September 1, 2020
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 behalf of the ***** (the “City”) concerning whether the business activity of a nonprofit company (the “Company”) as described below is exempt from the Business, Professional and Occupational License (BPOL) tax.
The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the fact presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.
FACTS
The Company is a nonprofit organization exempt from federal income taxation under Internal Revenue Code (IRC) § 501(c)(6). The Company’s primary business activity is providing commercial real estate financing on behalf of the United States Small Business Association (SBA) and is authorized to transact their 504 loan program. The Company receives revenue from processing and closing fees for originating 504 loans and servicing fees for servicing the loans on behalf of the SBA. The City requests guidance as to whether the taxpayer qualifies for the BPOL tax exemption under Virginia Code 58.1-3703 C 18 for certain gross receipts of nonprofit organizations.
OPINION
The BPOL tax is based on a taxpayer’s gross receipts, which are defined in Virginia Code § 58.1-3700.1 as “the whole entire total receipts, without deduction.” Virginia Code § 58.1-3703 C 18 a, however, prohibits localities from imposing a BPOL tax on a charitable nonprofit organization unless the organization has receipts from an unrelated trade or business. Under the statute, a “charitable nonprofit organization” is:
An organization which is described in Internal Revenue Code § 501(c)(3) or 501(c)(19), and to which contributions are deductible by the contributor under Internal Revenue Code § 170, except that educational institutions exempt from federal income tax under IRC § 501(c)(3) shall be limited to schools, colleges and other similar institutions of learning.
If the Company has been certified by the IRS as a nonprofit organization under IRC § 501(c)(6), it would not be a charitable nonprofit organization exempt under this provision.
Virginia Code § 58.1-3703 C 18 b provides an exemption to other nonprofit organizations to the extent gross receipts are on or measured by gifts, contributions and membership dues. Such organizations must still be exempt from federal income tax under § 501 of the IRC. See Title 23 of the Virginia Administrative Code (VAC) 10-500-10. Based on the facts as described, the Company’s gross receipts could be exempt to the extent that they are attributable to gifts, contributions and membership dues.
Under the provisions of Virginia Code § 58.1-3703 C 18 b and Title 23 VAC 10-500-10, however, activities conducted for consideration that are similar to activities that are conducted for consideration by for-profit businesses may be presumed to be activities that are subject to licensure. The City indicates that the Company collaborates with the SBA originating, processing and closing commercial real estate loans for both nonprofit and for-profit entities. The originating, processing and closing of commercial real estate loans are similar to activities conducted for consideration by for-profit businesses. Therefore, to the extent the Company has gross receipts derived from such activities, they would be subject to BPOL tax. Even if the activities were not similar to activities conducted for consideration by for-profit businesses, these gross receipts were not attributable to gifts, contributions and membership dues and thus would remain taxable.
If you have any questions regarding this opinion, you may contact *****, in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3383.A