Tax Type
BPOL Tax
Local Taxes
Description
Automobile fleet sales, retail vs. wholesale
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
05-26-1999
May 26, 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 BPOL tax status of automobile dealerships who deal in "fleet' sales of automobiles. I apologize for the delay in responding to your request.
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. I have enclosed copies of cited material for your review.
FACTS
Local businesses engaging in the sale of automobiles have been classifying fleet sales of automobiles to industrial, commercial, institutional and governmental entities as "wholesale sales.' Conversely, nonfleet sales to individual consumers have been classified as retail sales. In the case of a fleet sale of automobiles, you contend that the sales price must be considered for purposes of classifying such sales as wholesale or retail.
You state that, dependent on their skill level as a negotiator, the normal consumer may be able to negotiate a sales price not significantly different than a fleet sales price paid by an industrial, commercial, institutional or governmental entity. You conclude that because the sales price may be the same in a nonfleet sale and a fleet sale of automobiles, both types of sales should be classified similarly for purposes of imposing the local BPOL tax, i.e., both nonfleet and fleet sales by automobile dealerships are normally retail sales and subject to a maximum license tax rate of twenty cents per hundred dollars of gross receipts.
OPINION
Test of Substantiality
The question of whether a particular sale is a retail or a wholesale sale only becomes important if both the retail and wholesale sales activities of a merchant are substantial such that each activity, in of itself, rises to the level of a separate business. See Public Document 99-88. If both a merchant's retail and wholesale sales activities do not rise to the level of a separate business, then all of the merchant's sales are subject to one license tax rate. That tax rate is either the retail license tax rate or the wholesale license tax rate, depending upon which activity, retailing or wholesaling, is the primary activity of the merchant.
Substantial may be properly defined as not incidental or inconsequential. The test of "substantiality' has been repeatedly referred to the local commissioner of the revenue. As an example, the Attorney General has opined that is the responsibility of the local commissioner of the revenue as the finder of fact to determine whether or not the test of substantiality has been met. Op. Va. Att'y Gen. 367 (1984). Thus, before addressing the question of whether a particular sale is a retail or a wholesale sale, you should first determine that the retail and wholesale activities of a specific automobile dealership are substantial such that each rises to the level of a separate business.
For purposes of the remainder of this opinion, I will assume that your question involves automobile dealerships whose retailing and wholesaling activities are both substantial.
Fleet Sales of Automobiles under Public Document 98-160
In Public Document 98-160, which is enclosed for your reference, the department discussed at length the factors that should be considered in determining whether a sale is a retail or a wholesale sale. These factors include the characteristics of the purchaser, the purchaser's use of the merchandise, the sales price, and the quantity of the product sold.
In general, Public Document 98-160 indicates that sales price is one factor, although not a determinative factor, that may help to differentiate between wholesale and retail sales. This is especially true in those cases where a merchant sells at different prices to individual consumers and to institutional, commercial, industrial, and governmental users.
However, Public Document 98-160, quoting Dickerson v. Commonwealth, 206 Va. 339, (1965), also clearly states that it is generally accepted that in the automotive trade industry that nonfleet sales of trucks to persons for business or commercial use and not for resale purposes are retail sales. Sales of trucks for resale or sales in fleet quantities are not considered retail (i.e., they are wholesale.) This part of Dickerson would most certainly apply to fleet and nonfleet sales of automobiles. As a result, it is my opinion that, as a general rule, fleet sales in the automotive trade industry are most properly classified as wholesale sales for purposes of the local business license tax, while nonfleet sales are most properly classified as retail sales. This distinction is set in law without regard to the price paid by the purchaser.
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/16110
Rulings of the Tax Commissioner