Tax Type
BPOL Tax
Description
Transport escort services and expenses
Topic
Local Power to Tax
Date Issued
06-27-1997
June 27, 1997
Re: Request for Advisory Opinion: BPOL
Dear**************
This will respond to a facsimile dated June 17, 1997, from your office regarding the proper calculation of gross receipts, for purposes of the Business, Professional, and Occupational License (BPOL) Tax, of a taxpayer performing certain business services.
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 request an opinion on the proper calculation of the gross receipts of a taxpayer which arranges transportation escort services, as well as selling transportation supplies. There is no dispute that all amounts derived from the sale of transportation supplies constitute gross receipts.
Escorts of company transports are arranged by the taxpayer with vehicles piloted by drivers chosen by the taxpayer from files which it maintains. The transportation companies are billed a fixed amount based upon mileage, with the taxpayer retaining a small commission and paying the remainder over to the drivers. The taxpayer also bills the transport companies, at cost, for other expenses which may result from escort trips.
You inquire as to the correct calculation of gross receipts for BPOL purposes regarding the amounts the taxpayer receives for arranging the escort of transports as well as the handling, at cost, of other expenses which may result from such escort trips.
OPINION
Localities may charge a fee for issuing BPOL licenses and may levy a BPOL tax on businesses, trades, professions, occupations and callings, and upon the persons, firms and corporations engaged therein within the locality1 Code of Virginia § 58.1--3703. When based upon gross receipts, the tax is measured by those gross receipts attributable to the exercise of a licensable privilege at a definite place of business within the locality. Code of Virginia § 58.1-3703.1 A 3a.
"Gross receipts" mean the whole, entire, total receipts, without deduction. Code of Virginia § 58.1-3700.1. The 1997 BPOL Guidelines, at § 1, state that "gross receipts" mean money or other consideration received by the taxpayer from transactions with others besides himself which are derived from the exercise of the licensed privilege to engage in a business, without deduction or exclusion except as provided by law. Thus, for an item to be omitted from the calculation of gross receipts, it must be excluded by law. One exclusion states that gross receipts include only amounts derived from the exercise of the licensed privilege to engage in a business. Other examples of exclusions, and specific deductions, are provided by statute2
Gross receipts do not arise, however, merely because a taxpayer handles funds in certain transactions. The language of the statute is clear that gross receipts arise only when sales are made or services are rendered. Op. Att'y. Gen. 250, 251 (1995).
The Supreme Court of Virginia held an advertising agency subject to the local license tax on total payments received from its client without any deduction for sums paid by the taxpayer to media sources for ad placement. See, Alexandria v. Morrison-Williams, 223 Va. 349 (1982). In arriving at its conclusion, the Court highlighted those instances where money is handled by one as an agent of a principal, stating such moneys are not characterized as gross receipts of the agent.
Further, in Savage v. Commonwealth, 186 Va. 1012 (1947), the Court considered the situation where a taxpayer billed its client then paid another service provider on the basis of the services it furnished. In Savage, the taxpayer transported some of the freight received by him on vehicles of other carriers with unused space. These other carriers provided the driver, paid his wages, and furnished gas and oil. The contract with the owner of the goods was always made with the taxpayer as the named carrier. The taxpayer would bill the owner and then pay the other carrier on the basis of the equipment he furnished. The taxpayer contended that the amounts he paid other carriers for the use of their equipment should be considered part of their gross receipts, not his. This court held the tax to have been properly imposed and said:
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- "The amounts paid to the other carriers . . . was but an item of the cost of [taxpayer's] operation . . . The use of the vehicles of others saved [taxpayer] the expense of using his own equipment . . . The vehicles of the other carriers were merely the agency for the transportation of the cargoes of [taxpayer] . . . The payments constituted a part of his gross receipts in the transaction of his business." 186 Va. at 1018.
On the other hand, prior opinions of the Attorney General conclude that a business does not have gross receipts when it (i) receives funds as advance payment from, or as reimbursement for the payment of expenses of, a client, or (ii) receives purchase money from a client to be held in an escrow account. Op. Att'y. Gen. 281, 282 (1985-86). The underlying principle is that gross receipts are not subject to a local gross receipts tax when the taxpayer acts as the agent or fiduciary for another in receiving and disbursing money on behalf of a person or entity other than the taxpayer. Op. Att'y. Gen. 285, 286 (1986-87) and Op. Att'y. Gen. 250, 252 (1995).
Here, the taxpayer is liable for the other expenses undertaken for the transport companies. Pursuant to these undertakings, the taxpayer is billed directly for the services it arranges. The taxpayer then bills the transport companies a total fee dictated by the combined cost of the transport escort and other expenses, which includes the taxpayer's commission.
Based on the foregoing, it is my opinion that the amounts received by the taxpayer from the transportation companies for transport escort services arranged by the taxpayer, along with the amounts the taxpayer recovers for its payment of other expenses on behalf of the transport companies, constitute gross receipts for purposes of the local license tax.
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/12643H
1Legislation passed in 1997 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.
2 Code of Virginia § 58.1-3732 A also states that several items are excluded from the definition of gross receipts, including: i) returns and allowances, or rebates and discounts; ii) receipts of a loan transaction where the licensee is the borrower; iii) return of principal on a loan where the licensee is the lender, or return of principal on the sale of a capital asset; iv) withdrawals from inventory and occasional sales or exchanges of assets, other than inventory, whether or not a gain or loss is recognized for federal tax purposes; v) investment income by a business not engaged in financial services where such income is unrelated to the conduct of the business; vi) certain sales and excise taxes; and, vii) liquidation of a debt or conversion of a capital asset to the extent the amount is attributable to a transaction previously taxed. Code of Virginia § 58.1-3732 A (1-8). None of these items, nor the deductions provided by Code of Virginia § 58.1 -3732 B, are present in this case.
Rulings of the Tax Commissioner