Tax Type
BPOL Tax
Local Taxes
Description
Monies In Escrow Accounts
Topic
Computation of Tax
Exemptions
Local Power to Tax
Local Taxes Discussion
Date Issued
12-05-1985
[Opinion - Virginia Attorney General: 1985 at 281]
REQUEST BY: Honorable Bernard S. Cohen Member, House of Delegates
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask whether the local gross receipts license tax authorized by § 58.1-3700 et seq. of the Code of Virginia must be imposed on funds received by attorneys under two circumstances which regularly arise in the practice of law. First, you ask whether gross receipts include monies received from a client and placed into an escrow account, such as would occur before settlement in a real estate sales transaction. You ask also whether gross receipts include monies received from a client to reimburse the attorney for costs, such as clerk's and filing fees, advanced by the attorney on behalf of the client.
Pursuant to § 58.1-3703, a locality is authorized to levy a local license tax on all persons, firms and corporations engaged in professions within its jurisdiction. The tax is levied on gross receipts received for professional services in accordance with rates and limitations provided in § 58.1-3706(A)(3). The language of the statutes makes it clear that gross receipts arise when sales are made or services are rendered. Gross receipts do not arise because the taxpayer merely handles funds in certain transactions. There are circumstances, such as the two situations you mention, where a taxpayer may act as an agent for another, receiving and disbursing monies on behalf of an entity other than the taxpayer.
The Supreme Court of Virginia recently held a taxpayer advertising agency subject to the local license tax on total payments received from its client without any deduction for sums paid by the taxpayer to media sources for ad placement. See Alexandria v. Morrison-Williams, 223 Va. 349, 288 S.E.2d 482 (1982). In arriving at its conclusion, however, the Court discussed City of Los Angeles v. Clinton Merchandising Corp., 58 Cal.2d 675, 25 Cal.Rptr. 859, 375 P.2d 851 (1962), and concluded, as was concluded in that case, that money handled by one as an agent of a principal is not characterized as gross receipts of the agent.1 The Court's discussion of the significance of the agency relationship included a quotation from the California case, as follows:
"Defendant's situation compares to that of an attorney who, upon the authorization of the client that the attorney reimburses himself, advances monies for costs of his client and is repaid from funds received on behalf of the client. A store's reimbursement of defendant for the store's own expenses is no more chargeable as 'gross receipts' than the client's repayment of his attorney's advances." Alexandria v. Morrison-Williams, 223 Va. at 353, 288 S.E.2d at 485 (quoting City of Los Angeles v. Clinton Merchandising Corp., 375 P.2d at 854-55).
Based on the foregoing, it is my opinion that "gross receipts," for purposes of the local license tax, do not include purchase monies received from a client and deposited into an attorney's escrow account, as would occur before settlement in a real estate sales transaction.2 Neither do "gross receipts" include monies received from a client to reimburse the attorney for costs, such as clerk's and filing fees, advanced by the attorney on behalf of the client.
1 In City of Los Angeles the California Supreme Court held that monies handled by one acting merely as a disbursing agent were not subject to the gross receipts tax imposed under a city code section. The court stated that the language of the city code in that case "did not equate gross receipts with the totality of all monies handled by the taxpayer, an irrelevant figure which blanketed all of the taxpayer's activities." City of Los Angeles, 375 P.2d at 854. Although this Office has a long-standing policy of not construing local ordinances or city codes in official Opinions (see, e.g., 1977-1978 Report of the Attorney General at 31), I note the similarity of the city code section construed in City of Los Angeles to § 9-1-2(3) of the Alexandria City Code, the local license tax ordinance, which defines "gross receipts" as "[t]he gross receipts from any business, profession . . . including cash, credits, fees, commissions, brokerage charges and rentals, and property of any kind, nature or description, from either sales made or services rendered . . . ." (Emphasis added.)
2 Monies deposited into an escrow account and later withdrawn from that account as fees for services rendered would be characterized as gross receipts at the time of withdrawal from escrow.
Attorney General's Opinion