99-122 | Virginia Tax

Tax Type

BPOL Tax

Local Taxes

Description

Employee vs. independent contractor

Topic

Local Power to Tax

Local Taxes Discussion

Date Issued

05-21-1999

May 21, 1999

Re: Request for Advisory Opinion Business, Professional and Occupational License (BPOL) Tax

Dear***

This is in response to your letter requesting an advisory opinion on the potential BPOL tax liability of an individual (the "Taxpayer') who entered into an employment contract with the ***** I apologize for the delay in responding to your request.

This response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited materials for your review.

FACTS

The Taxpayer signed a three year-contract with ***** on January 23, 1996. The contract stipulates that the Taxpayer will fill the post of "Senior Clerk (Supply)' at a facility in ***** Virginia. The Taxpayer is responsible for all federal, state and local income taxes, but the Taxpayer is reimbursed for payments of these taxes by*******************.

Upon the advice of his certified public accountant, the Taxpayer filed a Form 1040, Schedule C ("Schedule C') in reporting his 1996 and 1997 income for federal income tax purposes. While gross receipts are listed on both the 1996 and 1997 Schedule C, no deductions or expenses were reported for these years. The CPA and the Civilian Personnel Officer at ***** state that, under the International Organizations Immunities Act, United States citizens who are employees of ***** must pay self-employment taxes. This is because ***** is exempt from United States laws requiring employers to withhold federal and state income taxes from their employee's paychecks.

You ask whether or not the Taxpayer is an independent contractor subject to local license taxes.

OPINION

Employees Versus Independent Contractors

In order to be subject to license taxation, one must be "engaging in a business.' Code of Virginia § 58.1-3703.1(A)(1). An independent contractor may be engaging in a business but an employee generally is not. Guidelines §3.7.2.

For purposes of assessing local license taxes:

- (t)he determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors ... (l)ocalities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable. Guidelines §3.7.2.B and C.

The Taxpayer's contract discloses that the Taxpayer must pass a six-month probationary period to continue working for ***** as a senior supply clerk. Additionally, the Taxpayer's contract forbids him to seek or accept instructions in regard to the performance of his duties from any authority other than *****. Unlike the typical business filing a Schedule C, the Taxpayer listed no deductions or expenses on his 1997 Schedule C. These facts indicate that ***** controls the performance of the Taxpayer's duties. Consequently, it is quite apparent that the Taxpayer is an employee of ***** and not an independent contractor. For this reason, it is my opinion that this Taxpayer is not subject to local licence taxes.

I hope that this information is useful to you. Although I believe that this letter conforms with the requirements of the law, it is only written for your guidance. If you have any other questions, please do not hesitate to contact ************************* at *****.

Sincerely,

Danny M. Payne
Tax Commissioner
OTP/17141

Rulings of the Tax Commissioner