Tax Type
BPOL Tax
Local Taxes
Description
Securities and Commodities Business Activity
Topic
Basis of Tax
Computation of Tax
Local Power to Tax
Local Taxes Discussion
Date Issued
04-05-1985
[Opinion - Virginia Attorney General: 1985 at 349]
REQUEST BY: Honorable N. Everette Carmichael Commissioner of the Revenue for Chesterfield County
OPINION BY: Gerald L. Baliles, Attorney General
OPINION:
You have asked whether a certain business with situs in Chesterfield County should be required to have a business license. If such a license is needed, you wish to know how to measure the gross receipts of this business. The business is established to acquire and sell various types of securities and commodities, as well as other properties. My response is limited to the activities of buying and selling securities and commodities. There is insufficient information to respond to that portion of the question relating to the business activity of acquiring and selling "other properties."1
Localities are authorized under § 58.1-3703 of the Code of Virginia to impose local license taxes on "businesses, trades, professions, occupations and callings . . . ." Certain categories of business and rate limitations applicable thereto are set forth in § 58.1-3706. These sections are drafted in broad terms without definitions. Pursuant to § 58.1-3701,2 however, the Department of Taxation has promulgated guidelines which define certain categories of businesses.
The category most applicable to your fact situation is "financial services." This term is defined as:
"Any person rendering a service for compensation in the form of a credit agency, an investment company, a broker or dealer in securities and commodities or a security or commodity exchange is providing a financial service, unless such service is specifically provided for under another section of these guidelines."
BPOL Guidelines § 3-2.3
The words "broker" and "dealer" are not defined. "Broker," as used in securities and commodities transactions, is commonly understood to mean:
"An agent of a buyer or a seller who buys or sells stocks, bonds, commodities, or services, usually on a commission basis."4
Black's Law Dictionary 174 (5th ed. 1979). On the other hand, "dealer," in the same context, is defined as:
"[A]ny person engaged in the business of buying and selling securities for his own account . . . but does not include a bank, or any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business."5
Black's Law Dictionary 359 (citing Securities Exchange Act of 1934, § 3, 15 U.S.C. § 78c(a)(5)) (5th ed. 1979).
Based on the foregoing, it is my opinion that the business you described falls within the term "dealer," because it intends to buy and sell securities and commodities on its own behalf as a regular business activity. Accordingly, the company would be required to obtain a local license, provided the county has an ordinance imposing a business license tax on every business providing financial services, including those of a dealer.
Assuming that the county has such an ordinance, I turn to your second question on how to measure the gross receipts.6 The focus of this question is whether the tax should be measured on the total sums paid to the company on sale of the securities or commodities or only on the gain thereon (sales price less cost to the company). The term "gross receipts" is not defined in the State statute.7 I am unaware whether your local ordinance provides a definition.
In the absence of a legislative definition, the words "gross receipts" must be given their ordinary meaning. The Supreme Court of Virginia has determined that "gross receipts" mean "whole, entire, total receipts." Savage v. Commonwealth, 186 Va. 1012, 1018, 45 S.E.2d 313, 317 (1947). The rationale of Savage was followed later in Alexandria v. Morrison-Williams, 223 Va. 349, 288 S.E.2d 482 (1982), with a finding that a taxpayer-advertising agency was subject to the local license tax of the City of Alexandria on total payments received from its client without any deductions for costs, including charges for placement in the media. In the Morrison-Williams case, the Court distinguished the taxpayer who receives payment for rendering advertising services from one who acts only as an agent procuring advertising services on behalf of its principal. The analogy to the dealer-broker distinction is persuasive for the limited purpose of defining "gross receipts."
It is my opinion that the gross receipts should be measured on the total sales price of the securities and commodities sold by the company acting on its own behalf.
1 Note that persons engaged in more than one type of business activity may be subject to the local license tax for each of the activities. See I(5), General Provisions, Guidelines for Local Business, Professional and Occupational License Taxes ("BPOL Guidelines") (Jan. 1, 1984).
2 That section requires the Department of Taxation to promulgate guidelines defining and explaining the categories listed in § 58.1-3706(A).
3 See also BPOL Guidelines § 3-2.1.
4 See also § 58-290 (1974 Repl. Vol.) (repealed by Ch. 633, Acts of Assembly of 1982), which defined "stockbrokers" for State license tax purposes as those engaged in the business of buying or selling securities for others on commission or for other compensation.
5 Prior to 1930 (see Acts of Assembly of 1930 at 856), the predecessor of § 58-290 (repealed, see supra note 4) defined "stockbrokers" broadly to include those selling or buying for others and dealers in securities. "Dealing," in this context, was deemed by the Supreme Court of Virginia to mean the business of buying and selling securities with the object of gain. Richmond Mort. Corp. v. Rose, 142 Va. 342, 128 S.E. 604 (1925).
6 The limitations on the rate of license taxes are stated in terms of gross receipts. See § 58.1-3706. §§ 58.1-3707(A) and (D) and 58.1-3708(B) and (D) use the term "volume" as the measure of the local license tax. "Volume" is defined under § 58.1-3708(D) as "gross receipts, sales, purchases, or other base for measuring a license tax . . . ." See also § 58.1-3705.
7 Section 58.1-3732, while not defining the term "gross receipts," generally does exclude certain federal, State and local taxes from the calculation of gross receipts.
Attorney General's Opinion