Tax Type
BPOL Tax
Description
Simultaneous BPOL tax and BPOL fee
Topic
Local Power to Tax
Date Issued
06-19-1997
June 19, 1997
Re: Request for Advisory Opinion: BPOL
Dear****************
This will respond to your facsimile letter dated May 30, 1997, regarding the imposition of a BPOL tax and fee by your locality.
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
Your locality plans to amend its BPOL ordinance to clarify that the amount presently charged for the issuance of business licenses is a fee. Your locality is also planning to add a flat BPOL tax of $40.00 for all businesses with gross receipts of $25,000 or greater. Your locality's license year is based on a calendar year. You inquire both as to the effective date of H.B. 2783 and whether, after it takes effect, such legislation will preclude your locality from having both a flat BPOL tax and a flat fee. If H.B. 2783 affects your locality's plans, you ask whether your locality could impose a single flat tax of $70.00 by using a threshold of $44,000 as opposed to $25,000.
OPINION
Localities are free to distinguish between a tax and fee in their local ordinances. H.B. 2783 is effective for license years on and after July 1,1998. Based upon your representations, in my opinion, your locality is authorized to assess a fee of $30.00 for the issuance of BPOL licenses. After H.B. 2783 takes effect, your locality cannot impose both a BPOL fee and a tax. Finally, your locality could assess a flat BPOL tax of $70.00 as long as certain entities with gross receipts below a certain minimum were not subject to any BPOL tax.
In addition to charging a fee for the issuance of BPOL licenses, localities may levy a BPOL tax on businesses, trades, professions, occupations and callings, and upon the persons, firms and corporations engaged therein within the locality. Code of Virginia §§ 58.1-3703 and 3706. Legislation passed in 1997 (H.B. 2783) provides that, effective July 1, 1998, localities may impose either a BPOL license fee or a tax, but not both. Acts of Assembly 1997, c. 903.
The 1996 amendments to the BPOL law included the addition of two new thresholds, both tied to a locality's population. One threshold limits the fee localities may impose for issuing BPOL licenses, while the other threshold prohibits the imposition of a BPOL tax on businesses with gross receipts below certain amounts. Localities with a population of less than 25,000 may assess a BPOL license fee no greater than $30.00. Code of Virginia § 58.1-3703 A. Also, localities which have a population of less than 25,000 do not have a gross receipts rate threshold for BPOL purposes. Code of Virginia § 58.1-3706 A.
The BPOL tax rate depends upon the classification under BPOL law of the person or firm's activity and localities may not assess a BPOL tax at a rate in excess of that set out by statute. Code of Virginia § 58.1-3706 A 1 .
As stated above, the license tax is a local tax which is imposed and administered by local officials. Your locality is free to distinguish in its local ordinance between a BPOL license fee and a tax. The most restrictive maximum fee which localities may charge for the issuance of a BPOL license is $30.00. Based on your assertions, your locality is within that limit regarding the fee it charges for the issuance of BPOL licenses.
If a locality with a population of less than 25,000 wished to impose a flat BPOL tax, it would be necessary for the locality to set a gross receipts threshold where businesses with receipts below the threshold would not be subject to the BPOL tax2 . Next, the locality would multiply the artificial threshold by the lowest gross receipts tax rate category under its ordinance. For instance, assume the locality established a threshold of $25,000 and assume the lowest gross receipts tax rate in its ordinance is sixteen cents per $100 rate on contractors. Multiplying this amount ($25,000) by the lowest gross receipts tax rate (the sixteen cents per $100 rate on contractors) would yield a "flat tax" of $140.00.
This "flat tax" amount could be applied to all entities whose BPOL tax is measured by gross receipts, or a "flat tax" could be crafted for each particular BPOL classification through the multiplication of the gross receipts thresholds by each of the respective classifications' rate. Assuming your locality is not grandfathered to apply the BPOL tax to wholesalers based upon their purchases, a similar, but distinct formula, could be crafted for wholesalers.
H.B. 2783 is effective on July 1, 1998. Acts of Assembly,1997, c. 909. Your locality may no longer impose both a license fee and assess a license tax for the issuance of business licenses on or after July 1, 1998. If a BPOL license fee and tax are imposed prior to that date, it would be permissible and no refunds, pro rata or otherwise, would be required for localities with calendar year license years which impose both a fee and a tax prior to July 1,1998.
You asked whether H.B. 2783 prohibits the imposition by your locality of a flat BPOL fee and a tax. You also asked, if H.B. 2783 prohibits the imposition of both a BPOL fee and a tax, could your locality impose a single flat tax of $70.00 for the 1998 license tax year.
As stated above, H.B.2783 prohibits the imposition of both a BPOL fee and a tax. However, a flat BPOL tax of $70.00 would be acceptable if the tax amount chosen did not violate the rate maximums set under state law. See Code of Virginia § 58.1-3706A.
For instance, assume your locality has a population of less than 25,000 people, and thus has no rate threshold for BPOL purposes. Accordingly, a contractor with annual gross receipts of $40,000 in your locality could be subject to a flat BPOL tax no greater than $64.00. If your locality imposed a minimum flat tax of $70.00, it must exempt this contractor from the tax as his gross receipts fall below the $44,000 threshold necessary to allow a $70.00 flat tax while not violating the rate caps set by statute. Similarly, a retailer with annual gross receipts of $35,000 could be subject to a $70.00 flat tax without violating the maximum BPOL tax rate set under state law.
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/12586H
1The maximum rates on the gross receipts for each classification are as follows: Contractors, sixteen cents per $100; Retailers, twenty cents per $100; Financial, real estate and professional services, fifty-eight cents per $100; and Repair, personal and business services, and all other businesses and occupations not specifically listed or excepted, thirty-six cents per $100. In addition, while some localities are grandfathered to apply the BPOL tax on wholesalers based on gross receipts, you did not indicate that your locality applied the BPOL to wholesalers based on gross receipts. Generally, the BPOL tax is applied to wholesalers based upon purchases at a rate of five cents per $100. Code of Virginia §§ 58.1--3703 C 6, 3703.1 A 3(a) 2 and 3716.
2This threshold is optional because localities with populations under 25,000 people have no gross receipts threshold for BPOL purposes. Code of Virginia § 58.1-3706 A..
Rulings of the Tax Commissioner