exclusion exists for such expense reimbursements.
Affiliated Group Exemption
Underlying the Taxpayer's arguments is the notion that gross receipts derived from related entities should be excluded from taxable gross receipts.
Code of Virginia § 58.1-3703(C)(10) provides an exclusion from local license taxation for certain transactions between members of an "affiliated group." Prior to July 1, 2000, membership in an affiliated group for purposes of the exclusion was limited to corporations. Code of Virginia § 58.1-3700.1. Legislation enacted by the 2000 General Assembly expanded the affiliated group membership eligibility to limited liability companies and several other entity types. However, as this legislation became effective July 1, 2000, the affiliated group exclusion is not available to the Taxpayer for the years subject to this appeal.
Professional Limited Liability Companies
Code of Virginia § 13.1-1119 provides that:
[n]o local business license shall be required of any professional limited liability company as a prerequisite to the rendering of professional services in this Commonwealth, or any county, city or town therein. However, if any county, city or town requires a business license for the privilege of practicing any of the professions to which this chapter applies and that license is measured by gross receipts, the gross receipts of a member of a professional limited liability company shall consist of (i) his salary and (ii) that part of the gross receipts of the professional limited liability company remaining after the payment of salaries to all the licensed employees as bears the same ratio to all the remaining gross receipts as his membership interest in the professional limited liability company bears to the membership interests therein of all the members.
Although the Taxpayer received some monies from the performance of professional services in 1996, the facts presented reflect that the Taxpayer is engaged in the business of providing business services, not professional services. As the Taxpayer is not engaged in the business of providing professional services, this code section does not affect the present appeal.
Any professional services rendered by the Taxpayer in 1996 were ancillary to its primary activity of providing business services. Gross receipts derived from an ancillary activity are subject to local license taxation at the rate applicable to gross receipts derived from the primary business activity. See P.D. 98-138.
CONCLUSION
As the Taxpayer has not shown sufficient proof that the assessment made by the City is incorrect, the assessment stands as is. If you have any questions, please contact ***** in the Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27194D
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