Tax Type
BPOL Tax
Description
Determining Gross Receipts; What to Include
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
06-27-2001
June 27, 2001
Re: Taxpayer: *****
Locality Assessing Tax: *****
Appeal of Business, Professional and Occupational License (BPOL) Tax
Dear *****
This final state determination is issued upon an application for correction of BPOL taxes filed by you on behalf of ***** (the "Taxpayer"). The assessment contested was made by the Commissioner of the Revenue for the ***** (the "City").
The BPOL tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3703.1(A)(5) authorizes the department to issue determinations on taxpayer appeals of certain BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below. Copies of cited sources are enclosed.
FACTS
The Taxpayer is a mental health care provider that is located in the City. It is organized as a professional corporation. Its sole shareholder is a medical doctor (the "Medical Doctor") who is also an employee of the corporation.
Additionally, the Taxpayer provides a variety of mental health practitioners (the "Independent Practitioners") with office space for counseling sessions, receptionist services, billing services, local telephone service, yellow pages advertising and marketing services. The contracts governing this arrangement provide that the Independent Practitioners are independent contractors. Each Independent Practitioner is listed as an "independent practitioner" on the Taxpayer's letterhead.
The Taxpayer bills patients visiting the Independent Practitioners under the appropriate Independent Practitioner's federal identification number. The payments due to each of the Independent Practitioners are deposited into the appropriate Independent Practitioner's business checking account.
The Independent Practitioners compensate the Taxpayer for these services by paying a percentage of their prior month's gross receipts and a fixed monthly rent to the Taxpayer. Additionally, they reimburse the Taxpayer for their long distance calls.
Subsequent to a business license audit, the City determined that the Taxpayer had excluded the monthly rent and other payments received from the Independent Practitioners from its taxable gross receipts. The City assessed additional license taxes on account of these excluded receipts. The Taxpayer filed an application for correction of this assessment with the City and filed this appeal when the City rejected its arguments.
ANALYSIS
Gross Receipts Exclusion
The Taxpayer contends that it is entitled to exclude the payments received from the Independent Practitioners because they are not derived from the privilege of providing professional services. I disagree.
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."
I am not aware of any provision of law that would authorize the Taxpayer to exclude these amounts from its taxable gross receipts. I am enclosing a copy of Public Document 98-138 (10/2/98), which addresses this issue in greater detail.
Taxpayers Engaged in Multiple Business Activities
The Taxpayer also contends that its activities regarding the Independent Practitioners constitute a separate business. Under this theory, the Taxpayer concludes that it would only be subject to a license fee with respect to this activity or the gross receipts in question would be taxed at the lower rate associated with a business services classification. I disagree.
The City has determined that the Taxpayer is engaged in one business, the provision of professional services, rather than two. The City's determination is consistent with Chapter 7 of Article 13.1 of the Code of Virginia (§§ 13.1-543, et seq.), which governs professional corporations. Code of Virginia § 13.1-548 provides that "[n]o corporation organized under this chapter shall engage in any business other than the rendering of the professional services for which it was specifically incorporated . . ."
It is my determination that the Taxpayer has not presented sufficient evidence to refute the City's determination that it is engaged in one business.
Local License Taxation of Professional Corporations
The facts presented are not sufficient for me to determine whether the business licenses for the tax years subject to this appeal were issued to the Taxpayer or to the Medical Doctor. Code of Virginia § 13.1-554 provides that the shareholders of a professional corporation, not the professional corporation itself, are subject to local license taxation. I am enclosing a copy of Public Document 99-257 (9/24/99), which explains this issue in greater detail.
If the business licenses for the tax years in question were not issued to the Medical Doctor, the City should do so once the assessment and any other local licensing requirements have been satisfied. Otherwise, as the Taxpayer has not presented, nor am I aware of, facts or legal precedent that prove that the City's assessment is incorrect, it is my determination that the assessment is correct. If you have any other questions about this final determination, you may contact ***** Tax Policy Analyst, in my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner