05-119 | Virginia Tax

Tax Type

BPOL Tax

Description

Professional service business/Personal service business

Topic

Local Taxes Discussion

Persons Subject to Tax

Date Issued

07-19-2005

July 19, 2005

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 by the Commissioner of the Revenue for the ***** (the "City") classifying the Taxpayer's business as a professional service business for license tax year 2001.

The following determination is based on the facts presented to the Department summarized below. The regulations and public documents cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov.

FACTS

The Taxpayer facilitates the provision of medical services to inmates. The onsite medical service the Taxpayer provides includes physical and mental health screening of all inmates upon intake. This screening is performed by the nursing staff. Thereinafter, the Taxpayer provides 24-hour staffing of nurses, regular physical and dental screening and care, psychiatric care, OB-GYN screening and care, and diagnostic testing. Necessary medications, prescribed by the inmates' personal physicians or by the Taxpayer's physician, are administered by the nursing staff. Medical services such as specialty outpatient diagnostic testing, emergency room care, specialized surgery and hospitalization are provided by third-party subcontractors.

The City contracted with the Taxpayer to provide staffing and protocols that would facilitate the provision of medical services to the inmates incarcerated at the City's jail (the "Jail"). The Jail provides clinical space equipped with primary care equipment such as blood pressure units, EKG units, centrifuges, x-ray machines and film processors, scales and examination tables.

The contract stipulated that the Taxpayer provide the Jail with 24-hour nursing care. The contract also required: (1) a physician be on-site as needed, but no less than 40 hours per week; (2) a dentist be available 8 hours a day; and (3) a psychiatrist be available 8 hours a week. The physician and dentist on duty during the year at issue were employees of the Taxpayer. The physician also continued to maintain a private practice. The psychiatrist was an independent contractor. Other staff included an administrator, physician assistants, X-ray technicians, clerks, medical records personnel and social workers. The Taxpayer states the nurses at the facility performed the majority of all healthcare assessments and services. The contract also authorized the Taxpayer to subcontract with third parties (physicians and hospitals) when an inmate required specialized healthcare. The City was not a party to any contract between the Taxpayer and a third-party provider.

In summary, during the period in dispute, the Taxpayer provided personnel to staff clinical services to the inmates at the Jail. The Taxpayer also was charged with developing an on-site medical services program that included treatment protocols to be used in nonemergency medical treatment (sick call), initial emergency medical treatment procedures, women's preventive health care, medical management and other basic primary care areas.

The City classified the Taxpayer as a professional service business for BPOL tax purposes in tax year 2001. The Taxpayer appeals the assessment, contending that it should have been classified as a personal service business and assessed accordingly.

ANALYSIS

For purposes of BPOL taxation, professional services include certain enumerated professions, and no others. "Practitioners of the healing arts" are included as providers of professional services provided that they are rendering such services for a fee and not as employees of an organization. Section 5.4.4 of the 2000 BPOL Guidelines offers clarification to this distinction:

- The BPOL tax applies to the rendering of professional services for a fee and does not apply to professional classifications, per se. For example, lawyers or accountants employed by a corporation and compensated in wages as employees are not subject to the BPOL tax as professionals.

Only in the case of limited professional practices or medical clinics, similar to that described in P.D. 03-18 (3/11/2003), is the entire entity subject to classification as a professional service. In the case of other medical facilities, depending upon the contractual relationship between the physicians and the facility, the physicians or other professionals could be subject to separate licensure.

Hospitals and primary medical clinics are not regarded as professional service businesses for purposes of BPOL classification. Rather they are classified as "personal service businesses" for purposes of the BPOL tax. See 2000 BPOL Guidelines § 5.5.2. Addressing this issue in Public Document ("P.D.") 97-87 (2/20/1997), the Tax Commissioner found:

- Hospitals and other types of medical and/or care facilities are listed under § 9.2 of the 1997 BPOL Guidelines as personal service businesses . . . . Professional services rendered by the physician constitute the exercise of one licensable privilege and the personal services rendered by the hospital constitute the other. [Emphasis added.]

The City contends that the Taxpayer is more like a medical clinic run by a physician, and should be assessed as a professional service. I disagree. The Taxpayer's business activity in the City is directed by an administrator who is not a physician. Although the Taxpayer employs a physician and a dentist, specialized professional medical care is provided to inmates through subcontracts with qualified local physicians. These physicians are independently liable for the BPOL tax. In addition, the inmates' personal physicians are consulted when chronic medical issues are presented.

Professional Licensing

The Contract stipulates that all medical personnel the Taxpayer hires pursuant to the contract and any third-party providers with whom the Taxpayer contracts for the provision of off-site services be licensed or certified by the appropriate state Board or agency. The Taxpayer, however, is not required to be licensed by any state agency involved with the regulation of medical care. While the Taxpayer assisted the Jail in gaining accreditation from the National Commission on Correctional Health Care ("NCCHC"), the NCCHC is not a regulatory agency, and accreditation of jails and prisons by the NCCHC is optional.¹

Based on the facts presented, it is my determination that the Taxpayer's business is that of providing staffing and protocols to facilitate the provision of medical services to inmates. The business of the Taxpayer, not the profession of the business's employees, is subject to the BPOL tax.

DETERMINATION

The Taxpayer should be classified as a personal services business. I am remanding this appeal to the City with the instruction to classify the Taxpayer as a personal service business, and to adjust its BPOL tax assessment 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/54487H

¹The NCCHC sets standards for health care in correctional facilities and issues position statements on correctional health care.

Rulings of the Tax Commissioner