Tax Type
BPOL Tax
Description
Business license taxation of professional corporations
Topic
Basis of Tax
Local Power to Tax
Local Taxes Discussion
Date Issued
04-30-2002
April 30, 2002
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This will respond to your letter requesting an advisory opinion regarding the local business license taxation of professional corporations. I apologize for the delay in the department's response.
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.
The local business license taxation of professional corporations was addressed in Public Document 99-257 (September 24, 1999). Public Document 99-257 explains that Code of Virginia § 13.1-554 provides that it is the shareholders of a professional corporation, not the professional corporation itself, that are subject to local business license taxation.
You seek additional guidance concerning the calculation of the taxable measure of each shareholder. Specifically, you question whether the term "licensed employee," as used in Code of Virginia § 13.1-554, refers to an employee who holds a local business license or to an employee who holds a state professional license.
OPINION
Code of Virginia § 13.1-554 provides that:
-
- Chapter 37 (§ 58.1-3700 et seq.) of Title 58.1, requiring a separate revenue license for each member of a firm or company of persons practicing any profession or calling which is regulated by the laws of this Commonwealth, shall be applicable to shareholders of professional corporations; and no state or local revenue license shall be required of any professional corporation as prerequisite to the rendering of professional services in this Commonwealth, or any county, city or town therein; provided, however, that if any such county, city or town requires a
revenue license for the privilege of practicing any of the professions to which this chapter applies and such license is measured by gross receipts, the gross receipts of a shareholder in a professional corporation shall consist of (1) his salary and (2) such part of the gross receipts of the corporation remaining after the payment of salaries to all the licensed employees as bears the same ratio to all such remaining gross receipts as his ownership in the corporation bears to the ownership therein of all the shareholders [emphasis added].
- Chapter 37 (§ 58.1-3700 et seq.) of Title 58.1, requiring a separate revenue license for each member of a firm or company of persons practicing any profession or calling which is regulated by the laws of this Commonwealth, shall be applicable to shareholders of professional corporations; and no state or local revenue license shall be required of any professional corporation as prerequisite to the rendering of professional services in this Commonwealth, or any county, city or town therein; provided, however, that if any such county, city or town requires a
Code of Virginia § 13.1-554 uses the terms "license" or "licensed" in five instances. In the first four instances, the term "license" clearly refers to local business licensure and not to the state regulatory licensure of professionals. Given this context and the absence of any statutory language assigning a different meaning to the fifth reference to licensure, it is my opinion that the term "licensed employees" refers to those employees who are subject to local business licensure.
Accordingly, when performing the calculation set forth in Code of Virginia § 13.1-554 to determine the taxable gross receipts of a shareholder in a professional corporation, the term "licensed employees" should be interpreted to mean those employees subject to business licensure.
In general, only shareholders in a professional corporation are subject to business licensure. However, 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
Accordingly, the business license taxation of professionals employed by professional corporations may vary by locality.
Please note that Code of Virginia § 13.1-554, which prevents localities from imposing the BPOL tax directly on professional corporations, was repealed in the 2002 session of the General Assembly by House Bill 1315. This legislation is effective July 1, 2002. House Bill 1315 also repeals Code of Virginia § 13.1-1119, which imposed a similar limitation regarding professional limited liability companies. As a result of this legislation, localities may impose the BPOL tax directly on professional corporations and professional limited liability companies.
I hope that this information will be beneficial 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 do not hesitate to contact ***** in the Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/25912D
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. While localities may be authorized 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, the department recommends taxing professional gross receipts under the employer's license and not requiring employees to obtain licenses. For the same reason, the license of a partnership, limited liability company, or other business entity should cover the receipts generated by the activities of partners, members, and similar individuals.
Rulings of the Tax Commissioner