Tax Type
BPOL Tax
Description
Specific Types of Local License tax
Topic
Local Power to Tax
Date Issued
12-07-1998
December 7, 1998
Re: Request for Advisory Opinion Business, Professional, & Occupational License (BPOL) Tax
Dear *****
This will respond to your letter transmitted by facsimile on November 18, 1997, requesting an advisory opinion as to whether or not a medical clinic or its employee physicians are subject to local license taxation. 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
You inform me that ***** located in ***** Virginia, is owned and operated by ***** medical center located in *****. ***** is ***** recognized by the Internal Revenue Service as a tax exempt organization under Internal Revenue Code (IRC) § 501 (c)(3). The clinic is not a separate legal entity from the medical center and its physicians are salaried employees of the medical center.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs.58.1-3700 and 58.1-3703(A). Business means "a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction.' Code of Virginia § 58.1-3700.1. A definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends.' 1997 BPOL Guidelines, page 4.
Under current law, a locality may impose a license fee or license tax on a charitable nonprofit organization only to the extent such organization has gross receipts from "an unrelated trade or business the income of which is taxable under Internal Revenue Code § 511 et seq.' (i.e., unrelated business taxable income). Code of Virginia § 58.1-3703(C)(18)(a). A "charitable nonprofit organization' is an organization which is described in IRC § 501 (c)(3) and to which contributions are deductible by the contributor under IRC §170. Code of Virginia § 58.1-3703(C)(18)(a). Code of Virginia § 58.1-3703(C)(18)(a) became effective for license years beginning after January 1, 1997. (Please see Public Document 97-192 for a discussion of the local license taxation of non-profit hospitals and related activities during the period of July 1, 1991 through the end of 1996 and to date.)
You ask whether or not the location of the medical center in another state has any bearing on whether the clinic and its employee physicians, located in your locality, are subject to local license taxation. Code of Virginia § 58.1-3703(C)(18)(a) does not differentiate between charitable nonprofit organizations organized under the laws of Virginia or elsewhere. As the clinic in your locality and the out-of-state medical center are the same legal entity recognized by the Internal Revenue Service as being a tax exempt organization under IRC § 501 (c)(3), they both enjoy the tax protections provided under Code of Virginia § 58.1-3703(C)(18)(a). That is, the clinic is subject to tax only to the extent it has gross receipts from an unrelated trade or business the income of which is taxable under IRC § 511 et seq.
I am enclosing a copy of Public Document 97-87 which discusses the taxation of health care providers operating for profit.
You also asked about the ability of the locality to subject the physician employees of the clinic to license taxation. "Employees are hired and work to further the business of the employer who hires them. Employees performing duties within the scope of employment are performing their employer's business. The BPOL statute imposes a license requirement on the business itself, not the employees of the business. Therefore, a license obtained by the employer covers the activities of any employee.' Public Document 98-50. However, there is some historical basis for taxing professional employees.1
In conclusion, it is my opinion that neither the clinic nor its employee physicians are subject to license taxation in your jurisdiction unless the clinic had unrelated trade or business taxable income. Although you have indicated that you are unaware of the clinic having any unrelated business taxable income, you may wish to review the discussion of that issue in Public Document 97-192.
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 ***** at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP13201D
1The comment to §3.7.1 of the 1997 BPOL Guidelines indicates that former state license tax law required every practitioner of certain professions to have a separate state tax license in addition to any regulatory license. This requirement was repealed in 1982 when the state license tax was abolished, although the authority of localities to continue imposing local license tax on professionals was not intended to be affected by the repeal. While localities may be authorized to require an employee who is also a practitioner of a profession to have a license separate from the employer's license when professional services are rendered to the public within the scope of employment, 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.
Re: Request for Advisory Opinion Business, Professional, & Occupational License (BPOL) Tax
Dear *****
This will respond to your letter transmitted by facsimile on November 18, 1997, requesting an advisory opinion as to whether or not a medical clinic or its employee physicians are subject to local license taxation. 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
You inform me that ***** located in ***** Virginia, is owned and operated by ***** medical center located in *****. ***** is ***** recognized by the Internal Revenue Service as a tax exempt organization under Internal Revenue Code (IRC) § 501 (c)(3). The clinic is not a separate legal entity from the medical center and its physicians are salaried employees of the medical center.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs.58.1-3700 and 58.1-3703(A). Business means "a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction.' Code of Virginia § 58.1-3700.1. A definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends.' 1997 BPOL Guidelines, page 4.
Under current law, a locality may impose a license fee or license tax on a charitable nonprofit organization only to the extent such organization has gross receipts from "an unrelated trade or business the income of which is taxable under Internal Revenue Code § 511 et seq.' (i.e., unrelated business taxable income). Code of Virginia § 58.1-3703(C)(18)(a). A "charitable nonprofit organization' is an organization which is described in IRC § 501 (c)(3) and to which contributions are deductible by the contributor under IRC §170. Code of Virginia § 58.1-3703(C)(18)(a). Code of Virginia § 58.1-3703(C)(18)(a) became effective for license years beginning after January 1, 1997. (Please see Public Document 97-192 for a discussion of the local license taxation of non-profit hospitals and related activities during the period of July 1, 1991 through the end of 1996 and to date.)
You ask whether or not the location of the medical center in another state has any bearing on whether the clinic and its employee physicians, located in your locality, are subject to local license taxation. Code of Virginia § 58.1-3703(C)(18)(a) does not differentiate between charitable nonprofit organizations organized under the laws of Virginia or elsewhere. As the clinic in your locality and the out-of-state medical center are the same legal entity recognized by the Internal Revenue Service as being a tax exempt organization under IRC § 501 (c)(3), they both enjoy the tax protections provided under Code of Virginia § 58.1-3703(C)(18)(a). That is, the clinic is subject to tax only to the extent it has gross receipts from an unrelated trade or business the income of which is taxable under IRC § 511 et seq.
I am enclosing a copy of Public Document 97-87 which discusses the taxation of health care providers operating for profit.
You also asked about the ability of the locality to subject the physician employees of the clinic to license taxation. "Employees are hired and work to further the business of the employer who hires them. Employees performing duties within the scope of employment are performing their employer's business. The BPOL statute imposes a license requirement on the business itself, not the employees of the business. Therefore, a license obtained by the employer covers the activities of any employee.' Public Document 98-50. However, there is some historical basis for taxing professional employees.1
In conclusion, it is my opinion that neither the clinic nor its employee physicians are subject to license taxation in your jurisdiction unless the clinic had unrelated trade or business taxable income. Although you have indicated that you are unaware of the clinic having any unrelated business taxable income, you may wish to review the discussion of that issue in Public Document 97-192.
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 ***** at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP13201D
1The comment to §3.7.1 of the 1997 BPOL Guidelines indicates that former state license tax law required every practitioner of certain professions to have a separate state tax license in addition to any regulatory license. This requirement was repealed in 1982 when the state license tax was abolished, although the authority of localities to continue imposing local license tax on professionals was not intended to be affected by the repeal. While localities may be authorized to require an employee who is also a practitioner of a profession to have a license separate from the employer's license when professional services are rendered to the public within the scope of employment, 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.
Rulings of the Tax Commissioner