Tax Type
BPOL Tax
Description
Appropriate assessment of shareholder's receipts
Topic
Basis of Tax
Local Power to Tax
Persons Subject to Tax
Date Issued
06-24-2002
June 24, 2002
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This is in response to your letter requesting an advisory opinion on the BPOL tax liability of a professional corporation. Specifically, you ask how the deduction for the salaries of licensed professionals employed by a professional corporation (but who are not the shareholders) applies in determining the appropriate assessment of shareholder's receipts. I apologize for the delay in the department's response.
The local license fee and tax are imposed and administered by local officials. § 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 made subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of new facts by another party may lead to a different result.
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. Copies of the cited documents are included for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS
In Public Document (P.D.) 01-57 (5/14/01), the department issued an advisory opinion explaining the formula to be used in assessing the BPOL tax for each shareholder of a professional corporation. You ask if the formula is consistent with § 5.4.4. of the 2000 BPOL Guidelines, which has been interpreted as exempting from the BPOL tax individual professionals employed by a corporation not subject to BPOL tax and compensated in wages as employees.
OPINION
The department recently issued P.D. 02-68 (4/30/02), which essentially addresses your question. The opinion notes that "because there is some historical basis for requiring every professional to obtain a business license, some localities may require a professional employee who is not a shareholder to obtain a business license, even though employees are generally not subject to business licensure."1
It is important to emphasize that the formula outlined in P.D. 01-57, and the subsequent clarification thereof in P.D. 02-68, reflects current law. As noted in P.D. 02-68, Code of Virginia §§ 13.1-554 and 13.1-1119 are repealed effective July 1, 2002. See Chapter 346 of the 2002 Acts of Assembly. These changes effectively permit localities to impose the BPOL tax directly on professional corporations and professional limited liability companies, rather than on the shareholders. While the statutory change does not specifically address the question of a locality's ability to require a license of those employees who render professional services to the public, it appears that the legislative intent is to tax professional gross receipts under the employer's license and not require employees to obtain licenses.
I hope this information is helpful to you. If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/37764H
1 Appendix C of the 2000 BPOL Guidelines, the Legislative and Administrative History of the BPOL Tax, indicates that former state license tax law required every practitioner of certain professions to have a separate state tax license in addition to any regulatory license. This requirement was repealed in 1982 when the state license tax was abolished, although the authority of localities to continue imposing local license tax on professionals was not intended to be affected by the repeal. Some localities may be authorized by existing local ordinance to require an employee who is also a practitioner of a profession to have a license separate from the employer's license when professional services are rendered to the public within the scope of employment.
Rulings of the Tax Commissioner