Tax Type
BPOL Tax
Description
Exceptions; Group of medical physicians.
Topic
Local Power to Tax
Date Issued
03-12-1998
March 12, 1998
Re: Request for Advisory Opinion: BPOL
Dear******
This will respond to your letter transmitted by facsimile on January 29, 1998, in which you ask whether a group of medical physicians are subject to local license (BPOL) taxes and fees.
The license tax is a local tax that 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
For several years *********** ("Corporation"), a group practice of medical physicians, has obtained a local business license from the City of ******** ("Locality") and paid associated license taxes to the locality. You recently received a letter from ********* ("Hospital") indicating that these physicians are now employees of the hospital and the Corporation ceased doing business December 31, 1997. The letter concluded that it would be unlawful for the locality to impose a local license tax or fee on either the employee physicians or the hospital as a condition of operating in the locality in 1998.
The hospital's letter presented several facts and legal arguments to support this conclusion. The hospital contends that the medical physicians now provide medicalservices as an operation of the hospital. Because the hospital is a charitable nonprofit organization, the hospital concludes that the prohibition from imposing a license tax or fee on a charitable nonprofit organization under Code of Virginia § 58.1-3703 C 18(a) extends to its employee physicians.
In 1998 the medical physicians will practice at the same office that was used in previous years. This office will continue to be called *********. The hospital indicates that the name of the office will remain the same to avoid public confusion and that legally the office is just another department of the hospital.
You ask whether the hospital is correct in that a BPOL license tax or fee may not be imposed on the hospital or the medical physicians. You agree that the hospital is a charitable nonprofit organization.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703 C, localities may charge a fee for issuing BPOL licenses and 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 §§ 58.1-3700 and 58.1-3703 A (copies enclosed). (Effective July 1, 1998, localities can impose either a license tax or a license fee on a business at a definite place of business, but not both). A definite place of business means:
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- 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. A definite place of business for a person engaged in business may include a location leased or otherwise obtained from another person on a temporary or seasonal basis and real property leased to another. 1997 BPOL Guidelines, page 4 (copy enclosed).
The local license tax is generally measured by gross receipts. Unless otherwise provided by law, gross receipts means "the whole, entire, total receipts, without deduction." Code of Virginia § 58.1-3700.1 (copy enclosed).
Restrictions on Taxing Charitable Nonprofit Organizations
A locality's ability to impose a license fee or license tax on charitable nonprofit organizations is restricted. A "charitable nonprofit organization" is an organization which is described in Internal Revenue Code § 501 (c)(3) and to which contributions are deductible by the contributor under Internal Revenue Code § 170. Code of Virginia§ 58.1-3703 C 18(a) (copy enclosed). Section 58.1-3703 C 18(a) became effective for license years beginning after January 1, 1997.
A license fee or license tax may be imposed 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).
You concur that the hospital meets the definition of those organizations described in § 501 (c)(3). There is no dispute that the hospital is a charitable nonprofit organization and that the locality is prohibited from imposing a license fee or tax on the hospital, except to the extent the hospital has unrelated business taxable income. See § 3.3.1. Nonprofit organizations of the 1997 BPOL Guidelines for guidance in determining whether a charitable nonprofit organization has unrelated business taxable income.
Taxation of Employees
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. See Public Document 97-174, copy enclosed. However, there is some historical basis for taxing professional employees.1
Based on the facts provided, it is unclear whether the medical physicians are employees of the hospital. The physicians are still practicing under the name of their former business. The hospital contends this is being done only for marketing purposes and that the physicians' practice is not a separate legal entity from that of the hospital.
In this particular case, you should determine whether the medical physicians are employees of the hospital or part of a separate legal entity. Should you conclude they are employees of the hospital, it is my opinion that you may not impose a license fee or license tax on them. Should you conclude that the medical physicians are part of aseparate legal entity (a different legal entity apart from the hospital) providing medical services, you may impose the BPOL fee and tax on such business, unless it too is a charitable nonprofit organization or otherwise exempt. In any event, it is my opinion that you may not impose a license fee or license tax on the hospital because it is a charitable nonprofit organization.
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, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13441C
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