03-11 | Virginia Tax

Tax Type

BPOL Tax

Description

Audit, business classification as a professional corporation

Topic

Local Power to Tax

Date Issued

02-24-2003

February 24, 2003

Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License (BPOL) Tax

Dear *****:

This final state determination is issued upon the application for correction filed by
you on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination upholding an audit assessment of BPOL taxes made by the Commissioner of the Revenue of the ***** (the "City").

The local license tax and fee are imposed and administered by local officials. Va. Code § 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 as summarized below. This determination addresses the question of whether or not the Taxpayer was subject to the BPOL tax imposed by the City for license year 1998.

Copies of the Code of Virginia sections, regulations and public documents are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.

FACTS

The Taxpayer is a professional corporation whose definite place of business is located within the City. While the Taxpayer changed its name three times since 1998, it has not changed its corporate identity for purposes of BPOL taxation. Its business classification has remained that of a professional corporation.

The Taxpayer contends its self assessment for BPOL purposes was erroneous for tax year 1998 in that the City failed to consider the formula for local licensure of professional corporations as set forth in Va. Code § 13.1-554. The Taxpayer appealed to the City for a correction of the assessment on December 21, 2001, based on Va. Code § 13.1-554, opinions issued by the Department in Public Documents (P.D) 01-57 (05/14/01) and 99-257 (9/24/99), and 1976-1977 Op. Att'y. Gen. 281.

The City denied the application for correction, stating that "nothing in the BPOL Guidelines issued by the Department of Taxation contradicts [the methodology it used] nor mandates that a professional corporation must have different treatment than other corporations." The City also relied upon its municipal code in deciding how professional corporations should be taxed.

ANALYSIS

The formula for assessing professional corporations was detailed and addressed in Public Document (P.D.) 01-57. The formula is based on Va. Code § 13.1-554, which provides that no state or local revenue license shall be required of a professional corporation as a prerequisite for practicing a profession in the Commonwealth. However such a license tax may be imposed upon the shareholders at the locality's discretion. [Emphasis added.]

- In 1976, the Attorney General offered a similar opinion, stating:

- Since no exemption for salaried professionals is specifically set forth, I am of the opinion that salaried physicians and accountants are subject to the city license, with the amount of the tax to be measured by their salaries, which are "gross receipts" for purposes of the license tax. 1976 Op. Att'y. Gen. 281 (8/6/76).

City Code and Code of Virginia

Article X §1 of the Constitution of Virginia specifies that, with the exception of certain taxable subjects enumerated in the Constitution, the "General Assembly may segregate the several classes of property so as to specify and determine upon what subjects State taxes and upon what subjects local taxes, may be levied." In the case of professional corporations, the General Assembly was quite specific. Va. Code § 13.1-554 provides:

- (I)f 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.

The City's code must be consistent with the Code of Virginia, unless certain provisions were grandfathered by statute. In the case of local licensure of professional corporations, there is not a clause permitting the grandfathering of local provisions pertaining to professional corporations. Therefore, for BPOL tax purposes in tax year 1998, the City must treat the Taxpayer under the provisions of Va. Code § 13.1-554, and apply the formula as specified in P.D. 01-57 in computing the Taxpayer's liability.

It should be noted that Chapter 346 of the 2002 Acts of Assembly repeals Va. Code §§ 13.1-554 and 13.1-1119, effective July 1, 2002. These changes effectively permit localities to impose the BPOL tax directly on professional corporations and professional limited liability companies, rather than on the shareholders.

DETERMINATION

For the reasons outlined above, I find that the City failed to consider the formula for local licensure of professional corporations as set forth in Va. Code § 13.1-554. Accordingly, I am referring this matter back to the City to revise its assessment for tax year 1998 in accordance with that statute and P. D. 01-57.

If you have any questions regarding this determination, you may contact *****
in the Office of Policy and Administration, Appeals and Rulings, at *****.

Sincerely,

- - - - Janie E. Bowen

Executive Tax Commissioner

- - - - Office of Policy and Administration

AR/40064H

TO WHOM IT MAY CONCERN

Under the authority of Section 58.1-1 of the Code of Virginia , I hereby delegate to Janie E. Bowen, Assistant Tax Commissioner, the authority to sign for me any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations. This authority shall not extend to matters or documents related to my service on any
statutorily created board or commission, including, but not limited to, the Compensation Board and the Treasury Board.

This authority will continue until revoked. The delegation of authority dated June 3, 1994, is hereby revoked and replaced.

Done at Richmond, Virginia this tenth day of September, 1999.

Danny M. Payne
Tax Commissioner

Rulings of the Tax Commissioner