Tax Type
BPOL Tax
Description
Taxpayer holds itself out as a business engaged in various title insurance services.
Topic
Taxability of Persons and Transactions
Date Issued
09-12-2007
September 12, 2007
Re: Appeal of Final Local Determination
Locality: *****
Taxpayer: *****
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 assessment of Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by the ***** (the "City") for tax years 1998 through 2004.
The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 A 6 authorizes the Department to issue determinations on taxpayer appeals of 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 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 a title insurance agent for ***** (the "Company"). As such, the Taxpayer performs various services related to the evaluation and issuance of title insurance policies as delineated in Va. Code § 38.2-4601.1. These services include: (i) the evaluation of the title search to determine the insurability of the title; (ii) a determination of whether or not underwriting objections have been cleared; (iii) the actual issuance of a title commitment or binder and endorsements; and (iv) the actual issuance of the policy or policies and endorsements on behalf of the title insurance company. These are the only business activities ascribed to title insurance companies in the statute.
The Taxpayer also provides real estate settlement services, for which it charges fees. In its advertising, the Taxpayer holds itself out as a business engaged in title insurance, underwriting, title examining, title insurance auditing, loan processing and closing, real estate sales and management, mortgage lending, and retail banking.
Upon audit, the City issued a BPOL tax assessment for tax years 1998 through 2004 based on the Taxpayer's gross receipts attributable to its real estate settlement services during the years in question. The Taxpayer appeals the City's assessment, contending that under the provisions of Va. Code § 58.1-3703 C 11, as an agent of an insurance company subject to taxation under § 58.1-2500 et seq., its total gross receipts should be exempt from BPOL taxation.
ANALYSIS
Exemption from BPOL Tax
The BPOL tax is a gross receipts-based tax imposed on businesses, trades, professions, occupations and callings and upon persons, firms and corporations for the privilege of engaging in business. Virginia Code § 58.1-3703 C prohibits localities from imposing a license fee or license tax on specific business entities and activities. Included among these, under subparagraph C 11, is a provision prohibiting the imposition of the BPOL fee or tax on "any insurance company subject to taxation under Chapter 25 (§ 58.1-2500 et seq.) of this title or on any agent of such company."
Virginia Code § 58.1-2508 B provides that the state license tax on certain insurance companies and the tax on real estate and tangible personal property and other related fees "shall be in lieu of all fees, licenses, taxes and levies whatsoever, state, county, city or town." [Emphasis added.] For the purposes of the Virginia tax on insurance companies, an "insurance company" is defined as "any company engaged in the business of making contracts of insurance." See Va. Code § 58.1-2500.
A title insurance agent is "an agent licensed in this Commonwealth to sell, solicit, or negotiate title insurance, and performing all of the services set forth in § 38.2-4601.1, on behalf of title insurance companies licensed under Chapter 46 (§ 38.2-4600 et seq.) of this title." [Emphasis added.] See Va. Code § 38.2-1800. To the extent that the Taxpayer is operating as an agent on behalf of the company, any direct gross premium tax or other fees it pays to the company, which the company then passes onto the State Corporation Commission (the "SCC") are exempt from the BPOL tax.
The Virginia Supreme Court has consistently ruled that exemptions from taxation are the exception rather that the rule and as such, they must be strictly construed. If there is any doubt as to whether an exemption applies, it must be resolved in favor of the taxing authority, and the burden is upon the taxpayer to show that it comes within the exemption. See Commonwealth v. Manzer, 207 Va. 996, 1000, 154 S.E.2d 185, 189 (1967). The question in the present case is, are the business activities of an agent of an insurance company that are unrelated to the insurance company's business exempt from the BPOL tax?
Company vs. Agent
In Public Document (P.D.) 04-44 (08/12/2004), the Tax Commissioner drew a distinction between an insurance company and an insurance agent while applying the BPOL tax exemption to an entity engaged in the sale of title insurance. In that opinion, the Tax Commissioner found that the immunity of the insurance agent from local license taxes relates solely to the agent's "direct gross premium income," and to the extent that the agent was involved in other lines of business, it would be subject to the BPOL tax.
The Taxpayer disputes this opinion, contending that the plain meaning of Va. Code § 58.1 3703 C 11 (which exempts insurance companies and agents of such companies subject to taxation under the provisions of Va. Code § 58.1-2500 et seq.) excludes all business activities of insurance agents, including those that are unrelated to insurance activities. I disagree.
The taxes levied by Va. Code § 58.1-2501 are imposed upon the direct gross premium income of the insurance company itself, not the insurance agent. These taxes may be imposed indirectly upon agents, insofar as the insurance agent collects, receives or derives such income from insurance business in the Commonwealth on behalf of the insurance company as its agent, and what the agent remits to the company becomes part of the insurance company's direct gross premium income. Income that is unrelated to an entity's business as an insurance agent, however, is subject to the BPOL tax.
Virginia Code § 58.1-5 provides that when any person is engaged in more than one business that is subject to taxation under the law, such person shall pay the tax provided by law on each branch of its business. Virginia Code § 58.1-3703.1 provides, by law, in the case of local license taxes, "a separate license shall be required for each definite place of business and for each business" in which a taxpayer is engaged.
Virginia Code § 58.1-3703 C 11 provides an exemption from local license taxation for "any insurance company subject to taxation under Chapter 25 (§ 58.1-2500 et seq.) of this title or on any agent of such company." This exemption relates to all activities of an insurance company subject to taxation under Va. Code § 58.1-2500 et seq. These activities are only those activities directly related to the direct gross premiums tax imposed on insurance companies by Va. Code § 58.1-2501 A. It is my opinion that the gross premiums tax is not imposed on unrelated activities of insurance agent, and therefore, such business activity on the part of an agent is properly subject to BPOL taxation.
DETERMINATION
The City relied upon P.D. 04-44 in issuing its final local determination. Upon careful review of previous public documents issued by the Department and the arguments presented with the Taxpayer's appeal, I find that P.D. 04-44 remains valid and I concur with the City's final local determination.
If you have any questions regarding this determination, you may call ***** Office of Policy and Administration, Appeals and Rulings at *****.
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- Sincerely,
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- Janie E. Bowen
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AR/1-853519151H
Related Documents
Rulings of the Tax Commissioner