06-8 | Virginia Tax

Tax Type

BPOL Tax

Description

The County classified the Taxpayer as a "Utility Service Company"

Topic

Classification

Exemptions

Date Issued

01-26-2006

January 26, 2006

Re: Application for Correction of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License 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 the classification of the Taxpayer used by the Commissioner of the Revenue of the ***** (the "County") in assessing the Business, Professional and Occupational License ("BPOL") tax for tax year 2004.

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

FACTS

The Taxpayer is organized as a limited partnership and is engaged in the business of reselling commercial mobile radio services (CMRS), or cellular telephone services, to end users. The Taxpayer purchases CMRS from third parties that are licensed by the Federal Communications Commission ("FCC") as CMRS providers. The Taxpayer is not licensed by the FCC as a CMRS provider, does not hold a certificate of convenience and public necessity issued by the State Corporation Commission ("SCC"), and does not operate any cell sites, cell towers, switching equipment or other equipment or facilities used in the provision of CMRS.

************ ("Partner A"), a partnership licensed by the FCC as a MRS provider, owns a 25% general partnership interest and a 74% limited partnership interest in the Taxpayer. ***** ("Partner B"), which owns a 1% limited partnership interest in the Taxpayer, is also a federally licensed MRS provider. Both Partners A and B are licensed to operate in Virginia and in other states. The Taxpayer, Partner A and Partner B all trade as ***** ("Wireless").

The County classified the Taxpayer as a "Utility Service Company" for tax year 2004 and assessed the Taxpayer accordingly. The Taxpayer objected to this classification and filed its 2004 BPOL tax return with the County as a business service. The County rejected the Taxpayer's self-classification, maintaining that the Taxpayer was in fact a telephone company and was properly assessed as a "utility service company." In its determination, the County stated that the Taxpayer is owned and controlled by a telephone company and sells cellular telephone service provided through means constructed, maintained and operated by the telephone company. The County relied on the fact that Taxpayer used the same trade name as the telephone company in determining the nature of the Taxpayer's business activity.

The Taxpayer appeals the County's determination, maintaining that for BPOL tax purposes, its classification should be based on the Taxpayer's business in the County, not on the business of Wireless.

ANALYSIS

At issue is whether the Taxpayer should be classified as a business service or as a telephone company for purposes of BPOL taxation. Telephone companies are subject to special BPOL tax treatment under those provisions of the statute that address the tax treatment of public service corporations generally. Specifically, Va. Code § 58.1-3731 states:

- 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.

To be considered a telephone company for regulatory purposes, Va. Code § 58.1-2600 requires that an entity must possess one of the three following attributes:

1. An entity must hold a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or
2. A person must be 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 must hold a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belong 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 possesses none of these attributes. (It is important to note that subparagraph 3 requires the taxpayer to have both attributes mentioned.)

A similar situation was addressed in Public Document 04-6 (02/20/04). The Tax Commissioner found that because the taxpayer was neither subject to the regulatory authority of the SCC, nor did it hold a certificate of convenience and public necessity granted by the SCC, it did not qualify for the special tax status conferred upon SCC regulated telephone companies as provided for in Va. Code § 58.1-3731. For that reason, it was determined that the taxpayer should be classified as a "business service" for purposes of the BPOL tax. The opinion did not directly address the impact of a taxpayer's membership in an affiliated group, however.

Affiliated groups

The County asserts that because the Taxpayer is related to another entity that holds an FCC license and is subject to regulation by the SCC, the Taxpayer is subject to the special BPOL provisions imposed on public service corporations and telephone companies by Va. Code § 58.1-3731. The County states that the Taxpayer is legally permitted and authorized to provide wireless telephone service to the public by virtue of the FCC licenses issued to and held by Partner A, its general and limited partner.

I disagree. To the extent that the Taxpayer and Partner A are members of an affiliated group as defined in Va. Code § 3700.1, sales and transactions between the two entities are exempt from the BPOL tax. This does not affect the Taxpayer's BPOL classification as business service¹.

In P.D. 01-43 (04/16/01), the Department emphasized the point that, "With limited exceptions, a corporation is subject to local license taxation based on its own characteristics and activities." The fact that the taxpayer was wholly owned by a public service corporation did not affect the taxpayer's classification as a business service for purposes of local licensure. This same analysis applies to the facts in this case.

DETERMINATION

Based on the facts presented, it is my determination that the Taxpayer does not fall within the definition of a telephone company as set forth in Va. Code § 58.1-2600. For this reason, the Taxpayer is not subject to the special classification accorded to telephone companies under the provisions of Va. Code § 58.1-3731, and must be classified as a business service for BPOL tax purposes.

Moreover, the Taxpayer's membership in an affiliated group has no bearing upon its classification for BPOL tax purposes. The BPOL tax exemption provided for members of an affiliated group applies only to those gross receipts generated by intercompany transactions. The exemption does not extend to classification by virtue of affiliation. I am remanding this matter to the County with the instruction to treat the Taxpayer as a business service, and to make the necessary adjustments to the Taxpayer's BPOL assessments 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/55228H

¹The BPOL tax is imposed on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations for the privilege of engaging in business within a local jurisdiction. See Va. Code § 58.1-3703. The fact that an independent entity is a part of an affiliated group of partnerships or corporations does not affect the incidence of the tax on a specific business.

Rulings of the Tax Commissioner