Tax Type
BPOL Tax
Description
License Taxation of Nonprofit Organizations
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
08-15-2001
August 15, 2001
Re: Request for Advisory Opinion
Business, Professional & Occupational License (BPOL) Tax
Dear *****************:
This advisory opinion is issued in response to your request for guidance concerning the local license taxation of ***** (the "Taxpayer").
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.
FACTS
The Taxpayer is a non-stock corporation that serves as a professional association for its members (the "Members"). The members are practitioners of a profession (the "Profession") licensed by the Commonwealth. The Taxpayer is exempt from federal income taxation under Internal Revenue Code § 501(c)(6).
OPINION
License Taxation of Nonprofit Organizations
Certain nonprofit organizations are afforded favorable local license tax treatment under Code of Virginia § 58.1-3703(C)(18), which prohibits localities from imposing a license fee or levying a license tax:
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- (a) On or measured by receipts of a charitable nonprofit organization except to the extent the organization has receipts from an unrelated trade or business the income of which is taxable under Internal Revenue Code § 511 et seq. For the purpose of this subdivision, "charitable nonprofit organization" means an organization which is described in Internal Revenue Code § 501(c)(3) and to which contributions are deductible by the contributor under Internal Revenue Code § 170, except that educational institutions shall be limited to schools, colleges and other similar institutions of learning.
(b) On or measured by gifts, contributions, and membership dues of a nonprofit organization.***********Activities conducted for consideration which are similar to activities conducted for consideration *********** by for-profit businesses shall be presumed to be activities that are part of a business subject to ******* licensure. For the purpose of this subdivision, "nonprofit organization" means an organization *****exempt from federal income tax under Internal Revenue Code § 501 other than charitable*****nonprofit organizations.
License Taxation of the Taxpayer
As the Taxpayer is exempt from federal income taxation under Internal Revenue Code § 501(c)(6), not § 501(c)(3), it is treated as a "nonprofit organization," rather than a "charitable nonprofit organization," for local license tax purposes. As a nonprofit organization, its local license taxation is determined with reference to Code of Virginia § 58.1-3703(C)(18)(b). This code section prohibits localities from imposing a license tax or fee on gifts, contributions and membership dues received by the Taxpayer. However, if the Taxpayer conducts activities for consideration which are similar to activities conducted for consideration by for-profit businesses, such activities will be presumed to be activities that are part of a business subject to licensure. The application of § 58.1-3703(C)(18)(b) and other license tax provisions to the Taxpayer and its activities are discussed below.
Membership Dues and Contributions
The Taxpayer receives membership dues from the Members and voluntary contributions from other professional associations to support its efforts.
In my opinion, § 58.1-3703(C)(18)(b) prohibits localities from imposing a license tax or fee on the Taxpayer based on the membership dues or the contributions from the other professional associations.
Additionally, the Taxpayer receives income from an organization that serves as a professional association for practitioners of the Profession on a nationwide basis (the "National Association"). This income consists of "commissions" paid by the National Association to the Taxpayer to compensate the Taxpayer for its collection of National Association dues from the Members.
When the Taxpayer bills the Members for dues owed to the Taxpayer, each bill allows the Member the option of also remitting the Member's National Association dues. Members who elect to pay their National Association dues through the Taxpayer write one check to cover both their dues to the Taxpayer and to the National Association. The Taxpayer then sends a check to the National Association representing the National Association dues collected from the Members. Subsequently, the National Association sends a check to the Taxpayer. The amount of the check is based on a percentage of the National Association dues collected by the Taxpayer.
In my opinion, the collection of the National Association dues by the Taxpayer is an activity that is ancillary to the exempt activity of collecting its own dues from the Members. It is not an activity that is similar to activities conducted for consideration by for-profit businesses. Accordingly, Code of Virginia § 58.1-3703(C)(18)(b) prohibits localities from imposing a license tax or fee on the Taxpayer based on the commissions received from the National Association.
Accreditation of Continuing Education
The Taxpayer receives fees for accrediting or approving continuing professional education courses necessary for its members to remain licensed by the Commonwealth to practice the Profession.
In my opinion, providing for the accreditation of continuing professional education is not an activity that is similar to activities conducted for consideration by for-profit businesses. Accordingly, § 58.1-3703(C)(18)(b) prohibits localities from imposing a license tax or fee on the Taxpayer based on the accreditation revenue.
Practice Management Consulting and Seminars
The Taxpayer provides practice management consulting and seminars.
In my opinion, providing practice management consulting and seminars is an activity that is similar to activities conducted for consideration by for-profit businesses. Accordingly, § 58.1-3703(C)(18)(b) does not prohibit localities from imposing a license tax or fee on the Taxpayer based on the practice management consulting and seminar revenue.
Investment Income
The Taxpayer receives capital gains, dividends and interest from its investments.
Code of Virginia § 58.1-3732 (A)(8) provides an exclusion from taxable gross receipts for:
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- [i]nvestment income not directly related to the privilege exercised by a business subject to licensure not classified as rendering financial services. This exclusion shall apply to interest on bank accounts of the business, and to interest, dividends and other income derived from the investment of its own funds in securities and other types of investments unrelated to the licensed privilege. This exclusion shall not apply to interest, late fees and similar income attributable to an installment sale or other transaction that occurred in the regular course of business.
In my opinion, the Taxpayer may exclude its investment income from local license taxation under § 58.1-3732(A)(8).
Interest Income on Loan to Subsidiary
The Taxpayer is the sole shareholder of a stock corporation (the "Service Corporation"), which acts as an insurance agency for the Members. The Taxpayer receives interest income on a loan to the Service Corporation. The Taxpayer made the loan to the Service Corporation to finance its startup costs.
Arguably, this interest income is excluded from local license taxation under § 58.1-3703(C)(18)(b) and/or § 58.1-3732(A)(8). However, the point is moot because this interest income may be excluded from local license taxation under § 58.1-3703(C)(10). Code of Virginia § 58.1-3703(C)(10) prohibits localities from imposing a license fee or levying a license tax "(o)n or measured by receipts or purchases by an entity which is a member of an affiliated group of entities from other members of the same affiliated group." The term "affiliated group" is defined in § 58.1-3700.1 to include:
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- (o)ne or more chains of corporations subject to inclusion connected through stock ownership with a common parent corporation which is a corporation subject to inclusion if:
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- a. Stock possessing at least eighty percent of the voting power of all classes of stock and at least eighty percent of each class of the nonvoting stock of each of the corporations subject to inclusion, except the common parent corporation, is owned directly by one or more of the other corporations subject to inclusion; and
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- b. The common parent corporation directly owns stock possessing at least eighty percent of the voting power of all classes of stock and at least eighty percent of each class of the nonvoting stock of at least one of the other subject to inclusion corporations.
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As the Taxpayer is a corporation which is the sole shareholder of the Service Corporation, it is my opinion that the Taxpayer and the Service Corporation constitute an affiliated group and the interest income received by the Taxpayer from the Service Corporation is excluded from local license taxation under § 58.1-3703(C)(10).
Expense Reimbursements
In addition to the interest income, the Taxpayer also receives expense reimbursements from the Service Corporation for its use of the Taxpayer's facilities.
In my opinion, expense reimbursements received by the Taxpayer from the Service Corporation would also be excluded from local license taxation under § 58.1-3703(C)(10).
Annual Meeting Revenue
The Taxpayer also receives income from its annual meetings. Members pay attendance fees. Vendors pay fees for booths and sponsor meals.
In my opinion, the holding of a meeting or conference is an activity that is similar to activities conducted for consideration by for-profit businesses. Accordingly, § 58.1-3703(C)(18)(b) does not prohibit localities from imposing a license tax or fee on the Taxpayer based on the annual meeting revenue.
Advertising Income
The Taxpayer receives advertising revenue from its monthly newsletter. The Taxpayer anticipates receiving advertising revenue from its website.
In my opinion, the provision of advertising is similar to activities conducted for consideration by for-profit businesses. However, Code of Virginia § 58.1-3703(C)(3) prohibits localities from imposing a license fee or levying a license tax:
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- [u]pon the privilege or right of printing or publishing any newspaper, magazine, newsletter or other publication issued daily or regularly at average intervals not exceeding three months, provided the publication's subscription sales are exempt from state sales tax, or for the privilege or right of operating or conducting any radio or television broadcasting station or service.
Accordingly, § 58.1-3703(C)(3) prohibits localities from imposing a license tax or fee on the Taxpayer based on the newsletter advertising revenue.
As the Taxpayer has not yet commenced its website advertising activities, the facts concerning these activities are insufficient to make a determination regarding their license taxation consequences. However, I am not aware of any legal authority providing that a website is a newspaper, magazine, newsletter or other publication. Nor am I aware of any legal authority providing that a website is a radio or television broadcasting station or service.
Sales of Logo Merchandise
The Taxpayer sells shirts bearing the Taxpayer's logo (the "Logo Merchandise") to Members.
In my opinion, the sale of Logo Merchandise is an activity that is similar to activities conducted for consideration by for-profit businesses. Accordingly, § 58.1-3703(C)(18)(b) does not prohibit localities from imposing a license tax or fee on the Taxpayer based on the sales of Logo Merchandise.
Membership Affinity Income
The Taxpayer also receives "affinity income." In order to market products and services to the Members, businesses pay fees to the Taxpayer for endorsing their products and services.
In my opinion, the endorsing of products and services by the Taxpayer is similar to activities conducted for consideration by for-profit businesses. Accordingly, § 58.1-3703(C)(18)(b) does not prohibit localities from imposing a license tax or fee on the Taxpayer based on the affinity income,
Management Services
The Taxpayer receives management fees for performing management services (the "Management Services") for a society composed of spouses of members. This society does not maintain a staff. These services primarily consist of billing and collecting dues.
In my opinion, these services are similar to activities conducted for consideration by for profit businesses. Accordingly, § 58.1-3703(C)(18)(b) does not prohibit localities from imposing a license tax or fee on the Taxpayer based on the Management Services
Taxpayers Engaged in Multiple Business Activities
Public Document 97-304 (7/18/97) explains that:
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- (I)ocalities may require a company with multiple businesses to have a separate license for each business and, accordingly, each business must separately meet the threshold amount before being subject to tax. A company that has one business which is composed of a primary activity and an auxiliary or ancillary activity, however, is only required to have one license based on the primary activity and is subject to tax on total gross receipts at a rate also based on the primary activity. (Citations omitted).
An ancillary activity is one which is subordinate, subservient, or auxiliary to the business' primary activity. 2000 Guidelines, page 1. Public Document 97-257 (6/11 /97) states that:
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- (d)istinguishing between an ancillary activity and an activity which rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business.
License Tax Threshold Issues
The Taxpayer is located in a locality with a population greater than 50,000. Code of Virginia § 58.1-3706 prohibits any locality with a population greater than 50,000 from imposing a license tax on any business subject to licensure whose gross receipts are less than $100,000. Such a business, however, may still be subject to a license fee not to exceed $50. Code of Virginia § 58.1-3703(A).
CONCLUSION
I hope that the above information will be of assistance 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
OTP33588 D
Rulings of the Tax Commissioner