Tax Type
BPOL Tax
Local Taxes
Description
Local Power to Tax; In general; Tire warranties
Topic
Local Power to Tax
Date Issued
05-21-1999
May 21, 1999
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear**************
This advisory opinion is issued in response to your letter requesting guidance concerning the local license taxation of a company which provides extended or expanded warranties for motor vehicle tires. I apologize for the delay in responding to your request.
The local license tax and fee are imposed and administered by local officials. § 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, § 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance. Code of Virginia § 58.1-3701. The following opinion has been made subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
While addressing the questions raised in your letter, this advisory opinion is intended to provide guidance only, and does not constitute a formal or binding ruling. Copies of cited sources are enclosed for your review.
FACTS
The Taxpayer provides extended or expanded tire warranties to automobile dealers for sale to the purchasers of new motor vehicles. Although the warranty documentation provided to the purchasers reflects that the warranties are issued by the dealers, the Taxpayer is ultimately responsible for all warranty claims. The Taxpayer services the warranties by paying retail tire dealers, including the automobile dealers, to repair or replace damaged or defective tires. The Taxpayer does not sell or service motor vehicles or tires.
The department has not communicated with the Taxpayer, nor has it had the opportunity to review contracts or other written materials.
As the Taxpayer does not claim exemption from license taxation as an insurance company, you seek guidance concerning its proper license tax classification.
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 §§ 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 § 1.
Local License Taxation of Insurers
The business transactions you describe resemble insurance transactions in that a risk of loss is being transferred in exchange for monetary consideration. Code of Virginia § 58.1-3703(C)(11) provides an exemption from local license taxation for "any insurance company subject to taxation under Chapter 25 ( § 58.1-2500 et seq.) of this title or on any agent of such company.' This exemption relates to all activities of an insurance company subject to taxation under Code of Virginia § 58.1-2500 et seq., not merely activities traditionally conducted by an insurance company. Public Document 97-310 (7/28/97). As the Taxpayer does not claim to be an exempt insurance company, the proper BPOL classification of this business for purposes of Code of Virginia § 58.1-3706, which sets forth maximum license tax rates for different classes of business, must be determined.
Classification
The sale by a merchant of an extended warranty which covers goods sold by the merchant is an activity which is ancillary to the primary licensable business of being a merchant. Receipts from ancillary activities are taxable as part of the primary licensable business. Guidelines § 3.5. The Taxpayer, however, is not a merchant.
In order to be classified as a merchant, a business must sell goods, wares or merchandise. Guidelines § 1. The Taxpayer does not sell motor vehicles or tires or replace damaged or defective tires itself. The Taxpayer provides warranties which, because they lack physical characteristics, are not goods, wares, or merchandise. Id. As the Taxpayer does not sell goods, wares or merchandise, the Taxpayer cannot be classified as a merchant.
"[T]hings purchased by a customer which do not have physical characteristics, or which are not goods, wares or merchandise' are services. Guidelines § 1. Thus, the sale of an extended warranty by a business which does not sell goods, wares or merchandise is a service.
Sales of extended warranties are not financial services, which are defined as " the buying, selling, handling, managing, investing, and providing of advice regarding money, credit, securities, or other investments.' Code of Virginia § 58.1-3700.1. As a result, it is my opinion that the services provided by the Taxpayer fall within the broader classification of "business services' for purposes of Code of Virginia § 58.1-3706 and are subject to a maximum license tax rate of thirty-six cents per $100 of gross receipts.
CONCLUSION
I hope that this information will be of assistance to you. Although I believe this advisory opinion 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 * * * * * Tax Policy Analyst, in my Office of Tax Policy at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner