Tax Type
BPOL Tax
Description
Reimbursements under government contract
Topic
Local Power to Tax
Date Issued
05-19-1997
May 19, 1997
Re: Request for Advisory Opinion: BPOL
Dear********************
This will respond to your letter dated April 29, 1997, regarding the proper treatment for BPOL purposes of certain receipts by a defense contractor.
The license tax is a local tax which we impose 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 indicate that the taxpayer In question is a Virginia corporation engaged in the business of producing, marketing, selling and distributing management and computer based training systems for various agencies of the federal government. In rendering such services, the taxpayer provides for the travel of its own employees and the government reimburses the taxpayer for the cost of that travel plus a ten (10%) percent handling fee. These travel expenses are included in both the request for proposals (RFP's) submitted by the taxpayer to the government, as well as the contract between the government and the taxpayer. The taxpayer is also reimbursed for materials used in providing services rendered under its contract with the government.
You state that the taxpayer claims it is merely acting as a purchasing agent for the government when it makes travel arrangements for its employees and when it purchases materials necessary to perform under its contract with the government. The taxpayer maintains that the reimbursements for such expenses should be excluded from the calculation of its gross receipts for BPOL tax purposes.
OPINION
In my opinion, for the reasons stated below, reimbursements received by the above taxpayer from the government for expenses and costs of performing under a contract with the government are gross receipts under the BPOL law.
Localities may levy a BPOL tax on persons or firms engaged in business within their jurisdictions. Generally, the measure of the tax is upon the gross receipts attributable to the entity's business activities at a definite place of business within a locality. Code of Virginia § 58.1-3706.
Gross receipts are defined as the whole, entire, total receipts, without deduction Code of Virginia § 58.1-3700.1. Further, the 1997 BPOL Guidelines state in part that gross receipts include 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 the licensed privilege to engage in a business or profession in the ordinary course of business, without deduction or exclusion except as provided by law. 1997 BPOL Guidelines § 1.
Previous opinions from the Commonwealth's Attorney General indicate that "gross receipts" for license tax purposes typically include the total amount of money or the value of consideration received from selling property or from performing services. 1989 Op. Va. Att'y. Gen. 310. Virginia's Supreme Court has also stated that the term "gross receipts" includes revenues derived directly from business or from operations incidental to business. Commonwealth v. Wash. Gas Light Co., 221 Va. 315 (1980).
Excluded from the definition of gross receipts are any amounts not derived from the exercise of a licensable privilege to engage in a business or profession in the ordinary course of business. Code of Virginia § 58.1-3732 A. Previous opinions of the Attorney General also indicate that gross receipts do not include funds received as reimbursement for the payment of expenses of a client. 1995 Op. Va. Att'y. Gen. 250, 252.
That, however, is not the case here. The amounts received by the taxpayer herein are not reimbursements for expenses advanced on behalf of its client. The amounts received by the taxpayer in question here are for amounts expended by the taxpayer on the taxpayer's own behalf in the furtherance of the fulfilment of its contractual obligations with its client.
As the Virginia Supreme Court stated in Alexandria v. Morrison-Williams, in discussing whether certain receipts were gross receipts for BPOL purposes versus trust fund receipts, " . . . the taxpayer is not the agent of the client, . . . the association between each is contractual .... " 223 Va. 349, 351 (1982). Accordingly, in my opinion the amounts expended by the taxpayer herein for its employees' travel expenses and for materials needed to perform under its contract with the government, and for which the taxpayer is reimbursed, are to be included in the calculation of its gross receipts for BPOL tax purposes.
I hope that the above information will be beneficial to you. Although 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/12499H
Rulings of the Tax Commissioner