Tax Type
BPOL Tax
Local Taxes
Description
Truck drivers
Topic
Local Power to Tax
Date Issued
04-22-1999
April 22, 1999
Re: BPOL
Dear****
This advisory opinion is issued in response to your letter of October 30, 1998, requesting guidance concerning the license taxation of independent truck drivers. I apologize for the delay in responding to your request.
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 made 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 letter, this advisory opinion is intended to provide guidance only, and does not constitute a formal or binding ruling. Copies of cited sources are enclosed for your review.
FACTS
You state that individuals engaged in the business of owning and operating tractor trailers reside in your jurisdiction and maintain no other definite place of business. These truck drivers contract with trucking companies to haul freight. The trucking companies treat these truck drivers as independent contractors, not employees, for federal payroll tax purposes. You seek guidance concerning the license taxation of these individuals in four hypothetical scenarios.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs. 58.1-3700 and 58.1-3703(A). Business means "a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction.' Code of Virginia § 58.1-3700.1. A definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends.' 1997 BPOL Guidelines, page 4.
Scenario A
Individual A is an independent truck driver who owns his own tractor trailer and contracts with any company to haul freight as a contract carrier.
Exemption under Code of Virginia § 58.1-3703(C)(1)
The truck driver may be exempt from license taxation under Code of Virginia § 58.1-3703(C)(1), which exempts
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- any public service corporation or any motor carrier, common carrier, or any carrier of passengers or property formerly certified by the Interstate Commerce Commission or presently registered for insurance purposes with the Surface Transportation Board of the United States Department of Transportation, Federal Highway Administration . . .
- any public service corporation or any motor carrier, common carrier, or any carrier of passengers or property formerly certified by the Interstate Commerce Commission or presently registered for insurance purposes with the Surface Transportation Board of the United States Department of Transportation, Federal Highway Administration . . .
Engaging in a Business
Assuming that an exemption from license taxation is not applicable, in order to be subject to license taxation, one must be "engaging in a business.' Code of Virginia § 58.1-3703.1(A)(1). An independent contractor may be engaging in a business but an employee generally is not. Guidelines § 3.7.2.
For purposes of assessing local license taxes
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- (t)he determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors . . . (l)ocalities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable.
- (t)he determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors . . . (l)ocalities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable.
Jurisdiction to Impose Tax
In order to be subject to license taxation in your jurisdiction, the truck driver must have a definite place of business in your jurisdiction or, if he maintains no definite place of business anywhere, reside in your jurisdiction. Code of Virginia § 58.1-3703.1(A)(1)(i) and (ii). As the truck driver resides in your jurisdiction and has no definite place of business elsewhere, he is subject to license tax in your jurisdiction.
Business Classification
Based on the information provided, it is my opinion that the truck driver is properly classified as a provider of business services.
Attribution of Gross Receipts
As the truck driver resides in your jurisdiction and maintains no definite place of business elsewhere, his residence is deemed to be a definite place of business. Code of Virginia § 58.1-3700.1. Gross receipts from the performance of services are attributed to the definite place of business where the services are rendered. When the services are not performed at any definite place of business, the gross receipts are attributed to the definite place of business from which the services are directed or controlled. Code of Virginia § 58.1-3703.1(A)(3)(a)(4). All gross receipts of a business with only one definite place of business are attributable to that definite place of business. Id. and Short Brothers. Inc. v. Arlington County, 244 Va. 520 (1992). Because the truck driver maintains no definite place of business other than in your jurisdiction, all of his gross receipts are subject to license taxation in your jurisdiction unless he is entitled to a deduction as explained below.
Deduction for Receipts Taxable Outside of Virginia
The truck driver may be entitled to a deduction under Code of Virginia § 58.1-3732(B)(2), for any gross receipts attributable to business conducted in another state or foreign country in which the business is liable for an income or other tax based on income. A taxpayer is liable for such a tax if the taxpayer files a return for the tax in another state or country. 1997 BPOL Guidelines § 3.3.4.
Scenario B
Individual B is an independent truck driver who owns his tractor trailer. He leases the truck to a trucking company within his home jurisdiction and drives the truck for the company.
The discussion of Scenario A is also applicable to this scenario. However, the lease of the truck may change the classification of the business.
Business Classification
The truck driver is engaged in two business activities. He provides business or personal services by driving the truck and rents tangible personal property by leasing the truck to the trucking company. The hypothetical scenario provides insufficient information to determine whether this is one licensable business with ancillary receipts or two separate licensable businesses.
A person is engaging in more than one business if his activities "involve separate business activities that could each be performed independently of the other.' 1994 Va. Op. Att'y Gen. 99, 104. Code of Virginia § 58.1-3703.1(A)(1) requires a person engaging in more than one business to have a license for each business (unless he elects to be taxed at the highest applicable rate on all receipts). A person engaging in only one business which is composed of a primary activity and an ancillary activity which are not separated and are so integrated as to comprise a single business is required to have only one license and is subject to license taxation at the rate applicable to the primary activity on all receipts. 1994 Va. Op. Att'y Gen. 99, 104.
The hypothetical scenario suggests several issues which should be considered when determining whether this is one business with ancillary receipts or two separate businesses. Each of the following factors are evidence indicating that the leasing activity is a separate business:
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- --The trucking company would lease the truck from the taxpayer even if he was not regularly available to drive the truck.
--The trucking company may use other drivers to drive the truck if the taxpayer is not available.
--The lease prevents the taxpayer from using the truck to carry freight for persons other than the trucking company.
--Separate fees are charged for driving and leasing.
--The receipts from leasing are significant relative to the receipts from driving.
--The taxpayer leases out more than one truck.
- --The trucking company would lease the truck from the taxpayer even if he was not regularly available to drive the truck.
When it rises to the level of a separate licensable business, the rental of tangible personal property is generally classified as personal or business services. However, if the rental business is a short-term rental business' as defined in Code of Virginia § 58.1-3510, it would "be classified in the category of retail sales for license tax rate purposes.' Code of Virginia § 58.1-3706 (C)(Emphasis added). A person is engaged in the short-term rental business if not less than eighty percent of the gross rental receipts in any year are from transactions involving rental periods of ninety-
two consecutive days or less, excluding any rental of personal property which also involves the provision of personal services for the operation of the property rented. Code of Virginia § 58.1-3510.
Attribution of Gross Receipts
As the attribution rules are similar for business services and the rental of tangible personal property, the determination of the business classification of the receipts from the rental activities discussed above will not change the attribution of the gross receipts.
Gross receipts from the performance of services are attributed to the definite place of business where the services are rendered. When the services are not performed at any definite place of business, the gross receipts are attributed to the definite place of business from which the services are directed or controlled. Code of Virginia § 58.1-3703.1(A)(3)(a)(4).
Gross receipts from the renting of tangible personal property are attributed to the definite place of business from which the property is rented or, if the property is not rented from any definite place of business, then to the definite place of business at which the rental of such property is managed. Code of Virginia § 58.1-3703.1(A)(3)(a)(3).
Scenario C
Individual C is an independent truck driver who owns his own tractor trailer but leases the truck to another trucking company that is located outside the state and drives the truck for the company.
The discussion of Scenarios A and B would not be affected by the trucking company's location outside of the state. The location of the trucking company is not relevant to the license taxation of the truck driver. As a result, the conclusions of Scenarios A and B would hold true for Scenario C.
Scenario D
Individual D is an independent truck driver who owns his own tractor trailer but leases the truck to a trucking company. The trucking company has the contractual right in the lease agreement to assign a load along with the tractor trailer to another driver if Individual D turns down an offer of a trip.
The discussion of Scenarios A and B is applicable to this scenario, except that the contractual right of the trucking company to assign a load along with the tractor trailer to another driver if Individual D turns down an offer of a trip is a factor which supports a determination that Individual A may be engaged in two licensable businesses, business services and the rental of tangible personal property. However, this additional evidence is not in and of itself dispositive of the issue. You must review all of the evidence to determine whether the lease of the truck is ancillary to the business services or is a separate licensable rental business.
I hope that this information will be of assistance to you. Although I believe this advisory opinion conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please do not hesitate to contact * * * * *, Tax Policy Analyst, in my Office of Tax Policy at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner