Tax Type
BPOL Tax
Description
Limitations on rate of license taxes; Wholesale merchants; Situs of purchases
Topic
Local Power to Tax
Date Issued
12-01-1997
The Honorable Charles D. Crowson Jr.
Commissioner of the Revenue for the City of Newport News
You ask whether the sales of a wholesale merchant attributable to business conducted at the merchant's sales office in your locality constitute "purchases' for the purpose of assessing a business license tax on the wholesale merchant.
You relate that the merchant has corporate and sales offices, in addition to warehousing and distribution centers, in Newport News. The merchant also has warehousing and distribution centers located in other jurisdictions within and without the Commonwealth. The merchant manages its business through the use of cost centers, thus making sales attributable to business conducted at the Newport News business office readily determinable. The merchandise sold through the Newport News business office is delivered to customers both in Virginia and in other states. In addition, not all of the merchandise sold through the business office located in Newport News is stored at the company's Newport News warehouse prior to shipment to the customers. Some of the merchandise is shipped to customers from warehouse and distribution facilities located in other jurisdictions in the Commonwealth or located in other states, and some of the merchandise is shipped from the company's manufacturing supplier directly to the customer. You ask whether all sales attributable to business conducted from locations within the city are deemed "purchases' for purposes of calculating the base for the wholesale merchant's license tax, regardless of whether the goods were ever physically received at a business location in the city and regardless of whether the goods were shipped to destinations outside the city or outside the Commonwealth.
Chapter 37 of Title 58.1 of the Code of Virginia contains the enabling legislation for the local assessment of business license taxes.1 § 58.1-3703(A) authorizes a locality to assess a business, professional and occupational license ("BPOL') tax on the gross receipts of any person, firm or corporation that is operating a licensable business within the locality. § 58.1-3706(A), which sets maximum rates that may be assessed on the gross receipts of different classes of business, provides that the rate limitation on wholesalers is to be governed by § 58.1-3716. § 58.1-3716 sets the maximum rate for a license tax on "wholesale merchants' at 5 cents per $100 of "purchases.'2 § 58.1-3708(A) provides that the situs for the assessment of the local license tax shall be the locality in which the person "has a definite place of business.'3 § 58.1-3701 requires the Department of Taxation to promulgate guidelines for the use of local governments in their administration of BPOL taxes.
Amendments to Chapter 37 adopted at the 1996 Session of the General Assembly include the addition of two new sections, §§ 58.1-3700.1 and 58.1-3703.1,4 both of which are relevant to your inquiry. § 58.1-3700.1contains definitions, including a definition of the term "purchases.' § 58.1-3703.1(A) contains uniform provisions that must be included in every local license tax ordinance, including provisions for determining the situs of the gross receipts of a business.5 In light of the 1996 amendments to Chapter 37, the Department of Taxation updated its guidelines on January 1, 19976 (the "BPOL Guidelines').
Section 58.1-3700.1provides the following definition of "purchases':
- "Purchases' means all goods, wares and merchandise received for sale at each definite place of business of a wholesale merchant. The term shall also include the cost of manufacture of all goods, wares and merchandise manufactured by any wholesale merchant and sold or offered for sale. A wholesale merchant may elect to report the gross receipts from the sale of manufactured goods, wares and merchandise if it cannot determine the cost of manufacture or chooses not to disclose the cost of manufacture.
- The gross receipts of a retailer or wholesaler shall be attributed to the definite place of business at which sales solicitation activities occur, or if sales solicitation activities do not occur at any definite place of business, then the definite place of business from which sales solicitation activities are directed or controlled; however, a wholesaler or distribution house subject to a license tax measured by purchases shall determine the situs of its purchases by the definite place of business at which or from which deliveries of the purchased goods, wares and merchandise are made to customers.7 [Emphasis added.]
- Company A manufactures equipment at its plant outside Virginia. It has an office in City B, Virginia where sales solicitations take place. Company A's sales office is taxable as a wholesale merchant based on purchases. The purchases of a wholesaler subject to the tax on purchases are attributed to the definite place of business where the goods are physically delivered to customers or at the shipping point to customers. Company A has no taxable purchases in City B since the goods are not delivered or shipped from the sales office in that locality.10
Opinions of the Attorney General issued before the 1996 addition of the statutory definition of "purchases' relied on the definition in former § 58-304 to conclude that if the goods were sold or offered for sale from a wholesale merchant's place of business within the locality, the merchandise did not have to be physically shipped from the place of business to be included in the calculation of "purchases.'12 § 58-304 provided the following definition of "purchases':
- The word "purchases', as used in this article shall be construed to include all goods, wares and merchandise received for sale at each definite place of business of every wholesale merchant. The word as so used shall not be construed to exclude any goods, wares and merchandise otherwise coming within the meaning of the word. All goods, wares and merchandise manufactured by any wholesale merchant and sold or offered for sale, in this State, as merchandise, shall be considered as purchases within the meaning of this article. But this article shall not be construed as applying to manufacturers taxed on capital by this State, who offer for sale at the place of manufacture goods, wares and merchandise manufactured by them.13
It is presumed that when the General Assembly enacts new laws, it has full knowledge of existing law and the constructions placed on it by the courts and by the Attorney General, and intends to change the law.16 When the General Assembly adds new provisions to existing legislation, the presumption also arises that a change in the law is intended.17 Moreover, constructions placed on the law by those agencies charged with administrative duties in connection with the law are entitled to great weight, particularly when the agency has been charged by the General Assembly with construing individual statutes that constitute part of a complex statutory scheme.18 Accordingly, it is my opinion that under the 1996 amendments to the BPOL statutes and the BPOL Guidelines Newport News may not include in the measure of the tax assessed on the company merchandise sold through the Newport News sales office but delivered to the purchaser from a facility outside the city.
You ask also whether sales attributable to the Newport News place of business are included in the tax base if the goods are distributed from the Newport News warehouse or distribution facility to locations outside Newport News or outside the Commonwealth. It is my opinion that these sales constitute "purchases' that are included in the tax base for the Newport News sales office. This conclusion is consistent with the language of § 58.1-3703.1(A)(3)(a)(2) that the situs of a wholesaler whose tax is measured by purchases shall be the place of business "at which or from which deliveries of the purchased goods, wares and merchandise are made to customers.'
In the facts you present, the company has both a sales office and a warehouse in Newport News. Although you inquire specifically about sales attributable to the Newport News sales office, it appears from the language of § 58.1-3703.1(A)(3)(a)(2), and from the following example in § 3.8.3 of the BPOL Guidelines, that Newport News also may include within the merchant's gross receipts those goods shipped or delivered to purchasers from the company's warehouse in Newport News, even if the sales activities are attributable to a sales office located in another jurisdiction within the Commonwealth:
A wholesaler, whose BPOL tax is measured based upon purchases, has a warehouse in County A from where it delivers goods to customers. The situs of its purchases is County A.19
Neither § 58.1-3703.1(A)(3)(a)(2) nor the example in § 3.8.3 indicates that, if a company has a definite business in a locality from which it ships or delivers goods to customers, the sales activity must occur within the same locality in order for the delivered goods to be included in the wholesaler's "purchases.' Were that the case, a wholesale merchant with sales offices and warehouses in various jurisdictions within the Commonwealth would be able to avoid payment of a license tax in any jurisdiction by arranging for delivery of the goods from a warehouse in a jurisdiction other than the one in which the sales activity occurred.20
Whether the city also may include those goods shipped or delivered from the Newport News warehouse when the sales activity occurred outside the Commonwealth will depend on the particular circumstances. Another example in § 3.8.3 of the BPOL Guidelines states that a wholesaler with facilities in North Carolina who ships merchandise from a distribution center in a Virginia town is subject to the Virginia locality's license tax measured by purchases.21 While this may indeed be the result, consideration must be given to whether the imposition of the tax under the particular facts satisfies the test established in Complete Auto Transit, Inc. v. Brady.22
In summary, it is my opinion that, based on the BPOL statutes as amended in 1996 and the Department of Taxation's updated BPOL Guidelines, the City of Newport News may include within the measure of the company's gross receipts (1) sales attributable to activities conducted at or through the Newport News sales office and shipped or delivered to customers from the Newport News warehouse or sales office, regardless of whether the goods are delivered to customers in Newport News, in other jurisdictions within the Commonwealth, or in other states; (2) sales attributable to a sales office in another jurisdiction in the Commonwealth but shipped or delivered from the warehouse in Newport News to customers in Newport News, in other localities within the Commonwealth or in other states; and (3) depending on the circumstances, sales attributable to a sales office outside the Commonwealth but shipped or delivered to customers from the warehouse in Newport News.
1 Sections 58.1-3700 to 58.1-3735.
2 Section 58.1-3716 permits localities with rates in excess of this rate on January 1, 1964, to continue the higher rate. The BPOL statutes use the terms "wholesaler(s)' and "wholesale merchants' interchangeably. § 58.1-3706(A) refers to the type of business classification as "wholesalers governed by § 58.1-3716,' and § 58.1-3716 uses the term "wholesale merchants.' There is no distinction between a "wholesaler' and a "wholesale merchant' under the present statutory scheme.
3 Each locality in which the person has a definite place of business may impose a license tax on the business. § 58.1-3708(A). The volume of the business for purposes of assessing the amount of the tax is the volume attributable to all definite places of business in a locality, with the volume attributable to a place of business in any other locality deducted from this base. § 58.1-3708(B). "Volume' means "gross receipts, sales, purchases, or other base for measuring a license tax which is related to the amount of business done.' § 58.1-3708(C).
4 See 1996 Va. Acts: ch. 715, at 1233, 1234-35, 1238-41; ch. 720, at 1247, 1248-49, 1251-55. The amendments to the BPOL statutes are effective generally for license years beginning on and after January 1, 1997. See id. at 1244, 1258 (enactment clauses 3, 4).
5 See § 58.1-3703.1(A)(3).
6 See Department of Tax'n, Guidelines for Business, Professional and Occupational License Tax Imposed by City, County and Town Ordinances (Jan. 1, 1997) [ hereinafter BPOL Guidelines].
7 Section 58.1-3703.1(A)(3)(a)(2) further provides that any wholesaler subject to a license tax in more than one jurisdiction and subject to multiple taxation because the jurisdictions use different measures may obtain a determination from the Department of Taxation as to the proper measure of purchases and gross receipts subject to the tax in each jurisdiction.
8 See BPOL Guidelines, supra note 6, at 14.
9 Id. at 53 (emphasis added).
10 Id. at 54 (quoting example 4).
11 While example 4 under § 3.8.3 of the BPOL Guidelines relates specifically to a manufacturer who operates a sales office as a wholesale merchant, other than at the place of manufacture, the BPOL statutes make no distinction between wholesale merchants who sell goods that they manufacture and wholesale merchants who sell goods manufactured by others. § 58.1-3703(C)(4), however, prohibits a license tax on a manufacturer for the privilege of selling goods "at wholesale at the place of manufacture.' § 7.3 of the BPOL Guidelines relates specifically to limitations on the taxation of wholesale sales of a manufacturer, notwithstanding the fact that the manufacturer may have a sales office or warehouse in the locality. Id. at 106-08. If the wholesaler is a manufacturer, § 7.3 should be considered in addition to the other guidelines.
12 See Op. Va. Att'y Gen.: 1990 at 220, 222 (in absence of present statutory definition of "purchases,' former § 58-304 provides guidance; although merchandise is shipped directly from factory to purchaser, it is included in gross receipts because it reflects amount of sales attributed to wholesale merchant's place of business in locality); 1974-1975 at 459 (whether tax is measured by sales or purchases, tax is imposed for privilege of conducting sales activities at place of business within locality; thus, sales made through place of business are included within measure of tax regardless of whether merchandise actually is shipped from place of business); see also Short Brothers, Inc. v. Arlington County, 244 Va. 520, 423 S.E.2d 172 (1992) (all of company's gross receipts from sales of aircraft and parts are included in measure of wholesale merchant's license tax, despite fact that none of aircraft or parts sold were ever located in or delivered to Virginia); Great A. & P. T. Co. v. Richmond, 183 Va. 931, 33 S.E.2d 795 (1945) (for purposes of statute imposing license tax on distributing houses engaged in business of distributing merchandise to retailers and stating that purchases are to be same as in license tax imposed on wholesale merchant, merchandise is deemed "distributed through' distributing house if activities that form basis for license occur at place of business, notwithstanding fact that merchandise never was physically delivered to or distributed from place of business). The BPOL statutes no longer authorize a special license tax on a distributing house engaged in distributing merchandise to retailers. It is unclear to what extent the addition of the present definition of "purchases' would support a different result in a case with facts like those in Short Brothers.
13 Section 58-304(Michie 1959).
14 See 1966 Va. Acts ch. 151, cl. 2, at 258, 280; 1989 Op. Va. Att'y Gen. 315, 317.
15 See, e.g., 1990 Op. Va. Att'y Gen., supra note 12. § 23-49(b) of the Newport News Code as in effect prior to January 1, 1997, also repeated the language of § 58-304. The present City Code includes a definition of "purchases' identical to the definition in § 58.1-3700.1. See NEWPORT NEWS, VA., CODE § 23-3, at 1552. (July 1996).
16 See Richmond v. Sutherland, 114 Va. 688, 693, 77 S.E. 470, 472 (1913); 1996 Op. Va. Att'y Gen. 51, 52.
17 See Wisniewski v. Johnson, 223 Va. 141, 144, 286 S.E.2d 223, 224-25 (1982); Op. Va. Att'y Gen.: 1996 at 61, 61; 1990 at 156, 157; 1986-1987 at 272, 273.
18 See 1996 Op. Va. Att'y Gen. 124, 126, and authorities cited therein at 127 n.7.
19 BPOL Guidelines, supra note 6, at 54 (quoting example 3).
20 See also § 58.1-3703.1(A)(3)(b) (apportionment of gross receipts when licensee has more than one definite place of business and it is impractical or impossible to determine to which place of business gross receipts should be attributed under general rule); § 58.1-3703.1(A)(3)(c) (assessor may enter into agreement with other political subdivision of Commonwealth regarding manner of apportioning gross receipts); BPOL Guidelines §§ 2.1.4, 2.1.5, supra note 6, at 15-16.
21 BPOL Guidelines, supra note 6, at 54 (citing example 2).
22 430 U.S. 274 (1977). Under that test, a tax based on activity occurring in interstate commerce is constitutional if the tax is applied to an activity having a substantial nexus with the taxing jurisdiction, does not discriminate against interstate commerce, is fairly related to the services provided by the jurisdiction, and is fairly apportioned. 430 U.S. at 277-79. See also § 58.1-3732(B)(2) (locality to deduct from purchases otherwise taxable "[a]ny receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based upon income'). This deduction was added to the BPOL statutes along with the other 1996 amendments to Chapter 37. See 1996 Va. Acts, supra note 4, at 1244, 1257; see also BPOL Guidelines § 3.3.4, supra note 6, at 31-32 (providing examples illustrating this deduction).
The Supreme Court of Virginia applied the Complete Auto test in Short Brothers, and concluded that the sales activities conducted from the company's place of business in Arlington County established a substantial nexus and, because the state of delivery of the goods would be unable to establish a nexus solely on the basis of delivery of the goods into the state, there was no risk of double taxation and no need to apportion any of the receipts for merchandise delivered outside the Commonwealth. 244 Va. at 524-26, 423 S.E.2d at 174-76. See supra note 12 (regarding Short Brothers and application of state law under 1996 amendments to BPOL statutes). In City of Winchester v. American Woodmark Corp., the Court considered the "externally consistent' requirement of the apportionment prong of Complete Auto. 252 Va. 98, 102-03, 471 S.E.2d 495, 497-98 (1996). A tax is "externally consistent if the assessment applies only to the 'portion of the revenues from the interstate activity which reasonably reflects the in-state component of the activity being taxed." Id at 102, 471 S.E.2d at 497 (quoting Goldberg v. Sweet, 488 U.S. 252, 262 (1989)).
Attorney General's Opinion