Tax Type
BPOL Tax
Local Taxes
Description
Automobile dealership; Trade-ins
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
06-26-2000
June 26, 2000
Re: Request for Advisory Opinion
Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This will respond to your letter requesting an advisory opinion regarding the local license taxation of an automobile dealership (the "Taxpayer"). I apologize for the delay in responding to your request.
While addressing the questions raised in your letter, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited material for your review.
You ask whether or not the Taxpayer is entitled to exclude sales made between its different departments from its BPOL gross receipts. You also seek guidance concerning the license tax treatment of trade-in vehicles received from customers.
The Taxpayer states that it maintains an accounting system that treats its different departments, such as vehicle sales, parts, and service, as discrete profit centers. These departments, however, are not independent legal entities and are significant only for internal accounting and management purposes. Under this system, the Taxpayer accounts for "internal sales" between the departments, as well as actual sales to its customers.
The Taxpayer states that it includes both internal sales and actual sales to customers in its gross receipts for federal income tax purposes. The Taxpayer states that its income tax liability is not affected by this practice of recognizing internal sales, because it also recognizes offsetting internal costs on its income tax return. On its local license tax application, the Taxpayer excludes the internal sales from its gross receipts. Because of this practice, the Taxpayer's BPOL gross receipts differ from the gross receipts reported on its federal income tax return.
Gross Receipts
Section 1 of the 2000 BPOL Guidelines defines "gross receipts" to be:
Although a locality may often use the gross receipts reported on a taxpayer's federal income tax return to verify the taxpayer's BPOL gross receipts, the amounts may differ. In such situations, the taxpayer must be able to substantiate its BPOL gross receipts to the locality.
Trade-ins
Code of Virginia § 58.1-3734.1 provides that "[w]henever a motor vehicle dealer accepts a trade-in as part of a sale of a motor vehicle, the dealer's gross receipts for license tax purposes shall not include the amount of the trade-in." Typically, gross receipts will be recognized on the subsequent sale of the vehicle. When computing its gross receipts, a motor vehicle dealer may not deduct expenses for labor or materials used to recondition or repair a trade-in vehicle for resale. 1990 Report of the Attorney General 224 (July 3, 1990).
I hope that the above information will be beneficial to you. Although I believe this letter 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 M. Payne
Tax Commissioner
OTP/26372D
Re: Request for Advisory Opinion
Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This will respond to your letter requesting an advisory opinion regarding the local license taxation of an automobile dealership (the "Taxpayer"). I apologize for the delay in responding to your request.
While addressing the questions raised in your letter, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited material for your review.
You ask whether or not the Taxpayer is entitled to exclude sales made between its different departments from its BPOL gross receipts. You also seek guidance concerning the license tax treatment of trade-in vehicles received from customers.
FACTS
The Taxpayer states that it maintains an accounting system that treats its different departments, such as vehicle sales, parts, and service, as discrete profit centers. These departments, however, are not independent legal entities and are significant only for internal accounting and management purposes. Under this system, the Taxpayer accounts for "internal sales" between the departments, as well as actual sales to its customers.
The Taxpayer states that it includes both internal sales and actual sales to customers in its gross receipts for federal income tax purposes. The Taxpayer states that its income tax liability is not affected by this practice of recognizing internal sales, because it also recognizes offsetting internal costs on its income tax return. On its local license tax application, the Taxpayer excludes the internal sales from its gross receipts. Because of this practice, the Taxpayer's BPOL gross receipts differ from the gross receipts reported on its federal income tax return.
OPINION
Gross Receipts
Section 1 of the 2000 BPOL Guidelines defines "gross receipts" to be:
-
- the whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law. (Emphasis added).
- the whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law. (Emphasis added).
Although a locality may often use the gross receipts reported on a taxpayer's federal income tax return to verify the taxpayer's BPOL gross receipts, the amounts may differ. In such situations, the taxpayer must be able to substantiate its BPOL gross receipts to the locality.
Trade-ins
Code of Virginia § 58.1-3734.1 provides that "[w]henever a motor vehicle dealer accepts a trade-in as part of a sale of a motor vehicle, the dealer's gross receipts for license tax purposes shall not include the amount of the trade-in." Typically, gross receipts will be recognized on the subsequent sale of the vehicle. When computing its gross receipts, a motor vehicle dealer may not deduct expenses for labor or materials used to recondition or repair a trade-in vehicle for resale. 1990 Report of the Attorney General 224 (July 3, 1990).
I hope that the above information will be beneficial to you. Although I believe this letter 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 M. Payne
Tax Commissioner
OTP/26372D
Rulings of the Tax Commissioner