Tax Type
BPOL Tax
Description
Underpaid BPOL tax; leased tangible personal property
Topic
Classification
Local Power to Tax
Tangible Personal Property
Taxability of Persons and Transactions
Date Issued
11-22-2013
November 22, 2013
Re: Appeal of Final Local Determination
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- Taxpayer: *****
Locality: *****
- Taxpayer: *****
Dear *****:
This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer"), with the Department of Taxation. You appeal a final local determination upholding a BPOL tax assessment for the 2012 tax year issued by the ***** (the "County").
The local license tax and fee are imposed and administered by local officials. Virginia Code § 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, i.e., 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 summarized below. The Code of Virginia sections, regulations, and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's web site.
FACTS
The Taxpayer, a resident of the County, owned a commercial tractor. He leased it to a motor carrier and operated it on the carrier's behalf as an independent contractor. According to the Taxpayer, he received rent, net of the driver's compensation and expenses related to the vehicle's operation.
Under review, the County determined that the Taxpayer had underpaid BPOL tax for the 2012 tax year and issued an assessment. The Taxpayer appealed to the County, contending he should not be required to have a County business license because his tractor had never been sitused in the County, no management or work was done in the County, and the tractor was leased to a business in another locality.
In its final determination, the County concluded that the Taxpayer generated gross receipts solely from the leasing service and the gross receipts were properly sitused because the Taxpayer operated the business from his residence in the County. The County also determined that it had correctly classified the Taxpayer's operations as a business service. The Taxpayer filed an appeal to the Tax Commissioner, contending that its business should have been classified as a contractor rather than a business service.
ANALYSIS
Classification
The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is imposed at different rates according to the classification of an enterprise. See Va. Code § 58.1-3706. The classifications are explained under Title 23 of the Virginia Administrative Code (VAC) 10-500-10 et seq. Classification of a specific business must be determined based on consideration of all the facts and circumstances. Some of the factors to be considered include:
- 1. What is the nature of the enterprise's business?
2. How the enterprise generates gross receipts.
3. Where the enterprise conducts its business.
4. Who are the enterprise's customers?
5. How the enterprise holds itself out to the public.
6. The enterprise's North American Industry Classification System (NAICS) code.
Contractor
Virginia Code §§ 58.1-3714 D 1-6 include the following definitions for the term "contractor:"
- 1. Accepting or offering to accept orders or contracts for doing any work on or in any building or structure, requiring the use of paint, stone, brick, mortar, wood, cement, structural iron or steel, sheet iron, galvanized iron, metallic piping, tin, lead, or other metal or any other building material;
2. Accepting or offering to accept contracts to do any paving, curbing or other work on sidewalks, streets, alleys, or highways, or public or private property, using asphalt, brick, stone, cement, concrete, wood or any compositions;
- 3. Accepting or offering to accept an order for or contract to excavate earth, rock or other material for foundation or any other purpose or for cutting, trimming or maintaining rights of way;
- 4. Accepting or offering to accept an order or contract to construct any sewer of stone, brick, terra cotta or other material;
- 5. Accepting or offering to accept orders or contracts for doing any work on or in any building or premises involving the erecting, installing, altering, repairing, servicing, or maintaining electric wiring, devices or appliances permanently connected to such wiring, or the erecting, repairing or maintaining of lines for the transmission or distribution of electric light or power; or
- 6. Engaging in the business of plumbing and steam fitting.
The Taxpayer's business did not involve any of the activities described in Va. Code § 58.1-3714 D. The mere fact that the Taxpayer has a contract to rent the tractor is not sufficient to classify him as a contractor for BPOL tax purposes.
Business Services
The Taxpayer contends that because his business is not classified as a business service under the Standard Industrial Classification (SIC) system, it should not be classified as a business service for BPOL tax purposes. Industrial classification systems such as the SIC system or the NAICS may serve as useful guideposts for determining classifications for BPOL tax purposes, but they do not control, or even create a presumption as to the correct classification for BPOL purposes. See Title 23 VAC 10-500-140.
Under Title 23 VAC 10-500-500, the repair, personal, or business service classification includes all services not classified as financial, real estate, or professional. Such services include packing, crating, shipping, hauling or moving goods or chattels for others and renting or leasing any items of tangible personal property. See Title 23 VAC 10-500-500 54 and 67. The Taxpayer leased tangible personal property, his tractor, to another business. Under Title 23 VAC 10-500-500, the Taxpayer was providing a business service.
In addition, the lease could not have been a short-term rental classified as a retail sale for BPOL tax classification purposes pursuant to Va. Code § 58.1-3706 C, as was possible under the law in effect when Public Document (P.D.) 99-84 (4/22/1999) was issued. A vehicle licensed by the Department of Motor Vehicles (DMV) and used in the transportation industry to haul freight is not "short-term rental property" or "heavy equipment property," the rental of which could cause a taxpayer to be engaged in the short-term rental business. See Va. Code § 58.1-3510.4.
The information provided does not clarify if the Taxpayer also operated the vehicle. If he did, the Taxpayer would have also been involved in shipping, hauling, or moving goods or chattels for a business and thus been performing another business service. See Title 23 VAC 10-500-500 and P.D. 99-84.
Multiple Businesses
Virginia Code § 58.1-3703.1 A 1 provides that a separate license shall be required for each definite place of business and for each business a taxpayer is operating. Local tax officials are responsible for making the determination as to whether a taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other. In order to make this determination, the local tax official must be provided with documentation demonstrating the substantiality of each business. See 1994 Op. Va. Att'y Gen. 99.
In this case, the Taxpayer may have generated gross receipts from two business activities, i.e., leasing tangible personal property (the tractor) to the motor carrier, and operation of the vehicle on the carrier's behalf. Although both activities would be business services for classification purposes, if the Taxpayer was engaged in multiple businesses, the assessment could still be affected because each business must meet the applicable gross receipts threshold in order for BPOL tax to be imposed. See Title 23 VAC 10-500-110.
DETERMINATION
The evidence shows the Taxpayer leased tangible personal property, his tractor, to a motor carrier. As such, the County correctly classified the Taxpayer's activity as a business service.
In addition, a question has been raised as to whether the Taxpayer had gross receipts from operating the vehicle. Such activity would also be considered a business service under Title 23 VAC 10-500-500.
Although both the operation and rental of the tractor would be classified as business services and thus taxed at the same rate, the assessment could still be affected if the activities constituted separate businesses. Therefore, I am remanding the case back to the County with the instruction to reconsider the Taxpayer's assessment for the 2012 tax year. The Taxpayer should provide the County with sufficient documentation concerning both the operation and rental of the tractor to enable the County to determine whether he was engaged in multiple businesses and if so, what portion of his gross receipts was attributable to each. The Taxpayer should provide the County with the indicated documentation within 45 days of the date of this letter.
If the County determines that the Taxpayer operated multiple businesses, it should make any appropriate adjustments to the assessment. If the Taxpayer fails to provide sufficient documentation, the County's assessment will be considered correct.
If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5422574660.M
Rulings of the Tax Commissioner