Tax Type
BPOL Tax
Description
Taxpayer contends that it is engaged in two separate businesses
Topic
Classification
Local Taxes Discussion
Date Issued
10-07-2005
October 7, 2005
Re: Request for Advisory Opinion
Business, Professional, and Occupational License (BPOL) tax
Dear *****:
This is in response to your letter in which you request an advisory opinion on the appropriate classification of a taxpayer who is engaged in both an accounting and a management services business in the ***** (the "County").
The following opinion has been made subject to the facts presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result. While addressing the questions raised in your letter, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. The Code of Virginia section and public document cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.
FACTS
A taxpayer located in the County operates a business that describes itself as offering two discrete services: professional accounting services and general management services to medical groups. The taxpayer states that the accounting services offered by its staff of three certified professional accountants ("CPAs") account for approximately 25% of its gross receipts. The management services the taxpayer offers to medical groups are billing and collection services provided by nonprofessional staff. These services account for approximately 75% of the taxpayer's gross receipts.
The taxpayer maintains separate departments for each business, through which it provides clients with either accounting or management services. Separate contracts, billing systems and records are used for the two services. Different employees attend to servicing the clients and the services are billed at different rates.
You assert that the taxpayer holds itself out as a professional accounting business and have classified the taxpayer as a professional service for purposes of the BPOL tax, assessing it accordingly. The taxpayer disputes the County's classification, contending that it is engaged in two separate businesses. In the alternative, the taxpayer argues that because the majority of its business is in management services, it should be taxed in its entirety at the lower rate applied to business services. In your request for an advisory opinion, you ask if the taxpayer should be classified as a single entity or if it should be treated as operating two businesses for purposes of the BPOL tax.
OPINION
Ancillary Business
The County has assessed the taxpayer at a single rate as a professional service. While the County did not address the question of ancillary business in its request for an advisory opinion, it is clear from its initial determination that the County considers the management services business to be ancillary to the taxpayer's professional accounting services. In Public Document ("P.D.") 97-257 (6/11/97), the Tax Commissioner defined the use of "ancillary" for purposes of the BPOL tax.
- The term 'ancillary' . . . refers to business activities, which are subordinate, subservient, auxiliary, or in aid of the businesses [sic] principal business activity. Distinguishing between an ancillary activity and an activity that rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business. [Emphasis added.]
The facts presented in this case indicate that each business could operate independently of the other. Nevertheless, this is a determination that ultimately must be made by the commissioner of the revenue. Specifically, you must determine if the management services are subordinate, subservient, auxiliary or in aid of the professional accounting services the taxpayer provides. If so, the management services may well be considered ancillary despite the preponderance of personnel devoted to this activity. See P.D. 97-87 (02/20/97) and P.D. 03-18 (03/18/2003). While these public documents address medical practices, the underlying principles apply to this case.
Multiple Businesses
Virginia Code § 58.1-3703.1 A 1 provides that a separate license shall be required for each definite place of business and for each business a taxpayer is operating. When a person is engaged in two or more businesses or professions carried on at the same place of business, however, he may elect to obtain one license for all such businesses and professions providing all of the following criteria are satisfied:
- (a) each business or profession is subject to licensure at the location and has satisfied any requirements imposed by state law or other provisions of the ordinances of this jurisdiction; (b) all of the businesses or professions are subject to the same tax rate, or, if subject to different tax rates, the licensee agrees to be taxed on all businesses and professions at the highest rate; and (c) the taxpayer agrees to supply such information as the assessor may require concerning the nature of the several businesses and their gross receipts. [Emphasis added.]
That is, should the taxpayer request a single license, it must be taxed at the higher rate of the two businesses for which it is eligible for licensure.
CONCLUSION
Local commissioners of the revenue are charged with the responsibility of classifying and assessing taxpayers at the appropriate rate for purposes of the BPOL tax. In the present case, you must make the determination as to whether the taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other. If you determine the latter is applicable, each business must be assessed separately, unless the Taxpayer submits the information required by Va. Code § 58.1-3703.1 A 1.
If you have any questions regarding this opinion, 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
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AR/55117H
Rulings of the Tax Commissioner