Tax Type
BPOL Tax
Description
Exceptions; Wholesaler with no definite place of business in locality not taxable
Topic
Local Power to Tax
Date Issued
07-18-1997
July 18, 1997
Re: Request for Advisory Opinion: BPOL
Dear******************
This will respond to a facsimile dated June 19, 1997, from your office regarding the application of the BPOL tax to certain activities of a pharmaceutical company with operations in 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
You request an opinion on the application of the BPOL tax to activities of a taxpayer which will conduct operations in your locality. The taxpayer is an out-of-state corporation whose activities will include holding title to pharmaceutical inventory. The pharmaceutical goods will be shipped by air carrier by the taxpayer's employees. The inventory will then be located in a retail pharmacy in your locality. The pharmacy is not owned by the taxpayer, or an entity related to the taxpayer. The pharmacy will sell the taxpayer's pharmaceutical goods on consignment. The taxpayer will not have any salespersons in your locality, nor will it own or lease any real property there. You state that the taxpayer will conduct wholesale sales only in your locality and will replenish the pharmaceutical inventory as it is sold by the retail pharmacy.
OPINION
A merchant may sell goods in several different ways, including either as a direct wholesaler or a retailer, or on consignment. When goods are sold on consignment, the consignor may be a wholesale merchant, but is usually a retail merchant. See, Op. Att'y Gen. 396 (1972) (Copy enclosed). You state that the pharmacy will sell the taxpayer's goods on consignment but that the taxpayer will only conduct wholesale sales in your locality. If, however, the pharmacy is selling goods to consumers as the taxpayer's agent, then the taxpayer would be by definition a retail merchant. In any event, we will analyze your request under both wholesale and retail scenarios.
Regardless of whether the taxpayer is a wholesaler or a retailer, it must first have a definite place of business in your locality to be subject to your BPOL licensing requirements. Code of Virginia § 58.1-3703.1 A 1. Here, if the taxpayer is conducting operations in your locality, the question becomes does the pharmacy's location in your locality also constitute a definite place of business for the taxpayer.
The department has stated "[i]f a distributor is merely selling its products through a local business on a commission basis, the distributor would not be deemed to have an office or definite place of business at the place of sale by the local business. Even if the distributor owned the [equipment], that does not constitute a place of business in the locality if the distributor does not have employees at the location, does not advertise or does not otherwise hold itself out as engaging in business at such location." Commissioner's Prior Advisory Opinion, October 24,1985 (Copy enclosed).
Based upon the facts presented, the taxpayer does not appear to have a definite place of business in your locality because it lacks an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more. Code of Virginia § 58.1-3700.1. Thus, your locality may not require a licence nor impose a BPOL tax upon the taxpayer.
However, if the taxpayer had a definite place of business in your locality and conducted wholesale operations from that location, it must deliver goods from that location in order for its purchases to be attributed to your locality and subject to your BPOL tax. Code of Virginia §§ 58.1-3700.1 and 3703.1 A 3a (2). In this case, by definition, such deliveries must be to the pharmacy, not the pharmacy's customers. 1997 BPOL Guidelines, §§ 1 and 7.2.
If, on the other hand, the taxpayer conducted retail operations from a definite place of business in your locality, it must conduct sales solicitation activities from that location for the corresponding gross receipts to be attributed to your locality, thus subjecting it to your BPOL tax. Code of Virginia § 58.1-3703.1 A 3a (2). By definition, such solicitation activities must be directed toward or undertaken with the ultimate consumers, but could be made by an agent on behalf of the taxpayer (ie., consignment). See, Op. Att'y Gen. 396 (1972) (Copy enclosed). However, the taxpayer must first have a definite place of business in your locality. If this were the case, and if the pharmacy acts as the taxpayer's retailing agent, then the taxpayer may be deemed to be conducting sales solicitation activities in your locality, thus subjecting those gross receipts attributable to such activity to your BPOL tax under a retail merchant's classification.
Nevertheless, as indicated above, if a distributor is merely selling its products through a local business, the distributor would not be deemed to have a definite place of business at the place of sale by the local business solely based on the distribution of its product at the local business location. To constitute a definite place of business in a locality, a distributor or merchant must have an office or a location at which occurs a regular and continuous course of dealing for thirty (30) consecutive days or more. Indicators of such a presence may be employees at the location, advertising or otherwise holding oneself out as engaging in business at such location. However, for the reasons stated above, here the taxpayer does not appear to have a definite place of business in your locality.
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/12662H
Rulings of the Tax Commissioner