01-216 | Virginia Tax

Tax Type

BPOL Tax

Description

Application of BPOL to affiliated entities

Topic

Basis of Tax

Local Taxes Discussion

Date Issued

12-13-2001

December 13, 2001

Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax

Dear *****

This will respond to your letter of September 24, 2001, in which you request an advisory opinion regarding the application of the BPOL tax to ***** (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.

FACTS

You state that the Taxpayer is a management company that performs overhead/support services for other affiliated entities. The affiliated entities for whom the Taxpayer performs services are structured as Limited Partnerships (LPS), Limited Liability Partnerships ( LLPs), Limited Liability Companies (LLCs) or Subchapter S Corporations (S-Corps). In each instance, the entities with whom the Taxpayer is affiliated meet the test as set forth in Code of Virginia § 58.1-3700.1 and amplified in Appendix A of the 2000 BPOL Guidelines regarding shareholder ownership. Based on this affiliation, the Taxpayer sought a refund of BPOL taxes paid to the ***** (the "City") in tax year 1998, citing the exemption allowed in Code of Virginia § 58.1-3700.1. The City determined that the particular entity in question is an LLP, and therefore, "would fall outside the statutory relief of the affiliated code provisions."

OPINION

Code of Virginia § 58.1-3703(C)(10) provides that no county, city or town may impose a license tax:

- On 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. This exclusion shall not exempt affiliated entities from such license or other tax measured by receipts or purchases from outside the affiliated group.

An affiliated group is defined as one 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 certain conditions of common shareholder stock ownership exist between shareholders. Effective July 1, 2000, the definition of "affiliated group" was expanded to include "two or more entities that satisfy the requirements in subdivisions 1 or 2 of [the definition of "affiliated group" in § 58.1-3700.1] as if they were corporations and the ownership interest therein were stock."

Code of Virginia § 58.1-3700.1 defines "entity" as:

- a business organization, other than a sole proprietorship, that is a corporation, limited liability company, limited partnership, or limited liability partnership duly organized under the laws of the Commonwealth or another state.

Under current law, the Taxpayer's receipts from affiliated entities clearly would be exempt from the BPOL tax. However, for the tax year in question (1988), the exclusion for members of an affiliated group for receipts from within the group applied only to chains of corporations. It was not until July 1, 2000 that LPS, LLPs and LLCs were incorporated into Code of Virginia §§ 58.1-3700.1 and 58.1-3703 as eligible entities to qualify for the affiliated group exclusion.

The Taxpayer is requesting a refund for tax year 1998 based on the expanded definition of "affiliated groups" under Code of Virginia § 58.1-3700.1 and the amendment to § 58.1-3703. However, these changes did not become effective until July 1, 2000. Since entities at issue were not included in the definition of "affiliated group" as it existed for the 1998 tax year, it is my opinion that the Taxpayer would not be entitled to an affiliated group exclusion from BPOL taxes in tax year 1998.

I hope this has been helpful to you. If you have any questions regarding this advisory opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,

Danny M. Payne
Tax Commissioner

AR/37087

Rulings of the Tax Commissioner