Tax Type
BPOL Tax
Description
Pass through receipts
Topic
Local Power to Tax
Date Issued
04-11-1997
April 11, 1997
Re: Request for Advisory Opinion: BPOL
Dear**********************
This will respond to your facsimile dated March 31, 1997, regarding your ability to impose a BPOL tax on the pass through receipts of a sanitation company.
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 question raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
Your locality has a contract with a local sanitation company to remove your waste. Included in the billings are the charges the sanitation company incurs from the county landfill. The sanitation company does not add any surcharge to the bill from the landfill, it only passes along the costs associated with the disposal of the trash collected from your locality. Your locality has included the proceeds paid to the sanitation company to cover the landfill costs in its gross receipts tax. The sanitation company owner does not believe that these proceeds should be included in gross receipts since they merely cover its cost for using the landfill. You ask whether these pass through receipts should be part of gross receipts.
The sanitation company wants to have your locality amend its ordinance to exempt the landfill costs which are passed through to your locality. You ask whether a locality may exempt the sanitation company from reporting the gross receipts attributed to the landfill charges.
OPINION
Pass Through Billings of a Sanitation Company
Code of Virginia § 58.1-3700.1, copy enclosed, defines gross receipts as "the whole, entire, total receipts, without deduction." Section 1 of the 1997 BPOL Guidelines, copy enclosed, interprets the definition to mean the "whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business ..., without deduction or exclusion except as provided by law." The determinative question is whether the landfill costs which are passed on to your locality are derived from transactions with others and from the exercise of a licensable privilege.
It is my opinion that the landfill costs which are passed on by the sanitation company to your locality may be included in gross receipts. Public Document 97-52, copy enclosed, held that the cost of services provided by funeral homes, such as opening and closing graves and placing obituaries in the newspapers, that are passed through to the customers are subject to the BPOL license tax. As part of its service, funeral homes contract with others to provide these benefits to their customers. Since services such as opening and closing graves and placing obituaries in the newspapers are part of doing business as a funeral home, such activities are derived from the exercise of a licensed privilege to do business.
Just as opening and closing graves and placing obituaries in the newspapers is part of the funeral home business, contracting with landfills to dispose of its client's waste is part of the business of being a sanitation company. Thus, contracting with landfills to dispose of customer waste is the exercise of licensable privilege. All receipts derived from this licensable privilege may be part of gross receipts.
Gross Receipt Exemption
A locality has the option to require businesses to be licensed. The BPOL statute sets maximum rates for the various classifications of businesses. Localities may create subclassifications within the statutory classifications and either exempt these subclassifications from licensure or assess them at a different rate or fee, provided that the rate or fee does not exceed the statutory maximum. In particular § 3.1.1 of the 1997 BPOL Guidelines, copy enclosed, provides that a locality may:
-
- A. Set tax rates at levels lower than those authorized by state law, or select the classifications to tax or not tax;
-
- B. Establish subclassifications within the classifications set out in state law and provide for the different rates or exemptions for such subclassifications, as long as not rate exceeds the maximum permitted by state law;
-
- C. Establish graduated tax rates for any classification or subclassification so that the rate increases or decreases with volume, as long as no rate exceeds the statutory maximum for the classification under state law; and
-
- D. Establish a threshold amount of gross receipts below which no tax will be imposed, or a maximum tax for any classification.
It is my opinion that a locality may not amend their ordinance to exempt certain proceeds from gross receipts. Neither the statute nor the Guidelines provide the locality the latitude to exempt certain proceeds from gross receipts. The statute and Guidelines do provide localities the flexibility to exempt or set different rates for certain categories of taxpayers without exempting particular proceeds.
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, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12369B
Rulings of the Tax Commissioner