Tax Type
BPOL Tax
Local Taxes
Description
Non-qualified Deferred Compensation Plan
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
10-05-2000
October 5, 2000
RE: Request for Advisory
Opinion, Business, Professional, and Occupational License ("BPOL") Tax
Dear ****
This is in response to your request for an advisory opinion regarding the inclusion of distributions from a non-qualified deferred compensation plan in a taxpayer's gross receipts under the BPOL tax.
The local license tax and fee are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance. Code of Virginia § 58.1-3701. The following opinion has been issued subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
While addressing the questions raised in your request, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited material for your review.
FACTS
You state that the taxpayer in question is a financial services advisor (the "Taxpayer") who has been employed as an independent contractor since 1969. Income distributions are reported to the taxpayer annually on a 1099-MISC form and are classified as "non employee compensation." The Taxpayer reports his income to the IRS on a Schedule C, and includes his deferred compensation income distributions in his self-employment income tax liabilities. The deferred compensation portion of the income distributions are comprised of three elements: a) the actual compensation deferred by the Taxpayer; b) compensation deferred by other participants in the deferred compensation plan who forfeited their entitlement to the distribution by leaving the plan before becoming vested in the plan; and c) a proportionate share of income earned through the plans assets. Originally designed as a retirement plan, the plan was discontinued in 1995. However, pay-outs to vested members were to be made beginning in 1996. The Taxpayer had to accept the deferred compensation plan as a condition of his engagement contract. That income was not reported for income tax or local license tax purposes until the year in which it was received. You ask if that income should be included or excluded when calculating the Taxpayer's gross receipts.
OPINION
Applicable Law
Under the BPOL statute,
However, that part of the annual payout that is attributed to the compensation deferred by other participants in the plan who forfeited their entitlement to the distribution by leaving the plan before becoming vested in the plan, and a proportionate share of income earned through the plans assets is not subject to the BPOL tax. This income can be regarded as "interest, dividends and other income derived from the investment of its own funds in securities and other types of investments unrelated to the licensed privilege." Id.
The actual amount the Taxpayer contributed is reflected in*********Retirement Plan (CDRP) credits (each being valued at $ 1.00) earned in prior years and used in a given year's payout. The CDRP credits are based on commissions earned from the sales of life insurance, annuities, certificates, mutual funds and renewal commissions. This amount is clearly subject to the BPOL tax. This information should be available from the plan's administrators and provided to you by the Taxpayer. Absent a clear differentiation between the actual amount of compensation deferred, and the amount of interest and investment dividends accrued, the entire deferred compensation distribution is subject to the BPOL tax.
I hope this information has been useful to you. If you have any questions, please contact * * * in my Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
RE: Request for Advisory
Opinion, Business, Professional, and Occupational License ("BPOL") Tax
Dear ****
This is in response to your request for an advisory opinion regarding the inclusion of distributions from a non-qualified deferred compensation plan in a taxpayer's gross receipts under the BPOL tax.
The local license tax and fee are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance. Code of Virginia § 58.1-3701. The following opinion has been issued subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
While addressing the questions raised in your request, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited material for your review.
FACTS
You state that the taxpayer in question is a financial services advisor (the "Taxpayer") who has been employed as an independent contractor since 1969. Income distributions are reported to the taxpayer annually on a 1099-MISC form and are classified as "non employee compensation." The Taxpayer reports his income to the IRS on a Schedule C, and includes his deferred compensation income distributions in his self-employment income tax liabilities. The deferred compensation portion of the income distributions are comprised of three elements: a) the actual compensation deferred by the Taxpayer; b) compensation deferred by other participants in the deferred compensation plan who forfeited their entitlement to the distribution by leaving the plan before becoming vested in the plan; and c) a proportionate share of income earned through the plans assets. Originally designed as a retirement plan, the plan was discontinued in 1995. However, pay-outs to vested members were to be made beginning in 1996. The Taxpayer had to accept the deferred compensation plan as a condition of his engagement contract. That income was not reported for income tax or local license tax purposes until the year in which it was received. You ask if that income should be included or excluded when calculating the Taxpayer's gross receipts.
OPINION
Applicable Law
Under the BPOL statute,
-
- Gross receipts means the whole, entire total receipts, without deduction. Code of Virginia § 58.1-3700.1
However, certain enumerated items are excluded from gross receipts, including:
Investment income not directly related to the privilege exercised by a business subject to licensure not classified as rendering financial services. This exclusion shall apply to interest on bank accounts of the business, and to interest, dividends and other income derived from the investment of its own funds in securities and other types of investments unrelated to the licensed privilege. Code of Virginia § 58.1-3732(8).
- Gross receipts means the whole, entire total receipts, without deduction. Code of Virginia § 58.1-3700.1
However, that part of the annual payout that is attributed to the compensation deferred by other participants in the plan who forfeited their entitlement to the distribution by leaving the plan before becoming vested in the plan, and a proportionate share of income earned through the plans assets is not subject to the BPOL tax. This income can be regarded as "interest, dividends and other income derived from the investment of its own funds in securities and other types of investments unrelated to the licensed privilege." Id.
The actual amount the Taxpayer contributed is reflected in*********Retirement Plan (CDRP) credits (each being valued at $ 1.00) earned in prior years and used in a given year's payout. The CDRP credits are based on commissions earned from the sales of life insurance, annuities, certificates, mutual funds and renewal commissions. This amount is clearly subject to the BPOL tax. This information should be available from the plan's administrators and provided to you by the Taxpayer. Absent a clear differentiation between the actual amount of compensation deferred, and the amount of interest and investment dividends accrued, the entire deferred compensation distribution is subject to the BPOL tax.
I hope this information has been useful to you. If you have any questions, please contact * * * in my Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner