Tax Type
BPOL Tax
Description
Specific Types of Local License Taxes
Topic
Local Power to Tax
Date Issued
10-02-1998
October 2, 1998
Re: Request for Advisory Opinion - Business, Professional, & Occupational License (BPOL) Tax
Dear *****
In a letter dated December 22, 1997, you ask for an advisory opinion on whether or not "other income' on a federal Schedule C form should be included in taxable gross receipts for BPOL purposes. You submitted an example of a business situation to illustrate the typical scenario involving this issue. I apologize for the delay in responding to your request.
Although the BPOL tax is a local license tax that is imposed and administered by local officials, the Virginia Department of Taxation may promulgate guidelines and issue advisory opinions on a limited basis according to Virginia statute. 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
Certain businesses located within the locality have, in the past, listed on their federal Schedule C form amounts labeled as "other income.' You would like to know if this amount should be included in gross receipts when determining BPOL tax liability. You submitted an example of this issue concerning two dentists with offices in the locality's jurisdiction. They are sole proprietors and separately licensed as professionals. They share office space and share the expenses of operating the office. Dentist #2 pays Dentist #1 for half of the expenses then Dentist #1 pays the bills. Dentist #1 records this amount as income on his Schedule C - sometimes on line 1 as "gross receipts' and sometimes on line 6 as "other income.' You ask if this amount received for expense reimbursement should be included in the total gross receipts of Dentist #1 and taxed at the same rate, which, in this case, is the professional rate.
OPINION
When a company has more than one activity, it must be determined if each activity is a separate business that is subject to separate license fees, tax rates, and threshold limits; or if such activities comprise one business that is subject to one license fee and threshold limit and taxed at the primary activity's tax rate. Applied to the facts, the income that Dentist #1 receives from Dentist #2 would be considered receipts from an ancillary activity and should be included in total gross receipts, taxed at the primary activity rate, which is the professional rate. This conclusion is based on the following analysis.
Localities in Virginia may impose the BPOL license fee or tax on a business operating within its jurisdiction if such activities are not exempted. Code of Virginia §58.1-3703; 58.1-3732. Specifically, an individual or entity must be "engaged in business' at a "definite place of business' within a locality to be subject to such locality's BPOL license and tax requirements. Code of Virginia §58.1-3703.1(A)(1). The BPOL tax is based on the total amount of gross receipts that the business earns within that locality, without deduction unless statutorily allowed. Code of Virginia §58.1-3703.1 (A)(3)(a), 58.1-3732.
"Business' is defined as a regular course of dealing that requires the time, attention, and labor of the person performing the activities for the purpose of earning a living or profit and implies a continuous and regular course of dealing rather than an irregular or isolated transaction. Code of Virginia §58.1-3700.1. Certain activities create a rebuttable presumption that favor of the existence of a business, such as the filing of certain tax forms and schedules required of business operators. Id. A person may be engaged in multiple businesses. Id.
If a local official determines that the activities of a company are separate and independent and without relation to each other, then the activities are licensed and axed as separate businesses and subject to separate threshold limits. Caffee v. City of Portsmouth, 203 Va. 928, 930-31 (1962); Code of Virginia §58.1-3703.1 (A)(1). If the businesses are located at the same place, then the taxpayer has the discretion to apply the same rate to all activities if several factors have been met. Code of Virginia §58.1-3703.1 (A)(1).
If a company's activities are not separate but are so integrated as to comprise a single business, then the company is taxed on total gross receipts from all activities at a single rate, which is based on the "substantial' or primary activity of the company. County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 70-72 (1989); 1994 Op Va. Att'y Gen. 99.
According to the stated facts, the primary activity is the practice of dentistry and the ancillary activity is providing office supplies. Consequently, because ancillary activities are taxed at the same rate as the primary activity, this income would be included in the gross receipts of the primary activity of dentistry. Moreover, since there is no statutory deduction allowed for office expenses, Dentist #1 cannot deduct any office expenses from his taxable gross receipts.
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/13366G
Re: Request for Advisory Opinion - Business, Professional, & Occupational License (BPOL) Tax
Dear *****
In a letter dated December 22, 1997, you ask for an advisory opinion on whether or not "other income' on a federal Schedule C form should be included in taxable gross receipts for BPOL purposes. You submitted an example of a business situation to illustrate the typical scenario involving this issue. I apologize for the delay in responding to your request.
Although the BPOL tax is a local license tax that is imposed and administered by local officials, the Virginia Department of Taxation may promulgate guidelines and issue advisory opinions on a limited basis according to Virginia statute. 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
Certain businesses located within the locality have, in the past, listed on their federal Schedule C form amounts labeled as "other income.' You would like to know if this amount should be included in gross receipts when determining BPOL tax liability. You submitted an example of this issue concerning two dentists with offices in the locality's jurisdiction. They are sole proprietors and separately licensed as professionals. They share office space and share the expenses of operating the office. Dentist #2 pays Dentist #1 for half of the expenses then Dentist #1 pays the bills. Dentist #1 records this amount as income on his Schedule C - sometimes on line 1 as "gross receipts' and sometimes on line 6 as "other income.' You ask if this amount received for expense reimbursement should be included in the total gross receipts of Dentist #1 and taxed at the same rate, which, in this case, is the professional rate.
OPINION
When a company has more than one activity, it must be determined if each activity is a separate business that is subject to separate license fees, tax rates, and threshold limits; or if such activities comprise one business that is subject to one license fee and threshold limit and taxed at the primary activity's tax rate. Applied to the facts, the income that Dentist #1 receives from Dentist #2 would be considered receipts from an ancillary activity and should be included in total gross receipts, taxed at the primary activity rate, which is the professional rate. This conclusion is based on the following analysis.
Localities in Virginia may impose the BPOL license fee or tax on a business operating within its jurisdiction if such activities are not exempted. Code of Virginia §58.1-3703; 58.1-3732. Specifically, an individual or entity must be "engaged in business' at a "definite place of business' within a locality to be subject to such locality's BPOL license and tax requirements. Code of Virginia §58.1-3703.1(A)(1). The BPOL tax is based on the total amount of gross receipts that the business earns within that locality, without deduction unless statutorily allowed. Code of Virginia §58.1-3703.1 (A)(3)(a), 58.1-3732.
"Business' is defined as a regular course of dealing that requires the time, attention, and labor of the person performing the activities for the purpose of earning a living or profit and implies a continuous and regular course of dealing rather than an irregular or isolated transaction. Code of Virginia §58.1-3700.1. Certain activities create a rebuttable presumption that favor of the existence of a business, such as the filing of certain tax forms and schedules required of business operators. Id. A person may be engaged in multiple businesses. Id.
If a local official determines that the activities of a company are separate and independent and without relation to each other, then the activities are licensed and axed as separate businesses and subject to separate threshold limits. Caffee v. City of Portsmouth, 203 Va. 928, 930-31 (1962); Code of Virginia §58.1-3703.1 (A)(1). If the businesses are located at the same place, then the taxpayer has the discretion to apply the same rate to all activities if several factors have been met. Code of Virginia §58.1-3703.1 (A)(1).
If a company's activities are not separate but are so integrated as to comprise a single business, then the company is taxed on total gross receipts from all activities at a single rate, which is based on the "substantial' or primary activity of the company. County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 70-72 (1989); 1994 Op Va. Att'y Gen. 99.
According to the stated facts, the primary activity is the practice of dentistry and the ancillary activity is providing office supplies. Consequently, because ancillary activities are taxed at the same rate as the primary activity, this income would be included in the gross receipts of the primary activity of dentistry. Moreover, since there is no statutory deduction allowed for office expenses, Dentist #1 cannot deduct any office expenses from his taxable gross receipts.
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/13366G
Rulings of the Tax Commissioner