Tax Type
BPOL Tax
Description
Film processing was taxable
Topic
Local Power to Tax
Date Issued
07-18-1997
July 18, 1997
Re: Request for Advisory Opinion - BPOL Tax
Dear***************
In your memorandum dated May 7, 1997, you asked for an advisory opinion on applying the local license tax requirements to photographic processing and developing service offered by retail merchants.
The license tax is a local tax that is imposed and administered by local officials. The Code of Virginia limits the involvement of the of the Department of Taxation to promulgating guidelines and issuing advisory opinions. The department, however, is not required to interpret local ordinances.
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. Copies of cited sources are enclosed for your review.
FACTS
The City of***** enacted a local license tax ordinance that taxes film processing under the personal service tax rate. Located within the locality are several retail merchants that accept undeveloped film for processing for a fee. Some retail merchants provide one-hour processing that is done on-site and some send undeveloped film to another location for processing.
You ask the following questions concerning the licensing and taxing of film processing businesses:
1. Are all retail merchants that offer to develop film subject to the personal service license requirements?
2. Are only those retail merchants that process film on-site required to have a personal service license and pay tax on gross receipts from their film development service?
3. Is film processing ancillary to the retail sale of film and photographic equipment?
OPINION
Film processing service offered by retail merchants is a separate business from retail sales and may be taxed at the personal service tax rate as provided by the local ordinance. The location of the film development does not alter this results. Unless a retail merchant restricts the processing of film for only customers who buy the merchant's retail items (such as photographic equipment or film), film processing is a separate and independent activity, i.e., not ancillary, to retail sales. This opinion is based on the following analysis.
Issues 1
Localities may require a company with multiple businesses to have a separate license for each business and, accordingly, each business must separately meet the threshold amount before being subject to tax. A company that has one business which is composed of a primary activity and an auxiliary or ancillary activity, however, is only required to have one license based on the primary activity and is subject to tax on total gross receipts at a rate also based on the primary activity. Consequently, to ascertain the proper BPOL license and tax requirements, the local tax commissioner must determine if a company's activities involve more than one business or are a single business with some ancillary activities. Code of Virginia §§ 58.1-3703, -3706.
If the local official determines that the activities of the company involve separate business activities that are performed independently of and without relation to each other, then the separate activities must be licensed and taxed on their gross receipts as separate businesses. If the company's activities are not separated but are so integrated as to comprise a single business, then the company is taxed on total receipts from all activities at a single rate based on the business that constitutes the "substantial" or primary activity of the company. 1994 Va. Op. Att'y Gen. 99, 104; P.D. 97-115. "Ancillary" means subordinate, subservient, or auxiliary to that which is primary. Guidelines for Business, Professional and Occupational License Tax (Va. Dep't of Tax'n) Jan.1, 1997, at 2.
In this case, the activities conducted by the business in question includes "retail sales" and film processing "services”. "Retail sales" are sales of goods for use by purchasers for any purpose other than resale. "Services" are the customer-purchased results or benefits of someone's labors. Services do not have physical characteristics and are not goods. Guidelines at 8.
In this case, the retail merchants have two activities that are independent and unrelated to the other: retail sales and the film processing service. From your facts, the retail merchants sell many different types of goods that may or may not have any connection with film processing. Further, it appears that the merchants process film for all customers and not only for customers that buy the merchant's cameras and film. The retail sale of goods and film processing service, accordingly, are not related and do not depend on each other. Consequently, each activity requires a separate license and is subject to a separate threshold under the local BPOL ordinance.
Issue 2
You asked if the location of the film processing would change the determination of whether the retail merchant actually performs the taxable service or not. The taxable activity, according to BPOL statutes, is based on the situs of the gross receipts from the performance of services attributable "to the definite place of business at which the services are performed." Code of Virginia § 58.1-3703.1(A)(3)(a)(4).
In this case, the film processing service is offered by a retail merchant to its customers for a fee. The retail merchant's location is the "definite place of business" at which the service is performed, i.e., the customer drops off the film with the retail merchant and pays the merchant upon receipt of the processed film at the same location. The location of the film processing equipment is not part of the "definite place of business" determination between the retail merchant and its customer. If the retail merchant charges its customers for film processing, then the gross receipts from this transaction are subject to the local BPOL ordinance based on the personal service tax rate. Consequently, the location of film processing is not a factor that defines the relationship between retail sales and film processing.
Issue 3
You asked if film processing is ancillary to the retail sale of photographic equipment and film. When determining BPOL liability, the local official must analyze the relationship of each activity to determine if the activities are independent, resulting in separate licensable businesses, or so intertwined as to create only one licensable business. In the later case, the locality must discern the primary activity from the ancillary activity to determine the correct classification and tax rate.
For example, a company sold satellite dishes and provided installation of these dishes to its customers. The company would only install the equipment for customers that bought the company's equipment. It was determined that the installation service was ancillary to the sale of satellite dishes; all gross receipts from both activities were taxed at the retail sale rate according to the local ordinance.
In this case, the retail merchant does not appear to limit the service of film processing to those customers that buy the merchant's photographic equipment or film. Each activity is performed independently from each other and does not depend on the other activity. Neither activity is ancillary to the other. Thus, the two activities are separate businesses subject to a separate license tax and thresholds based on the local ordinance.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please do not hesitate to contact me.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP12506G
Rulings of the Tax Commissioner