Tax Type
BPOL Tax
Description
Exceptions to the local power to tax; BPOL tax; nonprofit corporations
Topic
Local Power to Tax
Date Issued
04-17-1997
April 17, 1997
Re: Request for Advisory Opinion: BPOL
Dear********************
This will respond to your letter transmitted by facsimile on March 3, 1997, in which you ask questions relating to the taxation of charitable nonprofit 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 written 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 indicate that a charitable nonprofit corporation, in the course of carrying on its exempt purpose, sells certain items to members and individuals in Virginia and other states. You state that the proceeds from these sales were determined by the Internal Revenue Service to not be unrelated business taxable income for federal income tax purposes under Internal Revenue Code § 511 et seq. Notwithstanding this determination, you ask whether it is still permissible for a local commissioner of the revenue to independently determine whether these amounts are unrelated business gross receipts subject to the local license tax. You also asked under what circumstances a charitable nonprofit organization is entitled to a deduction from unrelated business gross receipts for sales made to customers in other states.
OPINION
DETERMINATION OF UNRELATED BUSINESS GROSS RECEIPTS
It is my opinion that a local commissioner of the revenue may make an independent determination of whether gross receipts of a charitable nonprofit organization are unrelated business gross receipts subject to the BPOL tax. However, in doing so, the commissioner of the revenue must make such determination pursuant to Internal Revenue Code § 511 et seq. In some cases, the Internal Revenue Service may have issued a written ruling or other written determination concluding that specific gross receipts are not unrelated business gross receipts. When such written determination is provided to the commissioner of the revenue, the commissioner of the revenue should presume that the specific gross receipts are not taxable under the BPOL statutes as unrelated business gross receipts.
Localities may impose a license fee and may levy a license tax on businesses for the privilege of engaging in business within the locality. Code of Virginia § 58.1-3703 A (copy enclosed). However, localities may not impose a license fee or levy a license tax on certain businesses enumerated in Code of Virginia § 58.1-3703 C (copy enclosed). With respect to charitable nonprofit organizations, localities may levy a license tax on such an organization to the extent that the organization has receipts from an unrelated trade or business the income of which is taxable under Internal Revenue Code § 511 et seq. Code of Virginia § 58.1-3703 C 18.
The BPOL statutes do not prohibit a commissioner of the revenue from making a determination as to whether any of the gross receipts of a charitable nonprofit organization are unrelated business gross receipts subject to the local license tax. The BPOL Guidelines also do not contain any such prohibition. However, the BPOL Guidelines require localities to make such a determination pursuant to Internal Revenue Code § 511 et seq. 1997 BPOL Guidelines, page 26 (copy enclosed).
In some cases, the Internal Revenue Service may issue a letter ruling or other written determination concluding that specific gross receipts of a charitable nonprofit organization are not unrelated business gross receipts. Upon receiving this written determination, the commissioner of the revenue should presume that the charitable nonprofit organization has no unrelated business gross receipts subject to the BPOL tax. However, neither the BPOL statutes nor the BPOL Guidelines prohibit the commissioner of the revenue from undertaking an independent determination and concluding differently.
DEDUCTION FROM GROSS RECEIPTS
It is my opinion that a charitable nonprofit organization may not deduct from its unrelated business gross receipts sales made to customers in another state unless it is liable for an income or other tax based upon income in such other states. To be liable for an income or income like tax in another state, a charitable nonprofit organization must file a tax return for an income or income like tax.
A charitable nonprofit organization may deduct from its Virginia unrelated business gross receipts any receipts which are also attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income or other tax based upon income. Code of Virginia § 58.1-3732 B 2 (copy enclosed). To be liable for an income or income like tax, a charitable nonprofit organization must file a tax return for an income or income like tax in the foreign state or country. 1997 BPOL Guidelines, page 32 (copy enclosed).
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/12258C
Rulings of the Tax Commissioner