Tax Type
BPOL Tax
Description
"Money lender," or a "leasing/renting" business
Topic
Basis of Tax
Local Taxes Discussion
Date Issued
09-08-2004
September 8, 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 you on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination of BPOL assessments for tax years 1998, 1999, 2000 and 2001 made by the ***** (the "Town"). Specifically, you appeal the Town's classification of the Taxpayer as being in the business of a "money lender," as opposed to that of engaging in a "leasing/renting" business as defined in the Town ordinances. apologize for the delay in this 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, that is, 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. 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 is one of seven 100 percent wholly owned subsidiaries of ***** ("Corporation A"). The Taxpayer's role in the parent-subsidiary group is that of offering "a wide range of competitive and tailored financing options, including leasing and financing for a wide variety of fixed assets." The Taxpayer states that its financing and leasing activities generally fall into two categories: direct financing and operating leases. Direct financing, or sales type leases, transfer substantially all of the benefits and risks of equipment ownership to the lessee. The Taxpayer's operating lease transactions include both true leases and installment sales or conditional sales contracts with corporations, nonprofit entities and governmental entities.
The nature of the lease contracts the Taxpayer extends to its customers varies widely, depending upon the customer's circumstance. There are four different options the Taxpayer may pursue in negotiating a lease contract:
1. A lease may be renewed for a fixed period of time when the initial lease has expired;
2. The leased equipment may be either sold or released to the original customer;
3. The previously leased equipment may be sold or leased to another customer; or
4. The previously leased equipment may be sold to equipment brokers or dealers.
In summary, the Taxpayer engages in a variety of types of lease transactions that potentially could give rise to separate classifications for purposes of the BPOL tax. The Taxpayer also states that it does not retain any inventory in the Town. Rather, it procures the equipment it leases from a variety of vendors who then ship the equipment directly to the lessee.
In its review of the Taxpayer's business for purposes of license tax assessment, the Town determined that the Taxpayer's business fell into two separate classifications: (1) installment financing and finance/lease sales, which would be taxed at the "money lender". rate of $0.20 per $100.00; and (2) managing information technology, which would be taxed at the business service rate of $0.21 per $100.00. In its final determination, the Town allocated the Taxpayer's gross receipts as follows: 85.4 percent as money lender; and 14.6 percent as business service. The Town considered all of the Taxpayer's leasing arrangements as "installment sales," and did not accord the Taxpayer with the leasing classification described in § 30-265 of the Town's ordinance.
The Taxpayer contends that it is primarily engaged in the business of leasing, and pursuant to Town ordinance § 30-252, it should be assessed at the leasing rate of $0.05 per $100.00, rather than at the money lender rate of $0.20 per $100.00. The Taxpayer had reported 85.4 percent of its gross receipts as attributable to its leasing activity taxable at the leasing rate, and 14.6 percent of its gross receipts as attributable to activity taxable at the business service rate. Although the Taxpayer reported 85.4 percent of its business activity as "leasing/renting activity" for purposes of the BPOL tax, it did offer a breakdown of this activity under the titles of "installment financing" and "true lease." The percentage of gross receipts attributed to installment financing was 49.9%, and 50.1% of its gross receipts were attributed to true leases.
ANALYSIS
Section 58.1-3703.1(A)(1) of the Code of Virginia provides that a separate business license shall be provided for each business unless a person engages in two or more businesses at the same location. In those instances, such persons may elect to file for one business license providing that certain criteria are satisfied. If a person's businesses are taxed at different rates, and the person elects to file for one business license, the licensee must agree to be taxed on all businesses and professions at the highest rate.
In this case, the Taxpayer and the Town have agreed that the Taxpayer is engaged in separate lines of business for purposes of business licensure and BPOL taxation. The Taxpayer and the Town have also agreed that 14.6 percent of the Taxpayer's gross receipts are appropriately classified as "business services" for purposes of the BPOL tax. It is the classification of the Taxpayer's business activity that generates the remaining 85.4 percent of the Taxpayer gross receipts that is in dispute.
Town Ordinances
The Town's ordinances provide the following classifications and definitions for business license tax purposes:
- License tax for certain Ieasing/renting activities.
Every person who leases or rents goods to institutional, commercial or industrial consumers, but does not maintain any inventory of such leased goods within the town, shall pay an annual license tax of $0.05 for each $100.00 of gross receipts of the base year.§ 30-265 of the Town's ordinances.
- Money lenders1
Every person conducting or engaging in any of the following money lending occupations, businesses or trades, among others, shall pay an annual license tax of $0.20 per $100.00 of gross receipts of the base year: Chattel mortgage financing, Consumer financing, Factor, Financing accounts receivable, Finance company, Installment financing, Loan or mortgage company, Money lender, Small loan company, Other money lenders. § 30-252 of the Town ordinances.2 [Emphasis added.]
From the information presented in its appeal, it is clear that the Taxpayer meets the definition of one engaged in "certain renting/leasing activities," and as such, these activities should be taxed at the leasing/renting activity rate of $0.05 per $100.00. It is also clear, however, that the Taxpayer engages in installment sales as well. This business activity would be subject to the license tax at the moneylender rate as provided for in § 30-252 of the Town ordinances.
Finance Leasing
The Taxpayer contends that it is primarily engaged in the business of "finance leasing," rather than that of installment financing. Virginia Code § 8.2A-103(1()(g) defines a "finance lease" as one in which:
1. The lessor does not select, manufacture, or supply the goods;
2. The lessor acquires the goods or the right to possession and use of the goods in connection with the lease; and one of the following occurs:
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- a. The lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract;
b. The lessee's approval of the contract by which the lessor acquired the goods or the right to possession and use of the goods is a condition to effectiveness of the lease contract;
c. The lessee, before signing the lease contract, receives an accurate and complete statement designating the promises and warranties, and any disclaimers of warranties, limitations or modifications of remedies, or liquidated damages, including those of a third party, such as the manufacturer of the goods, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods; or
d. If the lease is not a consumer lease, the lessor, before the lessee signs the lease contract, informs the lessee in writing (a) of the identity of the person supplying the goods to the lessor, unless the lessee has selected that person and directed the lessor to acquire the goods or the right to possession and use of the goods from that person, (b) that the lessee is entitled under this title to the promises and warranties, including those of any third party, provided to the lessor by the person supplying the goods in connection with or as part of the contract by which the lessor acquired the goods or the right to possession and use of the goods, and (c) that the lessee may communicate with the person supplying the goods to the lessor and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies.
- a. The lessee receives a copy of the contract by which the lessor acquired the goods or the right to possession and use of the goods before signing the lease contract;
An examination of the Taxpayer's master lease reveals that it meets all of these requirements. This concept embraces both "true leases" and "installment or conditional sale" leases. Attached to each copy of the master lease executed by the Taxpayer and a customer is a schedule that details the specific nature of the contract. The master lease specifies that "each schedule constitutes a separately assignable agreement between the parties and incorporates in full the terms and conditions of this agreement." These schedules would substantiate whether a given lease is a "true lease" subject to the "leasing/renting activity" BPOL tax rate, or an installment sales lease, subject to the money lender BPOL tax rate as defined above. The Taxpayer has offered an aggregate breakdown of its gross receipts attributed to its activities that are more appropriately defined as installment sales (49.9%), and those activities that are more appropriately considered as "true leases" (50.1%).
The Town's ordinance provides for separate classifications for "money lenders," which includes installment sales, and "leasing/renting" businesses, which are those businesses engaged strictly in the business of leasing. The Taxpayer is engaged in both business activities and, therefore, is subject to taxation under the separate license tax rate appropriate to each classification.
DETERMINATION
The definitions of "certain leasing/renting activities" and "money lender" in the Town's ordinances are clearly specified and each is subject to a different license tax rate. It is clear from the facts presented by the Taxpayer that the Taxpayer engages in both kinds of activities, in addition to that of a business service. The Taxpayer did not make this distinction in its self-assessment, nor did the Town make this distinction in its assessment of the Taxpayer's businesses.
Under the provisions of Va. Code § 58.1-3703.1(A)(1), "a separate license shall be required for each definite place of business and for each business." The Code of Virginia also provides that if a taxpayer has two separately licensable activities at the same location, it may be taxed at one rate, provided that the rate is the highest rate. In this instance, that would be the rate of money lender. The Taxpayer, however, has segregated the gross receipts attributable to the separate businesses and should be licensed and assessed accordingly. I am returning this appeal to the Town with the instruction for the Town to recalculate its assessment to reflect the Taxpayer's gross receipts as attributed to each of the following three categories: (1) business service; (2) money lender; and (3) leasing or renting business.
If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/46365
1 A "moneylender" is defined as "One that lends money at an interest rate." The American Heritage College Dictionary, Third Edition. Houghton Mifflin Company, Boston. 2000.
2This section of the Town's ordinance references Va. Code § 58.1-3706 (A)(3), which grants localities the authority to tax financial services. The Town, however, has created a subclassification of "moneylender' that is taxed at a lower rate than imposed on other financial services.
Rulings of the Tax Commissioner