Tax Type
BPOL Tax
Description
Retail and commission merchants' gross receipts; Deduction of out-of-state revenue from gross receipts
Topic
Local Power to Tax
Date Issued
03-06-1998
March 6, 1998
Dear**********
In a letter dated January 9, 1998, you requested a clarification of two recent advisory opinions regarding deductions from gross receipts.
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 requested that the Department of Taxation clarify the determinations of P.D. 97-472 and P.D. 97-490.
OPINION
I. Retail Merchant's Gross Receipts
In P.D. 97-472, the facts concerned a North Carolina-based company that had a sales office in Virginia. Commission salespeople, who were not employees of the company, sold the company's products as well as other product lines. The commission salespeople had business licenses for commission merchants. The issues were (1) whether or not the company was subject to the BPOL tax or just the commission salespeople, and (2) if so, which gross receipts were subject to the tax? The company was determined to be a retail sales merchant engaged in sales activities that were subject to tax on its gross receipts attributed to sales from its Virginia office.
The statutory BPOL tax principle subjects the total gross receipts from a business's licensed activities to BPOL tax unless a statutory exclusion or deduction is allowed. Code of Virginia §58.1-3732. As applied to the facts in P.D. 97-472, the company's total gross receipts attributed to the Virginia retail sales are subject to the BPOL tax. Commissions paid by the company to the commission salesperson cannot be deducted from the company's gross receipts. The commission salespeople must be separately licensed as commission merchants. However, their gross receipts have a special exclusion from the BPOL tax as listed in §58.1-3733. Their taxable gross receipts include only commission income; sales receipts are not subject to the BPOL tax. Code of Virginia §58.1-3733.
II. Deduction from Gross Receipts Under §58.1-3732
In P.D. 97-490, the facts concerned a hypothetical situation regarding an interstate business that was subject to Virginia BPOL tax and a statutory deduction from taxable gross receipts. This deduction from gross receipts is available for those ``receipts attributable to business conducted in another state or foreign county in which the taxpayer is liable for an income or other tax based upon income.' Code of Virginia §58.1-3732(B)(2). It was determined that ``receipts' meant ``gross receipts' as defined in §58.1-3700.1.
To clarify the analysis, this deduction is applicable to those gross receipts that are subject to a Virginia locality's BPOL tax and are also subject to an income tax or income-like tax in another state or foreign country. The local official can request an income tax return from such foreign locality to verify the income tax liability for deduction purposes pursuant to §58.1-3703.1(A)(6).
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.
Dear**********
In a letter dated January 9, 1998, you requested a clarification of two recent advisory opinions regarding deductions from gross receipts.
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 requested that the Department of Taxation clarify the determinations of P.D. 97-472 and P.D. 97-490.
OPINION
I. Retail Merchant's Gross Receipts
In P.D. 97-472, the facts concerned a North Carolina-based company that had a sales office in Virginia. Commission salespeople, who were not employees of the company, sold the company's products as well as other product lines. The commission salespeople had business licenses for commission merchants. The issues were (1) whether or not the company was subject to the BPOL tax or just the commission salespeople, and (2) if so, which gross receipts were subject to the tax? The company was determined to be a retail sales merchant engaged in sales activities that were subject to tax on its gross receipts attributed to sales from its Virginia office.
The statutory BPOL tax principle subjects the total gross receipts from a business's licensed activities to BPOL tax unless a statutory exclusion or deduction is allowed. Code of Virginia §58.1-3732. As applied to the facts in P.D. 97-472, the company's total gross receipts attributed to the Virginia retail sales are subject to the BPOL tax. Commissions paid by the company to the commission salesperson cannot be deducted from the company's gross receipts. The commission salespeople must be separately licensed as commission merchants. However, their gross receipts have a special exclusion from the BPOL tax as listed in §58.1-3733. Their taxable gross receipts include only commission income; sales receipts are not subject to the BPOL tax. Code of Virginia §58.1-3733.
II. Deduction from Gross Receipts Under §58.1-3732
In P.D. 97-490, the facts concerned a hypothetical situation regarding an interstate business that was subject to Virginia BPOL tax and a statutory deduction from taxable gross receipts. This deduction from gross receipts is available for those ``receipts attributable to business conducted in another state or foreign county in which the taxpayer is liable for an income or other tax based upon income.' Code of Virginia §58.1-3732(B)(2). It was determined that ``receipts' meant ``gross receipts' as defined in §58.1-3700.1.
To clarify the analysis, this deduction is applicable to those gross receipts that are subject to a Virginia locality's BPOL tax and are also subject to an income tax or income-like tax in another state or foreign country. The local official can request an income tax return from such foreign locality to verify the income tax liability for deduction purposes pursuant to §58.1-3703.1(A)(6).
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.
Rulings of the Tax Commissioner