Tax Type
BPOL Tax
Description
The Taxpayer is a telephone company as defined in Va. Code § 58.1-2600.
Topic
Classification
Local Taxes Discussion
Statute of Limitations
Date Issued
10-17-2007
October 17, 2007
Re: Appeal 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 ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination made by the Commissioner of the Revenue of the ***** (the "City") denying the Taxpayer's request for the refund of Business, Professional and Occupational License (BPOL) taxes for tax years 2001 through 2004. I apologize for the delay in responding to your appeal.
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 at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site.
FACTS
The Taxpayer is owned by ***** (the "Parent"). The Parent is a federally licensed provider of cellular mobile radio communications service, specifically personal communication service (PCS). The Taxpayer provides the Parent's PCS service to customers in the City. The Taxpayer filed BPOL tax returns for the 2001 through 2004 tax years and paid tax based on the grandfathered 3% rate charged by the City for public service telephone companies.
In 2004, the Taxpayer filed amended returns, calculating the BPOL tax due at the business service rate of .36¢ per $100. As a result, the Taxpayer requested a refund for the 2001 through 2004 tax years. The City denied the Taxpayer's amended returns, maintaining that the Taxpayer falls within the definition of a telephone company that can be taxed at the 3% rate grandfathered under Virginia law. The City also contends that the local ordinance is broad enough so that the Taxpayer's PCS service falls within the purview of the ordinance. The City also asserts that the 2000 amended return was not filed within the statute of limitations.
The Taxpayer contends that it filed its amended returns within the statute of limitations and the City failed to recognize this in its final local determination. In addition, the Taxpayer submits that it is not a public service company subject to either the ½ of 1% rate specified for public service corporations or the 3% grandfathered rate. The Taxpayer further states that even if the Taxpayer could be classified as a public service company, the City's ordinances limited the grandfathered rate to gross receipts from a "local telephone exchange service within the city or elsewhere." The Taxpayer asserts that it does not provide local telephone exchange service and, therefore, the grandfathered rate of 3% is not applicable.
ANALYSIS
Limitations on Appeals of Local Tax Assessments
Virginia Code § 58.1-3980 A provides for a specific time period during which a taxpayer who is aggrieved by a local tax assessment may file an application for correction with the local assessing officer. That period is:
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- within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later. [Emphasis added.]
In July 2004, the Taxpayer filed amended returns with the local assessing officer requesting a correction of BPOL taxes due in tax years 2000 through 2004. The last day of the tax year for which the 2000 assessment was made was December 31, 2000. As such, the Taxpayer would have needed to file the amended return for the 2000 tax year prior to December 31, 2003, to meet the limitations period.
The Taxpayer contends the City denied its refund for the 2001 tax year because the 2001 tax was based on receipts from 2000. The Department's review of the City's determination did not result in the same conclusion. The City accepted that the amended return for the 2001 tax year was filed within the limitations period. For the 2001 license tax year, the Taxpayer did file the amended return before the period of limitations expired on December 31, 2004. As such, the 2001 through 2004 tax years are properly subject to the Taxpayer's refund request.
Public Service Corporations
Virginia Code § 58.1-3731 is titled Certain public service corporations; rate limitations. The Taxpayer asserts that it is not a public service corporation and, therefore, is not subject to the provisions of Va. Code § 58.1-3731. The statutory language, however, never mentions or defines "public service corporations." Virginia Code § 58.1-3703 C 1, which exempts public service corporations from the BPOL tax except as provided for under Va. Code § 58.1-3731, does not mention or define "public service corporations" either. Instead Va. Code § 58.1-3731 sets forth specific types of businesses, including telephone companies, which are subject to a separate BPOL rate. Accordingly, a telephone company need not be a public service corporation in order to be subject to the tax imposed under Va. Code § 58.1-3731.
Definition of Telephone Company
Virginia Code § 58.1-2600 defines a "telephone company" as:
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- 1. a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or
2. a person 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 holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belonging to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service . . . .
- 1. a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or
The Department addressed the question of the taxation of telephone companies in Public Document (P.D.) 04-6 (2/20/2004). In that opinion, the Tax Commissioner found that a taxpayer that meets none of the above requirements should be classified as a "business service" for purposes of the BPOL tax. If, however, a taxpayer meets any one of the three requirements, it should be classified as a telephone company subject to the provisions of Va. Code § 58.1-3731. Localities that adopt this definition of a telephone company in their local ordinances may apply the BPOL tax rate of ½ of 1%.
The Taxpayer in this case is authorized to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934 under a license granted by the FCC to a related company under the ownership of a common parent corporation. The statutory definition does not require that a telephone company directly hold a license. As such, the Taxpayer is a telephone company as defined in Va. Code§ 58.1-2600.
The Taxpayer also contends that, in P.D. 04-17 (5/21/2004), the Tax Commissioner incorrectly applied the definition of a telephone company under Va. Code § 58.1-2600. First, the Taxpayer states that there is no language in Va. Code§ 58.1-3731 referring to Va. Code § 58.1-2600. And, second, that there could not have been since that statute was enacted after Va. Code § 58.1-3731.
Effective January 1, 2001, Va. Code § 58.1-3731 provides "[e]very 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 . . . ." It is clear that the statute in question references Va. Code § 58.1-2600 although not specifically with regard to telephone and telegraph companies. It seems logical that the definition from Va. Code § 58.1-2600 be used given that the tax imposed under Va. Code § 58.1-3731 is in addition to the tax imposed under Chapter 26 of Title 58.1.
Grandfather Provision
In 1972, the General Assembly amended Va. Code § 58-578 (recodified at Va. Code § 58.1-3731) to authorize localities to impose a BPOL tax on the gross receipts of telephone and telegraph companies at a rate not to exceed ½ of 1%. Certain localities were permitted to continue to impose the BPOL tax on public service corporations or companies at the rate they imposed the tax prior to the 1972 amendment under an enactment clause included in the bill. See 1972 Acts of Assembly, Chapter 858. The clause states, "Nothing contained herein shall prohibit any city, town or county from continuing to impose any gross receipts tax upon public service corporations at rates no greater than those in effect on January 1, 1972."
As such, certain localities are permitted to impose the BPOL tax on public service corporations or companies at the same rate they imposed prior to the 1972 legislation. In 1972, the City was imposing a local license tax on the gross receipts "accruing from sales" of telephone companies, as defined in the City's ordinances in 1972, at the rate of 3%.
The City contends that the grandfather provision applies to its current ordinance. Section 98-635 of the City's current ordinance reads in pertinent part:
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- Except as may be specifically otherwise provided by this article or other law . . . Any person with gross receipts greater than $100,000.00 will be liable for business license taxes at the applicable rate set forth as follows for the class of enterprise listed or as otherwise provided in this article:
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- 16) For telephone companies, three percent of the gross receipts from all local telephone service within the city. [Emphasis added.] (Code 1993, § 27-315)
The definition of telephone service in the City's ordinance in effect in 1972 was far more restrictive in 1972 than is the definition in the City's current ordinance, however. The City ordinance as of January 1, 1972 read in pertinent part as follows:
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- Every person engaged in the telephone business, for the privilege of doing business in the city, but not including any business done to or from points without the state ... shall pay an annual license tax for such privilege of three percent of the gross receipts from local telephone exchange service within the city ... (Emphasis Added.)
A "local telephone exchange service" is different than "all local telephone service." Virginia Code § 56-1 defines local exchange telephone service as:
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- telephone service provided in a geographical area established for the administration of communication services and consists of one or more central offices together with associated facilities which are used in providing local exchange service. Local exchange service, as opposed to interexchange service, consists of telecommunications between points within an exchange or between exchanges which are within an area where customers may call at rates and charges specified in local exchange tariffs filed with the Commission.
The Taxpayer contends that even if it is a telephone company, it is subject to the ½ of 1% of gross receipts rate used for telephone companies, not the City's grandfathered 3% rate because it does not operate "a local telephone exchange service" within the City.
The grandfather provision allows the 3% rate to apply to those businesses and services listed in the ordinance as of January 1, 1972. It is my determination that this language restricts the application of the grandfather clause to local telephone exchange services, which are commonly known as "landline telephone services." The broadening of the ordinance caused by subsequent amendment cannot allow additional persons to be subject to the grandfather rate. The Taxpayer is a cellular telephone company providing PCS. It does not provide local telephone exchange service. As such, the 3% grandfather rate does not apply to the Taxpayer.
In this case, the City has adopted an ordinance that does not conflict with the definition of "telephone company" that is referenced in Va. Code § 58.1-2600. Therefore, for purposes of BPOL taxation, the City may apply the ½ of 1% rate to the gross receipts of wireless or cellular telephone companies.
DETERMINATION
The Taxpayer is a telephone company as defined in Va. Code § 58.1-2600. Based on the City's ordinance in effect at the time the grandfather clause was enacted, and because the Taxpayer is not engaged in "local telephone exchange service" as required by the ordinance as of January 1, 1972, the grandfathered rate of 3% does not apply to the Taxpayer. The Taxpayer is a telephone company for purposes of BPOL taxation and may be assessed at the rate of ½ of 1% applied under Va. Code § 58.1-3731. I am remanding this case back to the locality in order to adjust the assessments and issue appropriate refunds for the 2001 through 2004 tax years in accordance with this determination.
The Code of Virginia sections, public documents and attorney general opinion cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/56446B
Rulings of the Tax Commissioner