Tax Type
BPOL Tax
Description
Mental Health Provider; Is all Revenue Taxable
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
09-21-2001
September 21, 2001
Re: Request for an Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****
This is in response to the request for an advisory opinion that you submitted regarding the (the "Taxpayer "), which serves as a contracting agency for providers of specialized services for the mentally handicapped. I apologize for the delay in the department's response.
The local license tax and fee are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been issued subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
While addressing the issues raised in your submission, 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 licensed as a provider of mental retardation services by the Department of Mental Health, Mental Retardation and Substance Abuse Services (DMHMRSAS). It is licensed in three areas: as a residential service providing a mental retardation group home program for adults; as a day support service providing programs for adults with mental retardation; and as a provider of in-home health support programs for children, adolescents and adults.
The Taxpayer's funding source is federal and state monies that have been allocated through the Mental Retardation Medicaid Waiver Program, which is administered by the Department of Medical Assistance Services (DMAS). The Taxpayer must sign a Participation Agreement that is handled through the First Health Virginia Medical Assistance Program (VMAP) Provider Enrollment Unit on behalf of DMAS. The agreement specifies that payment by VMAP at established rates "shall constitute full payment for services rendered." Furthermore, the agreement stipulates that the collection of any other funds on behalf of a VMAP recipient is strictly prohibited.
The Taxpayer licenses persons to become local providers of foster care services for individuals with mental retardation. In addition to coordinating the location and placement process, the Taxpayer creates Individual Service Plans for each client and his provider. The local providers are not employees; rather, they act as subcontractors.
Because the Taxpayer is officially licensed by DMHMRSAS as a "Provider of Mental Retardation Services," it bills DMAS, which, in turn, forwards Medicaid monies to the Taxpayer. A Participation Agreement must be obtained from the First Health Provider Enrollment Unit. Only the providers who have been licensed by DMHMRSAS and have an agreement may bill DMAS for Medicaid reimbursement. DMAS Medicaid Memo. September 19, 2000. Upon receiving these movies, the Taxpayer pays the providers it has selected, retaining a portion of the movies as compensation for its services. You ask if the Taxpayer is liable for BPOL tax on the entire gross receipts, or only on those gross receipts not paid to the providers.
OPINION
Section 58.1-3700.1 of the Code of Virginia defines gross receipts as "the whole, entire, total receipts, without deduction." While there are certain deductions, exemptions and exclusions allowed under the BPOL statutes, subcontracting is not one.
There are circumstances that allow a taxpayer to exclude from taxable gross receipts certain movies when acting as a fiduciary or agent for another, i.e., the taxpayer receives and disburses movies on behalf of a person or entity other than the taxpayer. See, for example, Public Document (P.D.) 01-038, (April 12, 2001), P.D. 98-135 (September 15, 1998), and Op. Va. Att'y Gen: 1998 at 110; 1986-87 at 285; 1985-1986 at 281.) As noted in these opinions, "gross receipts are not subject to a local gross receipts tax when the taxpayer acts as the agent or fiduciary for another in receiving and disbursing money on behalf of a person or entity other than the taxpayer."
However, it appears in this case that there is neither a separate fiduciary fund, nor do the local providers have a direct relationship with DMAS. The Taxpayer's Participation Agreement with DMAS does not mandate that the Taxpayer enter into formal legal agreements with the subcontracted local providers. While DMAS sets the service fee schedule for the Taxpayer, it would appear that the Taxpayer sets the rates for the local subcontracted providers. Furthermore, I have not seen evidence that the Taxpayer enters into contractual relationships with the local subcontracted providers that stipulate the percentage of the DMAS monies it will retain as a service fee.
Therefore, based on the information provided and absent evidence of a fiduciary or agency relationship as noted above, it is my opinion that the Taxpayer is subject to a BPOL tax on its entire gross receipts. If the Taxpayer can produce evidence indicating that it is acting as fiduciary or has an agency relationship with the local providers, the resulting opinion might be different.
I hope this information is helpful. If you have any further questions, please call ***** in the department's Appeals and Rulings Office at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/33249H
Rulings of the Tax Commissioner