Tax Type
BPOL Tax
Description
Rate of license taxes; Situs rules applied to contractor's gross receipts
Topic
Local Power to Tax
Date Issued
09-30-1997
September 30, 1997
Re: Request for Advisory Opinion - Business, Professional, & Occupational License
(BPOL) Tax
Dear**************
In your memorandum dated August 4, 1997, you request an advisory opinion on the hypothetical application of BPOL tax to contractors' gross receipts. You ask whether or not contractors with their principal offices located in Counties B and C are subject to County A's BPOL tax ordinance for services performed in County A, pursuant to § 58.1-3715 of the Code of Virginia.
The license tax is a local tax that is imposed and administered by local officials. The Virginia Code 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
County A has a population under 25,000 and levies a business license tax on businesses with $2,500 or more in gross receipts. County B has a population greater than 50,000 and does not levy a business license tax. County C has a population greater than 50,000 and levies a license tax on businesses with $100,000 or more in gross receipts. Accordingly, businesses earning under $100,000 in gross receipts are not subject to the license tax in County C.
OPINION
County A could apply the local BPOL tax to contractors from Counties B and C who meet the requirements of § 58.1-3715 of the Code of Virginia, i.e., the specific situs rule for contractors. The specific situs rule applies to contractors who (1) have a principal office in a Virginia locality, (2) engage in the licensable business in another locality, and (3) earn gross receipt of $25,000 or more from the locally performed business activity, regardless of the length of time for the performance of these activities. If all of these criteria are not satisfied, then the general situs rule applies under Code § 58.1-3703.1 (A)(3)(a)(1).
Under the general situs rule, a contractor would be subject to County A's BPOL tax ordinance when the contractor establishes a definite place of business within the County by engaging in licensable activities for thirty days or more and earns $2,500 or more in annual grass receipts from these activities. If performance of the licensable activities take less than thirty days and the cost is under $25,000, then the contractor's gross receipts earned within County A's boundaries will not be subject to County A's BPOL tax ordinance under either situs rule. This determination is based on the following analysis.
To ascertain a locality's ability to tax contractors' gross receipts from services performed in such locality, the analysis should examine the locality's threshold requirements and applicable situs rules for gross receipts. Localities with a population under 25,000 are not subject to the gross receipts thresholds as stated in § 58.1-3706(A) of the Code of Virginia. Rather, these localities have the discretion to apply their local license tax to licensable businesses without any threshold limitation or may enact their own threshold limitation under which no license tax is applied. Guidelines for Business, Professional, and Occupational License Tax, (Va. Dep't of Tax'n) Jan. 1, 1997, at 36.
Under the BPOL uniform ordinance provisions of the Virginia Code, a contractor's gross receipts are attributed to the definite place of business at which the contractor's services are performed, or, if the services are not performed at a definite place of business, then at the definite place of business from where the services are controlled. Va. Code § 58.1-3703.1(A)(3)(a)(1). A "definite place of business" includes an office or location at which a regular and continuous course of dealings occurs for thirty days or more. Va. Code § 58.1-3700.1. This general situs rule applies unless the contractor is subject to the specific situs rule at Code § 58.1-3715. Va. Code § 58.1-3703.1 (A)(3)(a)(1).
The specific situs rule overrides the general situs rule when a contractor (1) has a principal office in a Virginia locality, (2) engages in the licensable business in another locality, and (3) earns gross receipts of $25,000 or more from the local business activity, regardless of the length of time for the activity's completion. Va. Code § 58.1-3715; 1995 Va. Op. Att'y Gen. 245, 246.
The specific situs rule also allows a contractor to deduct from the contractor's total gross receipts the amount that was earned in the other locality on which a license tax is paid. Va. Code § 58.1-3715. Consequently, this deduction is allowed only if a license tax is paid in the other locality. 1995 Va. Op. Att'y Gen. 245, 246.
Regarding your question, County A could apply the BPOL tax to contractors from Counties B and C under the specific situs rule of Code § 58.1-3715 or the general situs rule of Code § 58.1-3703.1(A)(3)(a)(1), depending on the factual situation.
Under the specific situs rule, County A may apply the local BPOL tax ordinance to those contractors that meet all three statutory requirements. Those contractors who (1) have principal offices in County B or C, (2) perform contract services in County A, and (3) earn $25,000 or more in gross receipts annually from these activities performed in County A, regardless of the activity's length of time for completion. Consequently, if a contractor earns less than $25,000 in County A or the contractor has a principal office out-of-state, then the specific situs rule does not apply and the general situs rule will determine if County A can subject the contractor to BPOL tax.
Under the general situs rule and County A's threshold rule, County A can apply the local BPOL tax ordinance to contractors from either County B or C if the contractors perform a licensable activity in County A at a definite place of business (i.e., performs contract services for thirty days or more) and earn $2,500 or more annually in gross receipts from those services (i.e., the gross receipts threshold for County A). If a contractor has no definite place of business (i.e., works in County A under thirty days) or earns less than $2,500, then the contractor is not subject to County A's BPOL tax ordinance.
Further, contractors who pay BPOL tax on gross receipts earned in County A may deduct these gross receipts from total receipts that are subject to BPOL tax in County C where the contractors' principal place of business is located. Since County B did not enact a BPOL tax, this deduction is not relevant to contractors with their principal offices located in County B.
In summary, the specific situs rule of Code § 58.1-3715 overrides the general situs rule if all three statutory requirements are met, regardless of the period of time that the licensable activities are performed in another locality. If all the criteria are not met, then the general rule applies. The general situs rule is applied along with the locality's threshold requirements to determine the tax liability of contractors who provide services at a definite place of business.
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
OTP/12801G
Rulings of the Tax Commissioner