Tax Type
BPOL Tax
Description
Rate of license taxes; Real estate broker commissions.
Topic
Local Power to Tax
Date Issued
10-06-1997
October 6, 1997
Re: Request for Advisory Opinion: BPOL
Dear********************
This will respond to your letter transmitted by facsimile on August 14, 1997, in which you asked what deductions are available to a real estate broker in reporting gross receipts for local license (BPOL) tax purposes.
The license tax is a local tax that 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
********* ("Locality") requires a local business license of real estate brokers. It also licenses real estate agents working as independent contractors for such brokers. You ask what deductions are available to city brokers when reporting gross receipts for tax purposes. Specifically, you ask whether brokers can exclude from gross receipts commissions received pursuant to multi-listing agreements with other brokers.
OPINION
The local license tax is generally measured by gross receipts. Unless otherwise provided by law, gross receipts means "the whole, entire, total receipts, without deduction." Code of Virginia § 58.1-3700.1 (copy enclosed).
Section 58.1-3732 of the Code of Virginia (copy enclosed) provides certain deductions and a non-exhaustive list of exclusions from gross receipts. Specifically for real estate brokers, Code of Virginia § 58.1-3732.2 (copy enclosed) provides an exclusion for real estate commissions received by a broker to the extent that such amounts are paid to real estate agents, provided the agent is subject to a business license tax on such commissions. To benefit from the exclusion, the broker must identify each agent to whom commissions have been paid and the jurisdiction in which the agent is subject to business license taxes.
The locality licenses real estate brokers and independent agents working on their behalf. In reporting taxable gross receipts, brokers having a definite place of business in the locality should exclude from their total commissions received only those commissions they pay to real estate agents, provided such agents are also subject to a license tax.
You stated that several brokers in your locality enter into multi-listing agreements. You stated that these are agreements between brokers that allow any of their real estate agents to sell homes listed by the brokers and which provide for a split of the commission between the brokers. Further, each broker receives a check for his/her commission by an attorney at closing. Finally, the brokers pay the respective real estate agent(s) their share of such commission. Under these facts, it is my opinion that each individual broker can only exclude commissions they actually pay to real estate agents when reporting gross receipts, provided such real estate agents are also subject to a 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/12844C
Rulings of the Tax Commissioner