Credit Unions; Real and Personal Property Taxes, BPOL Tax
Local Power to Tax
Local Taxes Discussion
[Opinion - Virginia Attorney General: 1984 at 327]
REQUEST BY: Honorable Ora A. Maupin Commissioner of the Revenue for the City of Charlottesville
OPINION BY: Gerald L. Baliles, Attorney General
You have asked whether the real and personal property of State and federally chartered credit unions is subject to local property taxation. You also ask whether such credit unions may be subject to local business license taxes. I assume, for the purposes of this Opinion, that the city has an ordinance requiring businesses providing financial services to pay a business license tax measured by its gross receipts, as authorized by § 58-266.1 of the Code of Virginia.
A prior Opinion of this Office addresses your question pertaining to federal credit unions. See 1971-1972 Report of the Attorney General at 393. In considering whether the Norfolk Teachers Association Federal Credit Union was exempt from State and local taxes, that Opinion held that federal credit unions are subject only to real and personal property taxation. That holding was based on 12 U.S.C. § 1768 which provides, in pertinent part, that federal credit unions
"shall be exempt from all taxation now or hereafter imposed by . . . any State . . . or local taxing authority; except that any real property and any tangible personal property of such Federal credit unions shall be subject to Federal, State . . . and local taxation to the same extent as other similar property is taxed." (Emphasis added.)
In accordance with this earlier Opinion and 12 U.S.C. § 1768, I find that federal credit unions may be subject to local real and personal property taxes but not local business license taxes.1
State chartered credit unions are controlled by § 6.1-196 et seq. § 6.1-225 pertains to the taxation of these credit unions. It provides: "All credit unions organized under the laws of this State and doing business purely as credit unions shall be exempt from the payment of any franchise tax." (Emphasis added.) I am aware of no other exemption from taxation applicable to State chartered credit unions.2 Accordingly, in order to answer your question, it must be determined whether the exemption from payment of any franchise tax, as provided in § 6.1-225, encompasses business license taxes or real and personal property taxes.3 I am of the opinion that the three taxes are separate and distinct.
The term "franchise tax" has been defined as a tax on the privilege of doing business under a corporate organization. See superior Corp. v. Commonwealth, 147 Va. 202, 136 S.E. 666 (1927). The term "franchise taxes" clearly does not include real and personal property taxes. See $ 58-760 et seq. on real estate taxes and § 58-829 et seq. pertaining to tangible personal property taxes. Thus, generally speaking, a corporation may be subjected to a property tax, license tax and a franchise tax, each being a separate and distinct tax. While license taxes are, like franchise taxes, in the nature of a tax for a privilege, they are exacted for the right of engaging in or carrying on a business, trade, profession or occupation in a locality, whether such business is a corporate entity or is operated by a person or other type of business organization. See § 58-266.1(A)(1) and Chambers v. Higgins, 169 Va. 345, 193 S.E. 531 (1937). Local business license taxes are not franchise taxes from which State chartered credit unions are exempt under § 6.1-225.4
Based on the foregoing, it is my opinion that State chartered credit unions are subject to local real estate and personal property taxes and may be subject to local business license taxes, provided your local ordinance imposing license taxes contains a provision applicable to corporations providing financial services.5
1 A business license tax, as authorized under § 58-266.1, is not a property tax but a tax on the privelege of engaging in a business or occupation in the locality. See McKenney v. C. C. of Alex., 147 Va. 157, 136 S.E. 588 (1927); Postal Tel. Cable Co. v. Norfolk, 101 Va. 125, 43 S.E. 207 (1903). But cf. Commonwealth v. Hutzler, 124 Va. 138, 97 S.E. 775 (1919), wherein a license tax imposed on private bankers measured on the amount of capital employed, when considered in reference to the statute imposing an ad valorem tax on all of the property in state, but directing that all capital of individuals invested or employed in any trade or business not otherwise taxed shall be the subject of such tax, was regarded not merely as a privilege tax, but as a charge on the capital itself. See also Guidelines For Local Business, Professional and Occupational License Taxes ("BPOL"), issued by the Department of Taxation, January 1, 1984. BPOL guideline 3-2.1, n.18, states that federal credit unions are not subject to local license taxation under 12 U.S.C. § 1768.
2 Credit unions are not "banks," which are generally not subject to local license taxes except in connection with the sale of tangible personal property sold by banks as provided in § 58-485.04. Nor is the exemption from all State and local taxes, except real and personal property taxes in § 6.1-226.12, applicable to credit unions providing financial services. This exemption applies only to credit union share insurance corporations.
3 The exemption from franchise taxes is limited to State chartered credit unions doing business solely as credit unions. It would not apply to a credit union engaged in noncredit union activities. See § 6.1-200 for powers of credit unions.
4 See also § 6.1-226 (1974 Repl. Vol.), repealed by Ch. 633, Acts of Assembly of 1982, effective January 1, 1983, which imposed an annual State license tax on credit unions for the personal privilege of transacting business in the State.
5 A local license tax provision applicable to persons engaged in retail sales may also apply to State chartered credit unions if they sell tangible personal property, e.g., the sale of promotional items or blank checks to their customers. See BPOL guidelines 2-5 and 2-6.