Tax Type
BPOL Tax
Description
Lessor not liable for Local License Tax
Topic
Basis of Tax
Local Power to Tax
Date Issued
07-11-2001
July 11, 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") by the ***** (the "County").
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 the owner of a four-acre parcel of real estate (the "Property") on which is located three buildings. The Taxpayer leases the Property to an unrelated commercial tenant (the "Lessee"). The lease contract with the Lessee is for a term of fifteen years. The lease is a "triple net lease." In other words, the Lessee is responsible for all expenses of the Property, including all maintenance, utilities, insurance and taxes.
The Taxpayer, a limited liability company, was organized solely for the purpose of owning the Property and leasing it to the Lessee. The Taxpayer's subsequent activities have been limited to receiving the monthly rent payments from the Lessee and applying them to the bank loan used to finance the acquisition of the Property. The Lessee wires the rent to the Taxpayer's bank account. The note payment is automatically debited from the Taxpayer's bank account. The Taxpayer does not own any other property or engage in any other activities anywhere.
The Property is located in the County. You ask whether or not the County may impose a local license tax on the Taxpayer.
OPINION
Code of Virginia § 58.1-3703(C)(7) provides that no locality may impose a license fee or levy any license tax:
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- . . . upon any person, firm or corporation for engaging in the business of renting, as the owner of such property, real property other than hotels, motels, motor lodges, auto courts, tourist courts, travel trailer parks, lodging houses, rooming houses and boardinghouses; however, any county, city or town imposing such a license tax on January 1, 1974, shall not be precluded from the levy of such tax by the provisions of this subdivision.
As the County levied a license tax on owners of real property engaged in the business of renting such property to others on January 1, 1974, it is grandfathered under § 58.1-3703(C)(7) to continue levying such a license tax. I am enclosing a copy of Public Document (P.D.) 99-13 (1/14/99), which explains this subject in greater detail.
However, in order to be subject to such a license tax, a taxpayer must be engaging in the business of renting the property. Code of Virginia § 58.1-3700.1 defines the word "business" to mean:
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- . . . a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction.
The Supreme Court of Virginia addressed the issue of whether or not a lessor of real property was engaging in a business in Young v. Town of Vienna, 203 Va. 265 (1962). The taxpayer in Young, an individual, entered into a twenty-five year lease of one parcel of real estate to an oil company. The oil company erected a service station on the property. The activities of the taxpayer in Young were limited to receiving the monthly rental payments. The Court held that the taxpayer's leasing of the property and receiving the monthly rental payments were not sufficient for her to be engaging in a business.
In my opinion, the activities of the Taxpayer are no more substantial than those reviewed in Young. Accordingly, it is my opinion that the Taxpayer is not subject to business license taxation. However, the Taxpayer may become subject to license taxation if its activities become more substantial. I am enclosing a copy of City of Portsmouth v. Citizens Trust Company, Trustee, 219 Va. 903 (1979). The Citizens Trust case concerns a lessor who was determined by the Court to be engaged in a business.
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 contact ***** Tax Policy Analyst, in my office of Tax Policy at *****. .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/34098D
Rulings of the Tax Commissioner