Tax Type
BPOL Tax
Local Taxes
Description
Limitations on rate of license taxes; Computer sales to municipalities
Topic
Local Power to Tax
Date Issued
07-07-2000
July 7, 2000
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear ****
This is in response to the request for an advisory opinion that you submitted concerning the deductions allowed under Code of Virginia § 58.1-3732. I apologize for the delay in responding to your request.
While addressing the issues raised in your question, 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.
FACTS
You state that a business (the "Business") in the City of ****** (the "City") sold computer equipment to the City and has requested a deduction from its gross receipts on the value of these sales. The Business cited Code of Virginia § 58.1-3732(B)(1), which permits the following items to be deducted from gross receipts or gross purchases that would otherwise be taxable:
Any amount paid for computer hardware and software that are sold to a United States federal or state governmental entity provided that such property was purchased within two years of the sale to said entity by the original purchaser who shall have been contractually obligated at the time of purchase to resell such property to a state or federal governmental entity.
You ask if political subdivisions of the Commonwealth are considered state governmental entities under this section of the Code of Virginia.
OPINION
Local governments have historically been considered political subdivisions that are creatures of the state. The Constitution of Virginia provides for their creation, hence their legitimacy:
The General Assembly shall provide by general law for the organization, government, powers, change of boundaries, consolidation and dissolution of counties, cities, towns and regional governments. Constitution of Virginia, Article VII § 2.
Furthermore, in Article X § 6, the Commonwealth and "political subdivisions thereof@ are treated in the same fashion, as they are elsewhere in the Code. Therefore it is apparent that unless otherwise specified, "state governmental entities," do include political subdivisions.
Given this conclusion, as long as the contract the business had with the City met all of the requirements set forth in Code of Virginia § 58.1-3732 (B)(1), gross receipts from the sales to the City as specified in the contract, would be exempt. It is important to cite the remainder of this Code section for your consideration. The original purchaser (the Business) shall have made the purchase of the equipment as a result of a contractual arrangement with a governmental entity.
This deduction shall not occur until the time of resale and shall apply only to the original cost of the property and not to its resale price, and the deduction shall not apply to any of the tangible personal property which was the subject of the original resale contract if it is not resold to a state or federal governmental entity in accordance with the original contract obligation.
In conclusion, it is my opinion that local governments can be considered as state governmental entities in interpreting this section of the Code of Virginia. It is the nature of the contract that enables the Business to qualify for, the deduction as specified.
I hope this has been helpful. Should you have any further questions, please contact *****, Tax Policy Analyst in my Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26032
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear ****
This is in response to the request for an advisory opinion that you submitted concerning the deductions allowed under Code of Virginia § 58.1-3732. I apologize for the delay in responding to your request.
While addressing the issues raised in your question, 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.
FACTS
You state that a business (the "Business") in the City of ****** (the "City") sold computer equipment to the City and has requested a deduction from its gross receipts on the value of these sales. The Business cited Code of Virginia § 58.1-3732(B)(1), which permits the following items to be deducted from gross receipts or gross purchases that would otherwise be taxable:
Any amount paid for computer hardware and software that are sold to a United States federal or state governmental entity provided that such property was purchased within two years of the sale to said entity by the original purchaser who shall have been contractually obligated at the time of purchase to resell such property to a state or federal governmental entity.
You ask if political subdivisions of the Commonwealth are considered state governmental entities under this section of the Code of Virginia.
OPINION
Local governments have historically been considered political subdivisions that are creatures of the state. The Constitution of Virginia provides for their creation, hence their legitimacy:
The General Assembly shall provide by general law for the organization, government, powers, change of boundaries, consolidation and dissolution of counties, cities, towns and regional governments. Constitution of Virginia, Article VII § 2.
Furthermore, in Article X § 6, the Commonwealth and "political subdivisions thereof@ are treated in the same fashion, as they are elsewhere in the Code. Therefore it is apparent that unless otherwise specified, "state governmental entities," do include political subdivisions.
Given this conclusion, as long as the contract the business had with the City met all of the requirements set forth in Code of Virginia § 58.1-3732 (B)(1), gross receipts from the sales to the City as specified in the contract, would be exempt. It is important to cite the remainder of this Code section for your consideration. The original purchaser (the Business) shall have made the purchase of the equipment as a result of a contractual arrangement with a governmental entity.
This deduction shall not occur until the time of resale and shall apply only to the original cost of the property and not to its resale price, and the deduction shall not apply to any of the tangible personal property which was the subject of the original resale contract if it is not resold to a state or federal governmental entity in accordance with the original contract obligation.
In conclusion, it is my opinion that local governments can be considered as state governmental entities in interpreting this section of the Code of Virginia. It is the nature of the contract that enables the Business to qualify for, the deduction as specified.
I hope this has been helpful. Should you have any further questions, please contact *****, Tax Policy Analyst in my Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26032
Rulings of the Tax Commissioner