Tax Type
BPOL Tax
Description
Exceptions; Nonprofit hospitals
Topic
Local Power to Tax
Date Issued
02-12-1997
February 12, 1997
Re: Request for Advisory Opinion: BPOL
Dear******************
This will respond to your facsimile dated February 3, 1997, regarding the proper calculation of the gross receipts of franchisees and whether your locality may tax or assess a license fee on a hospital located in your jurisdiction.
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
FRANCHISE FEES
You ask whether franchise fees paid by a franchisee to its franchisor must be included within the franchisee's gross receipts for BPOL purposes. You indicate that franchise fees are paid by a real estate broker to its real estate company franchisor immediately upon the completion of each real estate sales transaction and that such amounts are not part of the real estate broker's cash flow. You state that in some instances the fee is not handled by the broker, but that the closing attorney sends the
franchise fee directly to the real estate company on behalf of the real estate broker as part of the closing procedure. You state that a similar question has arisen regarding franchisees of tax return preparation companies.
OPINION
The BPOL tax is levied upon the gross receipts of service providers. Code of Virginia § 58.1-3706. Gross receipts mean the whole, entire, total receipts, without deduction. Code of Virginia § 58.1-3706. Gross receipts include money or other consideration received by the taxpayer from transactions with others besides himself which are derived from the exercise of a licensed privilege in the ordinary course of business. Code of Virginia § 58.1-3732 A; 1997 Guidelines, § 1. A review of our records reveals no opinion or public document issued by the department which indicates that franchise fees are, per se, excluded from the definition of gross receipts under the BPOL tax.
Based on the above, the franchise fees of the broker would be included in the franchisee's gross receipts because they represent receipts by, or consideration on behalf of, the franchisee. Further, the broker uses these sums to discharge at least one of its obligations, the payment of franchise fees. Also, without more facts, an opinion cannot be expressed on the proper calculation of gross receipts of franchisees of tax return preparation companies. However, as indicated herein, the BPOL tax is a local tax and your locality is free to exclude franchise fees in the calculation of the tax.
NONPROFIT HOSPITALS
FACTS
You also ask whether your locality may assess a BPOL fee upon a hospital in your jurisdiction. You indicated that your locality has not assessed the BPOL tax upon this hospital in the past. You explain that the 1997 BPOL Guidelines indicate that hospitals (both nonprofit and for profit) are listed as subject to the tax under the business services category. You also state that, while not certain, you believe the hospital in your locality is a nonprofit entity.
OPINION
Subject to limits in Code of Virginia § 58.1-3703 C, localities may charge a fee for issuing BPOL licenses and may levy, assess and collect BPOL license taxes on businesses, trades, professions, occupations and callings, and upon the persons, firms and corporations engaged therein within the locality. No locality may impose a license fee or levy any license fax on any hospital not organized for profit which, by reason of its purposes or activities, is exempt from income tax under federal tax laws, unless a BPOL tax on such entities was enacted by the local governing body prior to January 15, 1991. This exemption is scheduled to expire July 1, 1997. Code of Virginia § 58.1-3703 C 15.
If the hospital is a for profit entity, your locality may assess a BPOL tax upon it. Nevertheless, given that your locality did not assess a BPOL tax on the hospital prior to January 15, 1991, and that you believe the hospital is a nonprofit entity, your locality may not, at this time, assess a BPOL tax on the hospital. However, the restriction on localities' ability to assess the BPOL tax on nonprofit hospitals is scheduled to expire July 1, 1997.
I hope that the above information will be beneficial to you. Although 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/12130H
Rulings of the Tax Commissioner