Tax Type
BPOL Tax
Description
Exceptions; In-house investment services exempt
Topic
Local Power to Tax
Date Issued
07-28-1997
July 28, 1997
Re: Request for Advisory Opinion: BPOL
Dear****************
This will respond to your letter transmitted by fax on June 4, 1997, requesting an advisory opinion.
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
Banks and insurance companies in your area are entering the securities, mutual fund and bond selling business. In some cases the bank or insurance company will establish separate for profit corporations to provide these investment products to individual and businesses for their investment plans. You have inquired as to whether the security and investment selling businesses are separately licensable apart from the banks and insurance companies from which they originated. You have further inquired as to how gross receipts are to be calculated for these businesses if they are subject to licensure.
OPINION
From the information you have provided, it appears that the banks and insurance companies are offering in-house investment services as well as creating separate corporations which offer these services to the public. Generally, banks are subject to the state franchise tax imposed by Chapter 12 of the Code of Virginia and thus exempt from local license taxes. A specific exemption to this general rule in Code of Virginia § 58.1--1202 provides that banks may be subject to local license taxes in connection with the sales of tangible personal property. However, the sale of stocks, bonds and other securities is not the sale of tangible personal property as contemplated by the statute and thus not subject to the local license tax. Therefore, a bank that has merely developed a separate line of business which involves the sales of investments and other securities would not be subject to local license taxes.
Insurance companies and their agents also enjoy an exemption from the BPOL tax. The exemption as specified in Code of Virginia § 58.1-3703 C 11 relates to all activities of an insurance company, not merely the activities traditionally conducted by an insurance company. Thus, the fact that the company has developed a separate line of business which involves the sales of securities does not disqualify the insurance company from the exemption.
Where an insurance company or bank has created an entirely separate corporation to provide investment services and these companies are not operating as banks or insurance companies or otherwise subject to the state insurance license tax or bank franchise tax, these separate corporations are not exempt from the BPOL tax. The corporations will be subject to the local license tax, provided such a tax is imposed by the locality involved.
Such separate companies, whether created by a bank or an insurance company, would be properly classified as a "financial service provider" for BPOL tax purposes. Calculation of gross receipts for a financial services company is discussed in the 1984-85 Report of the Attorney General 349. Where a business is operating as "broker," its role is to act as an agent for a client to buy or sell securities on a commission basis. 1997 BPOL Guidelines page 109. Where a financial service business acts as a broker it is subject to the BPOL tax only on the fees and commissions earned for managing assets and conducting transactions on behalf of its clients.
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. If you have any further questions or comments, please do not hesitate to let me know.
Sincerely,
Danny Payne
Tax Commissioner
OTP/12600D
Rulings of the Tax Commissioner