Document Number
07-179
Tax Type
BPOL Tax
Description
A business service or contractor; Modification or repair of maritime and mobile cranes
Topic
Classification
Local Power to Tax
Date Issued
11-14-2007



November 14, 2007





Re: Final Local Determination
Taxpayer: *****
Locality: *****
Business, Professional and Occupational License tax

Dear *****:

This final state determination is issued upon the application for correction of an appeal filed by you on behalf of ***** (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals the assessment of Business, Professional and Occupational License ("BPOL") taxes made by the ***** (the "City") for tax years 2001, 2002, 2003 and 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, regulations 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 engaged in the business of modifying, repairing and transporting large maritime cranes and related equipment used in ports and the repair of dams throughout the world. These cranes are typically over 300 feet tall and weigh over 1,100 tons. The modification or repair of these cranes involves substantial engineering and contracting work, including the fabrication of large pieces of steel, welding the new pieces into place, and painting the cranes after the modification or repair has been made. Some of the Taxpayer's contracts also require extensive modification to, or replacement of, existing electrical systems that are essential to the operation of the cranes. Many of these cranes are located on tracks on specific piers or dams.


The Taxpayer also engages in the transport of maritime cranes from one location to another. The size and relative immobility of the cranes often necessitate the use of "house moving" vehicles or similar vehicles in their transport.

Historically, the Taxpayer classified itself as a contractor in filing its BPOL tax returns. Upon audit, the City changed the Taxpayer's classification from a contractor to a business service. In its final local determination, the City noted that cranes are classified as "heavy construction machinery" for purposes of the business tangible personal property (BTPP) tax. The City concluded that the Taxpayer's business of modification, repair and transport of heavy construction machinery should be considered a business service for purposes of the BPOL tax.

The Taxpayer contends that modification, repair and transport of the maritime cranes involve substantial engineering and contracting activities. Furthermore, the contracts upon which the Taxpayer bids require compliance with state contractor's licensing requirements. Therefore, the Taxpayer believes it should be classified as a contractor for BPOL tax purposes.

ANALYSIS


State contractor's license

The Taxpayer contends that because it has a state contractor's license, it "follows then that [the Taxpayer] should be classified as a contractor as defined by state law when taxed in Virginia." I disagree. State contractors licenses are issued by the state for regulatory purposes. The BPOL tax is a local tax imposed on a person for the privilege of doing business in a locality. A person can have a state contractor's license, yet be engaged in another business in the locality. Even though a taxpayer has a state contractor's license, it does not necessarily follow that it would be classified as a contractor for purposes of local licensure. See 2002 Op. Va. Att'y Gen. 02-044 for a more extended discussion of this issue.

Local licensure of contractors

For purposes of local license taxation, Va. Code § 58.1-3714 D defines the term "contractor." In the Taxpayer's case, the relevant definition is found under Va. Code § 58.1-3714 D 1, which defines a contractor as any person, firm or corporation:
    • Accepting or offering to accept orders or contracts for doing any work on or in any building or structure, requiring the use of paint, stone, brick, mortar, wood, cement, structural iron or steel, sheet iron, galvanized iron, metallic piping, tin, lead, or other metal or any other building material. [Emphasis added.]

The determinative factor in classifying a person as a contractor for BPOL tax purposes is whether a person's work is performed on a building or a structure. The term "structure" is not defined in the Title 58.1 of the Code of Virginia but must be considered in the context of the entire section imposing the local license tax on contractors.

Virginia Code §§ 58.1-3714 D 2-6 include the following definitions for the term "contractor":
    • 2. Accepting or offering to accept contracts to do any paving, curbing or other work on sidewalks, streets, alleys, or highways, or public or private property, using asphalt, brick, stone, cement, concrete, wood or any compositions;
    • 3. Accepting or offering to accept an order for or contract to excavate earth, rock or other material for foundation or any other purpose or for cutting, trimming or maintaining rights of way;
    • 4. Accepting or offering to accept an order or contract to construct any sewer of stone, brick, terra cotta or other material;
    • 5. Accepting or offering to accept orders or contracts for doing any work on or in any building or premises involving the erecting, installing, altering, repairing, servicing, or maintaining electric wiring, devices or appliances permanently connected to such wiring, or the erecting, repairing or maintaining of lines for the transmission or distribution of electric light or power; or
    • 6. Engaging in the business of plumbing and steam fitting.

With the exception of subparagraph six, which is specific to a single profession, the types of work specified in Va. Code § 58.1-3714 refer to work performed on real property, i.e., to be considered a contractor for purposes of the BPOL tax, a business must perform work on real property.

When the provisions of Va. Code § 58.1-3714 are viewed in their entirety, it is clear that the term "structure" in Va. Code § 58.1-3714 D 1 refers to real property structures. The BPOL Guidelines support this conclusion. Section 5.1.2 provides a list of occupations and notes that contracting generally includes persons engaging in those occupations, businesses or trades. While the list is not all-inclusive, it demonstrates that the work must be performed on real property to be considered contracting.

The primary purpose of the cranes at issue is to move items from one place to another. To that extent, the cranes more closely resemble machines than buildings or structures. While some of the maritime cranes the Taxpayer repairs require a fixed location on a pier or a dam, they are not imbedded in it, as in the case of walls, or permanently affixed to real property. Cranes sitting on tracks are not real property structures. This conclusion is supported by the fact that the Taxpayer's cranes are classified as tangible personal property for property tax purposes.

Based on the information provided, the Taxpayer is not a "contractor" as defined in Va. Code § 58.1-3714, when it modifies or repairs maritime cranes. Rather, the Taxpayer is engaged in providing a business service for BPOL tax purposes. Accordingly, the Taxpayer's gross receipts attributed to this activity were properly assessed at the business service rate.

Transportation of Cranes

The Taxpayer maintains that its business of transporting the cranes from one port terminal to another is properly classified as the business of a contractor. The Taxpayer argues that the moving of the cranes is comparable to house moving, which is classified as a contracting business in the 2000 BPOL Guidelines § 5.1.2.

While the logistics of moving the cranes may be similar to house moving, it is my opinion that the City was correct in classifying this part of the Taxpayer's business as a business service. The Guidelines specifically identify house moving as a contracting activity, whereas other moving businesses are classified as business services. 2000 BPOL Guidelines §§ 5.1.2 and 5.5.2.

In Turner v. Wexler, 244 Va. 124, 127, 418S.E. 2d 886, 887 (1992), the Virginia Supreme Court noted that "mention of a specific item in a statute implies that omitted items were not intended to be included within the scope of the statute." This also applies to regulations that are promulgated to clarify the statute. See 2002 Op. Va. Att'y Gen. 02-044. "A state agency that adopts regulations under an enabling statute normally is free to select any method that is reasonable and that is not inconsistent with the Constitution or statutes of the Commonwealth."

Because the transporting of cranes is not specifically identified as a contracting business in the Guidelines, and other moving services are specifically classified as a business service under 2000 BPOL Guidelines § 5.5.2, I must conclude that the transport of cranes is properly classified as a business service for BPOL tax purposes.

DETERMINATION


Based on the specific facts presented in this case, it is my determination that the Taxpayer's business, consisting of the modification or repair of maritime and mobile cranes and the transport of maritime cranes from one facility to another, should be classified as a business service. Accordingly, the City's assessment is correct.

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,

                • Janie E. Bowen
                  Tax Commissioner



AR/56358H


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46