Tax Type
BPOL Tax
Description
In general; Contractors, manufacturers, and banks
Topic
Local Power to Tax
Date Issued
04-16-1997
April 16, 1997
Re: Request for Advisory Opinion: BPOL
Dear********************
This will respond to your letter dated February 21, 1997, regarding the proper application of the BPOL tax to various situations involving contractors, manufacturers and affiliated corporations.
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 raise a series of ten questions, some with subparts, which I will restate and address below for ease of review.
OPINION
1 ) May localities only license out-of-state contractors who work in that locality for thirty (30) consecutive days or more, regardless of the amount of gross receipts derived by such contractors in that locality?
Yes. The new Uniform Ordinance provisions require every person engaging in business in a locality to apply for a license if that person has a definite place of business in that locality. Code of Virginia § 58.1-3703.1 A 1. A definite place of business means an office or a location at which occurs a regular and continuous course of dealing for thirty (30) consecutive days or more. Code of Virginia § 58.1-3701.1. Without a definite place of business in a locality, a person or entity is not subject to BPOL licensure in that locality.
2) a) May a locality in which a contracting business has a definite place of business apply the BPOL tax to the contractor's receipts arising from activities in another state where that other state does not impose an income or other tax based on income upon such receipts?
Under the BPOL law, gross receipts of contractors are attributable to the definite place of business at which services are performed. Code of Virginia § 58.1-3703.1 A 3a(1). If services are performed by a contractor outside the locality where it has its definite place of business (ie., "principal locality"), but the contractor does not have a definite place of business at such outside location, then those receipts could be attributable to the principal locality.
2) b) Would the duration of a contractor's out-of-state work have an impact on whether gross receipts derived from such out-of-state activities were taxable by the principal locality of the contractor.
Yes. Where a contractor has a definite place of business at an out-of-state location, then gross receipts arising from activity at that out-of-state location would not be attributable back to the principal locality in Virginia. If, on the other hand, a contractor had workers at a jobsite in another state for less than thirty (30) consecutive days, and those workers' activities were controlled and directed from the principal locality (a definite place of business) in Virginia, then gross receipts derived from the workers' activities at such an out-of-state location may be attributable to the contractor's principal locality.
3) A contractor has its principal office in Locality A. Contractor performs work in Locality B at a single job-site for thirty (30) consecutive days or more. Locality B does not have a BPOL tax.
a) Under the above scenario, may Locality A tax the gross receipts of the contractor for work done in Locality B if such gross receipts are below $25,000?
No. Normally, where the gross receipts of a contractor in a secondary locality (here, Locality B) do not exceed $25,000, such gross receipts would be attributed to the contractor's principal locality. Code of Virginia § 58.1-3715. However, because the contractor performs work in Locality B for thirty (30) consecutive days, it has a definite place of business there. Gross receipts arising from a definite place of business in one locality may not be attributed to another locality.
b) Regarding the above question of whether Locality A may tax the gross receipts of a contractor's work done in Locality B, would it make a difference if the contractor had an office trailer at the jobsite in Locality B, or is mere presence at the job-site adequate to establish a definite place of business in Locality B?
No. Whether or not the contractor had an office trailer at the jobsite in Locality B for the requisite period of time goes to the issue of whether it has a definite place of business in Locality B. Under the above facts as you have stated, you indicate that the contractor does have a definite place of business in Locality B. Here, if the contractor has a definite place of business in Locality B, then Locality A could not impose a BPOL tax on the contractor's receipts from Locality B merely because Locality B does not impose a BPOL tax on contractors.
c) In the above scenario, could Locality A ever tax the gross receipts of the contractor attributable to Locality B if such receipts exceed $25,000?
No. Gross receipts attributable to the contractor's activities in Locality B would not be sited to Locality A pursuant to BPOL situs rules.
d) In dealing with contractor issues, which part of the Code of Virginia must be considered first, § 58.1-3715 or the definition of a "definite place of business?"
The definition of a "definite place of business" must be considered first. When dealing with applicability of the BPOL tax to any type of business, the flow chart contained at the beginning of the 1997 BPOL Guidelines is helpful.
As the chart indicates, before a locality may impose a BPOL tax upon a person or entity, that person or entity must be doing the following:
-
- engaged in a business;
the type of business conducted require a license under the local ordinance; and, the person or entity must be carrying on such business activity at a definite place of business within the locality.
- engaged in a business;
In reviewing a contractor's multi-locality operations, the determination of taxability comes under the situs rules. A contractor's gross receipts are attributable to the definite place of business where services or rendered, or if no such place, then to the place where services are directed or controlled, unless a contractor is subject to Code of Virginia § 58.1-3715. A contractor is subject to Code of Virginia § 58.1-3715 when it is a Virginia contractor and does business in more than one locality. Thus, Code of Virginia § 58.1-3715 applies in the situation where a contractor does not have a definite place of business in a secondary locality, but the business of the contractor in the secondary locality exceeds $25,000.
4) A contractor has its principal office in Locality A. Contractor performs work in Locality B which imposes a BPOL tax upon, among others, contractors.
a) If the contractor has an office trailer at a job-site in Locality B for 30 consecutive days or more, but the contractor's gross receipts attributable to Locality B are less than $25,000, may Locality B impose a BPOL tax?
Assuming Locality B has no general threshold as imposed required by Code of Virginia § 58.1-37067 A, then Locality B could impose a BPOL tax. Otherwise, in this situation, the contractor would be below both the general and contractor thresholds and Locality B could not impose a BPOL tax on the contractors receipts derived in Locality B. However, Locality B could impose a fee.
b) If the contractor is in Locality B for less than 30, but its receipts exceed $25,000, may Locality B impose a BPOL tax upon the gross receipts of the contractor?
Yes, because the contractor has met the threshold requirement ($25,000) of Code of Virginia § 58.1-3715.
5) Considering § 7.3 of the 1997 BPOL Guidelines, which discusses manufacturers, in what situations would a manufacturer be taxed as a wholesaler if it did not have a "store" or other outlet?
If a manufacturer were not selling from a "store" or other outlet then, by definition, it would have to be selling from its plant. If a manufacturer sells at wholesale from its plant, it is exempt from the BPOL tax. Where a manufacturer sells at retail (as determined by the customers to whom it sells), either from its plant or otherwise, it would be subject to the BPOL tax as a retailer. Therefore, there should be no situations where a manufacturer, without a "store" or other outlet, selling at wholesale is subject to the BPOL tax.
A manufacturer may engage in wholesale activity to sell its product and continue to maintain an exempt status for BPOL purposes as long as such activity does not rise to the level of a separate business activity. If a manufacturer has sales representatives which conduct sales activity away from the place of manufacture, and it ships goods pursuant to orders filled by such sales persons, this activity would not rise to the level of a separate wholesale business because the sales activity is directed toward the delivery of goods from the place of manufacture.
Where completed goods are shipped to the manufacturer's warehouse for storage prior to the wholesale sale of such goods, such activity does not rise to the level of a separate business activity as long as the warehouse is a mere storage facility which conducts no other business functions. Mere storage of completed goods prior to the goods being sold at wholesale is ancillary to the manufacturing function.
6) Regarding contractors with gross receipts in a locality other than its principal locality, where a contractor's gross receipts exceed the contractor threshold under Code of Virginia § 58.1-3715, but do not exceed the general threshold under Code of Virginia § 58.1-3706, may the contractor deduct its gross receipts from the secondary locality from those total gross receipts reported to its principal locality?
No. The deduction under Code of Virginia § 58.1-3715 applies only where a contractor has paid a tax in the secondary locality based upon gross receipts arising from activity there. Also, under these facts, the gross receipts derived in Locality B are not attributable to Locality A.
7) Does the "sale" of securities by banks constitute activity which is subject to the BPOL tax?
The BPOL tax may be imposed on such sales by a bank when authorized by Code of Virginia § 58.1-3703. However, such sales must be a business separate from the banking business. If such sales are ancillary to the banking business, and classified as financial services, they would be exempt from the BPOL tax. Code of Virginia § 58.1-3703 C 12.
8) Acme Company, with its sole office in Locality A, contracts with fertilizer manufacturers throughout the U.S. in order to manufacture a special brand of fertilizer. Acme does not manufacture the fertilizer. Acme makes all sales from its office in Locality A and also receives at its office in Locality A all payments arising from such sales; however, the fertilizer is shipped directly to Acme's purchasers from the place of manufacture. Are these sales subject to Locality A's BPOL tax?
There has been a change in this area due to the new definitions section in the BPOL law. "Purchases" is now defined in the BPOL law as all goods, wares and merchandise received for sale at each definite place of business of a wholesale merchant. Code of Virginia § 58.1-3700.1.
By definition, in order to be a wholesaler, a taxpayer must have a definite place of business at which it receives for sales goods, wares and merchandise. If a taxpayer does not have such a definite place of business, then, depending upon the circumstances, it is merely a broker or one rendering business services.
If Acme receives goods and delivers them to customers from a definite place of business, then Acme would be a wholesaler taxed based upon purchases and the situs of the purchases would be the place from where deliveries are made. Otherwise, if Acme is conducting business as a broker, or performing business services, from a definite place of business in Locality A, then Locality A could impose a BPOL tax on such activity if the locality's ordinance so specified.
9) Acme, a subsidiary of a Brazilian company, is based in Locality A. Acme assembles widgets in Locality A and also stores the widgets in a warehouse located there. Acme sells approximately one-third (1/3) of its product to buyers based in the U.S. Approximately two-thirds (2/3) of Acme's products are sold to its Brazilian parent company. All sales are made from Locality A. May Locality A impose a BPOL tax upon Acme?
If Acme is not a manufacturer, then Locality A may impose its BPOL tax upon the sales made to U.S. buyers. If Acme is a manufacturer, then Locality A may not impose its BPOL tax upon the wholesale sales made from its plant to buyers based in the U.S.
Also, if Acme is not a manufacturer, but the affiliate definition in the BPOL law applies to it and its Brazilian parent company, then Locality A may not impose its BPOL tax upon the sales made to its parent company. If the companies are not affiliated, taxability depends upon whether Acme is selling its widgets to the Brazilian company at wholesale from its plant.
10) Company A conducts the following activities: I) manufacture of heavy equipment; ii) sale of parts not manufactured by Company A; iii) the manufacture and rental of railroad equipment; iv) provision of business services related to the furnishing of railroad bed and track cleaning equipment along with the personnel to operate such equipment. Which of the above activities would be subject to a locality's BPOL tax? Is Caffee v. City of Portsmouth relevant?
Those activities which could be subject to a locality's BPOL tax are: I) the sale of parts not manufactured by Company A; ii) the manufacture and rental of railroad equipment; and, iii) provision of business services related to the furnishing of railroad bed and track cleaning equipment along with the personnel to operate such equipment.
The exemption under Code of Virginia § 58.1-3703 C 4 applies to a manufacturer which sells the goods it makes. Depending upon the facts and circumstances, in limited situations it may be possible to equate a lease with a sale at wholesale where the lease would be treated as a sale for federal tax law purposes. When the parties characterize a transaction as a lease, the determination of who is the owner of property for federal tax law purposes depends upon the economic substance of the transaction. not its form.
In Caffee v. City of Portsmouth, 203 Va. 928 (1962), a bakery was held to be a manufacturer, but was subject to the tax on gross receipts from its retail sales which took place in its showroom in the front of its building. Caffee v. City of Portsmouth is most analogous, if at all, to the situation described above where the taxpayer manufacturers and rents railroad equipment.
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/12247H
Rulings of the Tax Commissioner