Document Number
Tax Type
Real estate brokers and sales agents
Local Power to Tax
Rate of Tax
Date Issued

January 16, 1997

Re: Request for Advisory Opinion: BPOL


This will respond to your letter of January 6, 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. This response is intended to provide guidance only and does not constitute a formal or binding ruling.


Under § 58.1-3732.2 Code of Virginia a real estate broker may exclude from his gross receipts commissions which are paid to a real estate sales agent as the agent's commission "split", Provided the agent is "subject to the business license on such receipts." Under the statute the broker exclusion is only available if the broker has identified the agent to whom the commission has been paid and the jurisdiction where the real estate sales agent is licensed. A number of localities have opted not to subject real estate sales agents to licensure. Under this treatment a real estate broker may not exclude the portion of his commission that is paid to his agents because the agents are not licensed and thus not "subject to the business license tax" on their "split" of the commissions. By not subjecting real estate sales agents to licensure and thereby eliminating the broker's ability to exclude any portion of his gross receipts, the localities are able to levy license taxes against the broker where the broker exclusion in conjunction with the general thresholds would otherwise limit the locality to collecting only license fees. This dichotomy is best illustrated by the following example:
    • Locality A is subject to a license tax threshold of $100,000; a license fee limit of $100 per license issued and has adopted the maximum rate of .58 per hundred for its real estate professional license tax. Broker has 4 real estate sales agents in his office. The broker's commission "split" with each of the agents is 50%. For the year in question the broker earned $199,000 in commissions through the efforts of his agents. Each agent had the same amount of sales and each received a split of $24,875. Provided locality A subjects each sales agent as well as the broker to the local license tax, it would collect total fees of $500; i.e. $100 for each of the 5 licenses issued. There would be no tax owed by the agents because none earned over the $100,00 threshold. The broker would fall under the threshold as well because he would be entitled to exclude the commissions he split with the sales agents; i.e. $24,875 X 4 = $99,500 in excluded gross receipts leaving total gross receipts to the broker of $99,500.
    • If locality A chooses not to subject the sales agents to licensure it would collect only one license fee of $100 from the broker, but the locality would also be entitled to tax the broker on $199,000 in gross receipts with no exclusion for commissions paid the agents and no threshold limitations. Under this scenario the locality collects $1,154.20 in license taxes and $100 in fees for a total of $1,254.20. In the earlier scenario the locality only collects $500 in fees.

A locality which has adopted the latter approach bases this position in part on the Comment on page 46 of the 1997 BPOL Guidelines. The Comment in its pertinent part reads as follows:
    • ...the department recommends taxing professional gross receipts under the employer's license and not requiring employees to obtain licenses. For the same reason, the license of a partnership, limited liability company, or other business entity should cover the receipts generated by the activities of partners, members, and similar individuals.


An important goal in the BPOL reform process was maintaining the localities flexibility in administering the local license tax. Consistent with this goal it is appropriate that the localities apply the license tax in a manner which best serves the interests of the locality provided such application is not inconsistent with or contrary to the framework established in § 58.1-3700 et seq. Code of Virginia. Although ******* § 58.1-3732.2 applies to real estate brokers and agents it does not preclude an approach in which the locality opts to subject only the broker to license taxes and fees. This approach would be within the discretion of the particular locality involved.

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.


Danny M. Payne
Tax Commissioner


Last Updated 08/25/2014 16:46