Tax Type
BPOL Tax
Local Taxes
Description
Technical consulting service
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
03-21-1994
March 21, 1994
Re: Request for ruling; Local license tax
Dear***************
This will reply to your letter of March 15, 1993 in which you requested an advisory written opinion regarding local county license taxes on behalf of an unidentified client (the "Taxpayer"). I apologize for the delay in responding.
The Taxpayer is a professional corporation, performing technical consulting services for clients. As a part of their business, and for the convenience of their clients, the Taxpayer sometimes serves as the principal consultant on projects involving other consultants. As such, they occasionally receive and disburse to those consultants, payments from clients. They receive no compensation for this service, and are prohibited by contract from charging for this service. The Taxpayer has no contractual relationship with the other consultants. You have requested an advisory opinion regarding the inclusion of the funds collected by the Taxpayer from clients for disbursement to other consultants in gross receipts, for purposes of local county license taxes.
The license tax is a local tax which is imposed and administered by local officials. The Code of Virginia limits the involvement of the department to promulgating guidelines defining and explaining the categories within which businesses may be placed, and issuing written advisory opinions interpreting the classifications and guidelines. The questions you have raised do not involve classification issues. In addition, it is not within the department's charges to interpret local ordinances.
Nonetheless, I will try to answer your question within the limitations set forth by the Code. Pursuant to the authority granted by Va. Code§ 58.1-3703, a locality is authorized to levy a local license tax. The tax is levied on gross receipts received for professional services in accordance with Va. Code §58.1-3706. However, gross receipts are not defined within the Code.
In a letter dated December 5, 1985, copy attached, the Office of the Attorney General advised the Honorable Bernard S. Cohen that gross receipts for purposes of the local license tax do not include monies received from a client by an attorney, to reimburse the attorney for costs advanced by the attorney on behalf of the client. The opinion indicated that money handled by one as an agent should not be characterized as gross receipts.
In an opinion dated November 28, 1986, copy attached, the Office of the Attorney General advised the Honorable Vincent F. Callahan, Jr. that the answer to the taxability of similar receipts (reimbursements) turns on whether the taxpayer is a legal disbursing agent of its client.
The answer to the question in the instant case would therefore depend on the presence (or absence) of an agency relationship between the Taxpayer and its clients. Nevertheless, the determination of an agency relationship is a determination of fact for which the local commissioner of revenue is responsible.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6877M
Rulings of the Tax Commissioner