Document Number
04-138
Tax Type
BPOL Tax
Description
BPOL tax impose on a telephone company at the grandfathered 3% rate
Topic
Basis of Tax
Computation of Tax
Local Power to Tax
Date Issued
09-16-2004


September 16, 2004


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 your firm on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination issued by the**** (the "city”) for tax years 2002 and 2003. At issue is the City's use of its "grandfathered" rate of three percent in assessing the Taxpayer for purposes of BPOL taxation.

The following determination is based on the facts presented to the Department as summarized below. The Code of Virginia sections cited and other reference documents are available on-line 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 competitive local exchange carrier (CLEC) offering full-service telecommunications services within the City. For BPOL tax purposes, the Taxpayer is subject to the provisions of Va. Code §§ 58.1-3731 and 58.1-2600. Included in the Taxpayer's services are items such as anonymous call rejection, call block, call forwarding, call waiting, remote call forwarding, unlimited repeat dialing, unlimited return call, voice mail, and business data services.

For BPOL tax purposes, the City assessed the Taxpayer at a rate of three percent of its gross receipts in license years 2002 and 2003. The Taxpayer appeals the assessment, stating that because basic telephone service was all that existed when the grandfather clause affecting local license taxation of public service corporations was enacted in 1972, the service in effect at that time is the only service to which the three percent rate applies. The Taxpayer contends the gross receipts derived from the additional telephone services added to the Taxpayer's business after 1972 should be taxed at the one-half percent rate applicable to telephone companies under the provisions of Va. Code § 58.1-3731.
DETERMINATION

In 1972, the General Assembly amended Va. Code § 58-578 1 to authorize localities to impose a license tax on the gross receipts of telephone and telegraph companies at a rate not to exceed one-half of one percent. Under current law, Va. Code § 58.1-3731 provides:
  • Every county, city or town is hereby authorized to impose a license tax, in addition to any tax levied under Chapter 26 (§ 58.1-2600 et seq.) of this title, on (i) telephone and telegraph companies . . . at a rate not to exceed one-half of one percent of the gross receipts of such company accruing from sales to the ultimate consumer in such county, city or town. However, in the case of telephone companies, charges for long distance telephone calls shall not be included in gross receipts for purposes of license taxation. [Emphasis added.]

The substance of this section as it applies to telephone companies has not changed since 1972. Certain localities, including the City, are subject to a grandfather provision that permits them to continue to impose the BPOL tax on public service corporations or companies at the same rate they imposed prior to the 1972 legislation. The third enactment clause of the 1972 legislation provides:
  • All taxes imposed by any city, town or county prior to the effective date of this act are hereby validated. Nothing contained herein shall prohibit any city, town or county from continuing to impose any gross receipts tax upon public service corporations at rates no greater than those in effect on January 1, 1972. 1972 Acts of Assembly, Chapter 858.

In 1972, the City was imposing a local license tax on the gross receipts "accruing from sales" of telephone companies at the rate of three percent. Therefore, the City is entitled to continue to impose the gross receipts tax on telephone companies at a rate no greater than three percent.

Statutory Construction

It has long been held that "if the language of a statute is plain and unambiguous, and its meaning perfectly clear and definite, effect must be given to it." 1993 Report of the Att'y Gen. 256, citing Temple v. City of Petersburg, 182 Va. 418, (1944). In this instance, the third enactment clause of Chapter 858 of the 1972 Acts of Assembly applies to "public service corporations," including telephone companies 2.

With the exception of gross receipts attributed to long distance service, Va. Code § 58.1-3731 places no restrictive limits on what constitutes the business of a telephone company. The fact that the Taxpayer's local services as a CLEC have expanded with the development of new technologies is of no consequence for purposes of the local license tax because the original language embraced all services with the exception of long distance services. In Franklin and Pittsylvania Railway Company v. Kelley L. Shoemaker, Committee, etc., 156 Va. 619, 623 (1931), the Court found:
  • If the language used is broad enough to include things not yet known, but which may afterwards come into being, then they too, are included, but the terms used must be broad enough to include them.

It is my determination that the services at issue are embraced by the broad definition of a public service corporation, including telephone companies. These items merely enhance the service the Taxpayer provides. In fact, these items are considered by the State Corporation Commission (SCC) as part of the "public service" a telephone company offers.

Another well recognized rule of statutory construction is "a specific or special statute supersedes a general statute insofar as there is conflict." 1985-1986 Report of the Att'y. Gen. at 68, citing Roanoke v Land, 137 Va. 89 (1923); 1973-1974 Report of the Att'y. Gen at 306. While there is a general statutory provision for applying different rates to separate business activities conducted by a single entity (Va. Code § 58.1-3703.1(A)(1)), that provision does not apply to BPOL taxation of public service corporations. For BPOL tax purposes, public service corporations are treated differently from other businesses. Virginia Code § 58.1-3703(C)(1) provides that no locality may impose a license tax or fee "[on] any public service corporation ... except as provided in Va. Code § 58.1-3731 or as permitted by other provisions of law."

While the General Assembly has amended Va. Code § 58.1-3703(C)(1) to reflect changes in the local tax treatment of electric and gas companies, it has not amended the part of the statute that affects telephone companies. Equally important, the General Assembly has not rescinded the enactment clause providing for grandfathering of tax rates on such companies.

Separate Activities

The Taxpayer suggests that it is engaged in separate activities, providing basic local telephone service, selling or leasing telephones, and providing enhanced services, such as call waiting, etc. As discussed above, telephone companies are taxed under a specific section of the BPOL statute. In a 1995 opinion the Attorney General found that:
  • Public service corporations that conduct several separate business activities should be assessed the public utility rate of one-half of one percent of the gross receipts of the corporation consistent with the definition of gross receipts contained in § 58.1-2600. 1995 Report of the. Att'y. Gen. at 277 3.
  • The term "gross receipts" is defined in Va. Code § 58.1-2600 as
  • The total of all revenue derived in the Commonwealth, including but not limited to income from the provision or performance of a service or the performance of incidental operations not necessarily associated with the particular service performed, without deductions for expenses or other adjustments. [Emphasis added.]

In summary, the Attorney General has found that for purposes of the BPOL tax, all activities of a public service corporation (telephone company) are to be assessed at the special rate as provided for in Va. Code § 58.1-3731. In those localities that have a grandfather clause, the same principle would apply to the grandfathered rate.

Therefore, it is my determination that the definition of gross receipts as defined in Va. Code § 58.1-2600 applies to the City's grandfathered BPOL tax rate of three percent on public service companies. The City may continue to impose the BPOL tax on all of the Taxpayer's services as a telephone company at the grandfathered rate of three percent.

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

                  • Kenneth W. Thorson
              • Tax Commissioner


AR/49282

1Current Va. Code § 58.1-3731.
2 Virginia Code § 56-1 provides a general definition of a public service corporation or company as follows: "The words 'public service corporation' or 'public service company' shall include..., telephone companies."
3 See Public Document 02-23 (03/07/2002) for further discussion of this issue.



Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46