Document Number
04-17
Tax Type
BPOL Tax
Description
Cellular telephone service; not a public service corporation
Topic
Basis of Tax
Property Subject to Tax
Date Issued
05-21-2004

May 21, 2004

Re: 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 assessment of the BPOL tax for tax years 2000, 2001 and 2002 made by the Commissioner of the Revenue of the, ********* (the "City"). I apologize for the delay in the Department's response.

The local license tax and fee are imposed and administered by local officials. Virginia 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 Code of Virginia sections, regulations and public documents cited 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 provides commercial mobile radio service ("CMRS"), better known as "cellular telephone service," to individuals and businesses throughout the United States, some of whom have billing addresses in the City. The Taxpayer's customers are able to make telephone calls within or outside of the local service area. Calls made within a local service area are subject to a flat monthly service charge, and calls made outside of the local service area are billed at a per minute rate. The Taxpayer owns some facilities in the City, including an operations center. The operations center is a multiple telecommunications switching office ("MTSO"), which is a "switching center used to electronically connect mobile subscribers to landline service ("wireline") and other mobile cells." The Taxpayer states that the call is then carried to the wireline carrier over facilities leased from the wireline carrier. After the switch is made to a wireline carrier, "all of the wireline facilities are owned and operated by a wireline carrier, not by the wireless carrier. The wireless carrier does not construct, own or operate any wireline facilities."

According to the Taxpayer, as a rule of thumb, there is generally one MTSO providing switching service for every 20 cell towers. The Taxpayer owns two cell towers and leases three cell towers. It also owns "shelters" under the towers that are used for both storage of equipment and conversion of microwave signals to digital signals, which are then transmitted to the relevant MTSO. The Taxpayer states that none of these facilities are located in a City right of way.

The Taxpayer states that it is not a public service corporation and is not identified as such in its articles of incorporation. Furthermore, it "has not obtained certificates of public convenience and necessity from the Virginia State Corporation Commission ("SCC") to perform any public service functions, and the rates it charges to customers in the City are not regulated by the SCC 1."

The Taxpayer did not timely pay BPOL taxes owing and due to the City for tax years 2000, 2001 and 2002. In 2002, it remitted its taxes past due in the amount of ***** based on the rate provided for public service companies, or 0.5 percent of gross receipts. (See Va. Code § 58.1-3731). The City returned the Taxpayer's payment, stating that the City's BPOL tax rate for public service corporations is "grandfathered," and, therefore, the appropriate rate is 3 percent, not 0.5 percent. Under this calculation, the taxes owing and due are *****.
    • The Taxpayer now contends that its initial calculation was a mistake and that because it is not a public service corporation and is not regulated by the SCC for purposes of the BPOL tax, it should be assessed at the business service rate, or in this case, 36 cents per $100 of gross receipts. This would result in a tax due and owed totaling ***** for the tax years in question.

The City states that the Taxpayer is a telephone company, and "[the] plain meaning of the term 'telephone company' clearly encompasses what [the Taxpayer] does." Therefore, the City concludes, the Taxpayer is appropriately subject to tax under the provisions of Va. Code § 58.1-3731 as a telephone company.
ANALYSIS

Definitional Questions

The Code of Virginia is quite specific in its classification of various businesses for purposes of the BPOL tax. Virginia Code § 58.1-3731 provides that, for purposes of the BPOL tax, public service companies, including telephone companies, are to be taxed as follows:
    • 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.

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 rate they imposed the tax prior to the state enactment of the current rate caps. See Va. Code § 58.1-3706(B).

In its appeal, the Taxpayer contends that it is neither a public service corporation nor a telephone company as defined in the City's ordinance. Therefore, it should be taxed at the business services rate of 36 cents per $100 of gross receipts, rather than the City's BPOL rate for public service corporations, including telephone companies, which is 3 percent of gross receipts.

Because the BPOL tax is a permissive tax, the fundamental question to be considered is that of whether the City's definition of a telephone company as found in its ordinance includes cellular telephone companies.

What is a Telephone Company?
    • Virginia Code § 58.1-2600 defines a "telephone company" as:
  • 1. a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or P. D. 04-17
  • 2. a person authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or broadband personal communications services; or
    3. a person holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belonging to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service ....

The Taxpayer does not hold a certificate of convenience and necessity granted by the SCC, so it fails to meet the first criterion. The Taxpayer is authorized by the FCC to provide commercial mobile service as defined in the second criterion. Therefore, the Taxpayer is a telephone company and, as such, may be subject to the BPOL tax as provided for in Va. Code § 58.1-3731, if a locality has elected to impose such a tax.

Definition under the City Ordinance

The Taxpayer acknowledges that it is a telephone company under the definitions provided for in Va. Code § 58.1-2600. Its dispute with the City lies in the fact that the City's definition of a telephone company as found in the local ordinance is more restrictive than the definition in Va. Code § 58.1-2600. The Taxpayer maintains that under the definition in the City's ordinance, it is not a telephone company.
    • The City's ordinance defines telephone companies as entities:
    • conducting a telephone exchange in this city and using and occupying the streets in the city and constructing and maintaining the works of the telephone company or any part thereof, along, over or under the streets ....

The Taxpayer states that as a provider of wireless services it does not conduct a telephone exchange, and does not have "works of the telephone company or any part thereof, along, over or under the streets..." or to phrase it differently, in the public right of way. For these reasons, the Taxpayer states that the City's ordinance defining telephone companies does not apply to the Taxpayer.

The fact that Va. Code § 58.1-3731 is a permissive statute means that the locality may or may not choose to impose the BPOL tax on telephone companies. While "telephone companies" are not explicitly defined in Chapter 37 of the Code of Virginia, they are defined in Va. Code § 58.1-2600; a section that is referenced in Va. Code § 58.1-3731. The City could have adopted this more expansive definition of a telephone company in its local ordinance, which would have served to include cellular telephone companies in their taxing authority as provided for in Va. Code § 58.1-3731. The City did not elect to do so, however, and adopted the more restrictive definition of telephone companies noted above.

Business Service

For purposes of the BPOL tax, "repair, personal and business services, and all other businesses and occupations not specifically listed or excepted in this section, may be taxed at a maximum rate of thirty-six cents per $100 of gross receipts." See 2000 BPOL Guidelines § 5.5. The City's definition of telephone companies as found in the City's ordinance is confined to "conducting a telephone exchange in this city and using and occupying the streets in the city and constructing and maintaining the works of the telephone company or any part thereof, along, over or under the streets." [Emphasis added.] The Taxpayer's activities are not covered under this definition. Therefore, it follows that the Taxpayer is a business "not specifically listed or excepted in this section," or a business service for purposes of the BPOL tax.
DETERMINATION

The Taxpayer is without question a telephone company as defined by the criteria prescribed in Va. Code § 58.1-2600. As such, localities that adopt this definition of a telephone company in their local ordinances may apply the BPOL tax rate of 1 percent, or, in limited instances, the grandfathered rate of 3 percent that applies to public service corporations including those telephone companies that meet the criteria set forth above, provided that their local ordinances permit them to do so.

Virginia Code § 58.1-3700 et seq., authorizes localities to adopt any or all of the provisions of that chapter through their local ordinances authorizing the imposition of a license tax or fee on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein." Those local ordinances define the scope of the tax. While the local license tax cannot exceed the limits set forth in Va. Code § 58.1-3700 et seq., so long as they are applied equally within classifications, local license taxes may be more restrictive than the maximum amounts set forth in the Va. Code § 58.1-3700 et seq. Finally, it should be noted that while the "Tax Commissioner shall not be required to interpret any local ordinance," he may do so. (See Va. Code § 58.1-3701),

In this case, the City has adopted a definition of "telephone company" that is more restrictive than the definition referenced in Va. Code § 58.1-3731. This is permissible so long as the imposition of such a tax follows the Constitutional stricture that "All taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax." See Article X, Section 1 of the Constitution of Virginia.P. D. 04-17

Given the facts presented, under the City's ordinance, the Taxpayer is not "conducting a telephone exchange in this city and using and occupying the streets in the city and constructing and maintaining the works of the telephone company or any part thereof, along, over or under the streets." Therefore, in this specific case, I conclude that under the City's ordinance, the Taxpayer must be regarded as a business service for purposes of BPOL taxation and must be assessed accordingly.

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

                • Sincerely,

                • Kenneth W. Thorson
                    • Tax Commissioner


AR/44186H
1 Under current rules promulgated by the State Corporation Commission (SCC), the Taxpayer and other like companies no longer must be "certificated" by the SCC as providers of "convenience and public necessity," although they are licensed.

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46