Document Number
04-6
Tax Type
BPOL Tax
Description
Businesses that are both a public service corporation and a telephone company
Topic
Basis of Tax
Local Taxes Discussion
Date Issued
02-20-2004
February 20, 2004


Re: Request for an Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax

Dear *****:

This is in response to your letter in which you request an advisory opinion regarding the classification of certain resellers of cellular telephone services for BPOL tax purposes. I apologize for the delay in the Department's response.

The local license fee and tax are imposed and administered by local officials. § 58.1-3701 of the Code of Virginia authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. While addressing the questions raised in your letter, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. Any change in the facts or the introduction of facts by another party may lead to a different result.

The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS

You state that your client (the "Taxpayer") is organized as a limited partnership that is in the business of reselling commercial mobile radio services (CMRS) or cellular telephone services to end users. Typically, the Taxpayer purchases the services from a third party that is licensed by the Federal Communications Commission (the "FCC") as a CMRS provider. The Taxpayer serves as the "middleman" purchasing the CMRS service from a licensed provider and reselling the service to businesses and individuals. The Taxpayer itself is not licensed by the FCC.

The Taxpayer does not hold a certificate of convenience and necessity issued by the Virginia State Corporation Commission (the "SCC") required of public service corporations or under Virginia law. Furthermore, as a limited partnership, it has neither articles of incorporation nor a charter, which is required of all corporations under Virginia law.

The Taxpayer has a definite place of business in several Virginia jurisdictions. A number of these jurisdictions are imposing the local license tax at the public service corporation rate, which is $0.50 per $100, or higher if the jurisdiction is grandfathered. See Chapter 675 of the 1984 Acts of Assembly, enactment clause 6.

The Taxpayer contends that it should be taxed at the business services rate of $0.36 per $100 of gross receipts, rather than the public service corporation rate.
OPINION

1. Is the BPOL rate of $0.50 per $100 authorized by Va. Code § 58.1-3731 only applicable to businesses that are both a public service corporation and a telephone company?

The Code of Virginia is quite specific in its classification of various businesses for purposes of the BPOL tax. Virginia Code § 58.1-3731 provides that, for purposes of the BPOL tax, public service companies are to be taxed as follows:
    • Every county, city or town is hereby authorized to impose a license tax, in addition to any tax levied under Chapter 26 (§ 58.1-2600 et seq.) of this title, on (i) telephone and telegraph companies ... at a rate not to exceed one-half of one percent of the gross receipts of such company accruing from sales to the ultimate consumer in such county, city or town. However, in the case of telephone companies, charges for long distance telephone calls shall not be included in gross receipts for purposes of license taxation.

Public service companies and telephone companies governed by the provisions of Va. Code § 56-2 are described as follows:
    • Every public service corporation heretofore or hereafter incorporated and authorized to construct, maintain, or operate, in this Commonwealth, any work of public service, and every association, person, or partnership constructing, maintaining, or operating any such work, shall be governed by the provisions of this title and Title 13.1, so far as they apply to such corporations, associations, persons, and partnerships, as well as by any laws that may hereafter be enacted relating to such corporations. [Emphasis added.]

Given your description of the Taxpayer's business, it would appear that it is not engaged in the construction, maintenance or operation of telephone companies. Therefore, it would appear that the Taxpayer is neither subject to the regulatory authority of the SCC, nor does it qualify for the special tax status conferred upon SCC­regulated public service companies in Va. Code § 58.1-3731. If this indeed is the case, the Taxpayer would be more appropriately classified as a "business service" for purposes of the BPOL tax.

For purposes of the BPOL tax, those services that are not classified as "professional" come under the category of "repair, personal, business and other services." Other services not clearly identified as financial, real estate or professional are classified as "repair, personal, business and other services" under § 5.5 of the 2000 BPOL Guidelines. This is a catchall category, acknowledged in the Guidelines as follows:
    • Definitions of repair service, personal service; and business service have been omitted since this classification applies to all services not classified as financial, real estate or professional. 2000 BPOL Guidelines § 5.5.1.

2. Must a taxpayer possess all three of the following attributes to be considered a public service corporation?
  • (a) be a corporation,
    (b) hold a certificate of convenience and necessity issued by the State Corporation Commission, and
    (c) have a charter prescribing a public duty that it is to perform.

Virginia Code § 56-1 provides a general definition of a public service corporation or company as follows:
    • The words "public service corporation" or "public service company" shall include gas, pipeline, electric light, heat, power and water supply companies, sewer companies, telephone companies, telegraph companies, and all persons authorized to transport passengers or property as a common carrier. [Emphasis added.]

Furthermore, if a Taxpayer is to be regarded as a public service corporation or company (it does not have to be a corporation) it must comply with the following provisions:
    • After notice to all local exchange carriers certificated in the Commonwealth and other interested parties and following an opportunity for hearing, the Commission may grant certificates to any telephone company ...proposing to furnish local exchange telephone service in the Commonwealth. In determining whether to grant a certificate under this subsection, the Commission may require that the applicant show that it possesses sufficient technical, financial, and managerial resources. Before granting any such certificate, the Commission shall: (i) consider whether such action reasonably protects the affordability of basic local exchange telephone service, as such service is defined by the Commission, and reasonably assures the continuation of quality local exchange telephone service; and (ii) find that such action will not unreasonably prejudice or disadvantage any class of telephone company customers or telephone service providers, including the new entrant and any incumbent local exchange telephone company, and is in the public interest.

This request for an advisory opinion does not make clear the obligations of the Taxpayer in servicing the public weal. If a taxpayer's activities require certification by the SCC, then the taxpayer is subject to all of the requirements of Title 56 of the Code of Virginia, which include the possession of a certificate of necessity. The taxpayer does not have to be a corporation to require such certification. In response to the third part of this question, a representative from the SCC has stated that unless a reseller of services is required by the FCC to obtain a license, it is not regarded as a telecommunications company for purposes of regulation.

3. Must a taxpayer possess at least one of the following attributes to be regarded as
a telephone company?
(a) hold a certificate of convenience and necessity granted by the SCC,
(b)be authorized by the FCC to provide commercial mobile service, and
(c)hold a certificate issued pursuant to § 214 of the Communications Act of 1934
authorizing domestic telephone service.
    • Virginia Code § 58.1-2601 defines a "telephone company" as:
    • a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or a person authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or broadband personal communications services; or a person holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belonging to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service.

In this case, the law is quite clear. If a taxpayer meets any one of the three conditions, it is to be regarded as a telephone company. Furthermore, public service companies or corporations are issued certificates of necessity by the SCC. If the Taxpayer is holding itself out as a "telephone company," it is subject to the provisions of Title 56 of the Code of Virginia, as discussed above. If in fact, however, the Taxpayer is not operating as a telephone company as described above, but rather are merely reselling services with no obligation to "construct, maintain, or operate" a telephone system, it is my opinion that such entities are merely providing a business service.

Moreover, a taxpayer that does not require a certificate of necessity from the SCC is generally regarded as a "business services" by the SCC and for purposes of the BPOL tax.

4. Does the fact that an entity related to the Taxpayer may be a telephone company or a public service company result in the Taxpayer's being classified as either a telephone company or a public service company?

The term "affiliated group" has the meaning given in Va. Code § 58.1-3700.1. If the Taxpayer's business structure is such that it meets the definition of "affiliated group" as defined in the 2000 BPOL Guidelines, then it has met one of the requirements necessary for classification as a public service company. This is a question that must be determined on a case-by-case basis by the local commissioner of the revenue.

5. Should the Taxpayer be classified as a business service, and as such be subject to local license taxation at a maximum rate of $0.36 per $100 of those gross receipts, depending upon local ordinance?

If the Taxpayer in question does not hold a certificate of convenience and necessity granted by the SCC authorizing telephone service; is not authorized by the FCC to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or broadband personal communications services; or does not hold a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and does not belong to an affiliated group that includes a person holding a certificate of convenience and necessity granted by the SCC authorizing telephone service, then the taxpayer should be classified as a business service. All such decisions must be made by the local commissioner of the revenue based upon the particular facts of the case.

In this opinion, I have sought to bring to your attention the relevant statutes that may have a bearing on your general questions. Without a specific fact pattern, however, I cannot provide you with a determinative position that would encompass all taxpayers who may fit the general pattern you describe, but in fact possess certain characteristics that would lead to a different analysis for the purposes of the BPOL tax.

If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                  • Kenneth W. Thorson
                    Tax Commissioner

    AR/41976H


    Rulings of the Tax Commissioner

    Last Updated 08/25/2014 16:46