Tax Type
BPOL Tax
Description
Exceptions to the local license tax; Charitable nonprofit organizations
Topic
Local Power to Tax
Date Issued
03-24-1997
March 24,1997
Re: Request for Advisory Opinion: BPOL
Dear*****************
This will respond to your letter of February 21, 1997, requesting an advisory opinion.
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 of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
While addressing the questions raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
You have inquired concerning the status of ********* for BPOL taxation purposes relative to its designation as a nonprofit entity operated exclusively for charitable, scientific and educational purposes as defined in § 501 (c)(3) of the Internal Revenue Code. ******** takes the position that it is a charitable nonprofit organization for purposes of the BPOL tax which is specifically exempted by § 58.1-3703 C18 a, except to the extent it has unrelated trade or business income taxable under § 511 et seq. of the Internal Revenue Code. ***** further asserts that it has no UBTI for federal taxation purposes and thus has no gross receipts subject to the BPOL tax.
****** was reorganized as a Virginia non-stock medical practice corporation on April 19, 1991. It has applied for and received an exemption from federal income taxation under § 501 (c)(3) of the Internal Revenue Code and is accorded nonprivate foundation status under § 509(a)(3) of the Internal Revenue Code. The function of this organization is to facilitate the group practice of medicine. Its purpose is to support the mission of the ******* by providing a clinical practice environment for teaching and administrative services necessary to support the clinical practice.
Internally, ******is divided into 18 Clinical Practice Groups (CPG's). Each CPG corresponds to an academic department within the ******. Prior to July 1995, each CPG was maintained as a separate corporation which employed the physicians in that particular group. The individual corporations have since been dissolved and the CPG's consolidated under **** . All physicians within the CPG's are direct employees of *****.*** operates as the supporting framework for the clinical practice, research and indigent care functions of its compon***administers a self-insurance program providing malpractice coverage to employees.
********** relationship with**** is governed by an affiliation agreement with ******adopted in December 1992. Under this agreement, *****activities are limited to those which promote the group practice of medicine at the University. The University has considerable authority under the agreement to manage and monitor the operational elements of ****clinical practice. ***** is required to take part in all relevant academic medical center strategic planning and to provide reports as required by the University's Board of Visitors.
*********Articles of Incorporation provide that it shall be operated exclusively for charitable, scientific and educational purposes. There are several principal elements to its charitable function. First, a portion of the organization's receipts from its medical practice are paid to its member physicians to supplement their *****faculty salaries. This supplementary pay brings the total compensation to**** faculty to a level in line with other major medical educational centers throughout the county and permits the University to recruit and retain excellent personnel. Secondly, the clinics within ***** provide a substantial amount of indigent patient care. In 1995,**** rendered uncompensated medical services equal to 20% of its total revenue for that year. Finally, 9.5% of all clinical earnings are paid over to the Dean of the School of Medicine to be used at the Dean's discretion to further the medical school's educational mission.
OPINION
From the facts presented,*******is a charitable nonprofit organization which should be exempt from imposition of the BPOL tax on its gross receipts. The facts further indicate that the operation of clinics is the organization's only source of receipts. Therefore, there appears to be no UBTI which could be subject to the BPOL Tax.
Charitable nonprofit organizations are discussed in § 3.3.1.1997 BPOL Guidelines. Whether or not an organization falls under the exemption for BPOL taxation purposes is determined solely by reference to the relevant provisions of the Internal Revenue Code. If an organization meets these requirements it is exempt from the im position of a license fee or gross receipts tax unless it has UBTI. The existence of UBTI is also determined by reference to the Internal Revenue Code and Regulations.
The IRS has provided written acknowledgment of**** tax exempt status and I find nothing in the facts presented to suggest that this organization is anything other than the charitable nonprofit organization it purports to be. It is clear from the Articles of Incorporation that its purpose is solely for charitable, scientific and educational endeavors and its operation of clinical teaching environment, rendering of medical services to the indigent and contributions to the staffing and operational costs of the medical school are consistent with these purposes.
Regardless of its status as a charitable nonprofit organization,**** is still subject to the BPOL tax to the extent it has gross receipts which would be subject to federal taxation as UBTI. The facts indicate that all receipts are derived from the operation of the clinical practice. It further appears that the entire organization is engaged directly in the staffing of the clinics or indirectly in support of this clinical practice. Based on the foregoing, there appears to be no source of receipts which could give rise to UBTI.
The fact that **** has filed no federal income tax returns reporting UBTI, however, is not conclusive of a lack of UBTI. The locality may perform an audit or make other inquiries as necessary to determine if the organization does, in fact, have gross receipts subject to federal taxation as UBTI. As stated above, any such determination must be based on the Internal Revenue Code and Regulations.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance. If you have any further questions or comments, please do not hesitate to let me know.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12289
Rulings of the Tax Commissioner