Tax Type
BPOL Tax
Local Taxes
Description
Retail vs. wholesale merchant
Topic
Local Power to Tax
Date Issued
07-23-1999
July 23, 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 liability of a taxpayer (the "Business') who acts as a "middleman' in the brokering of salvaged goods. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. Section 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 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
You state that the Business, which has a business office in your locality (the City'), is involved in the brokering of salvage between two separate entities, some of whom gather recyclable material for sale, and some of whom purchase the recyclable material for use in manufacturing new products. The Business contacts a "customer' who agrees to sell recyclable materials to the Business for an agreed upon sum, usually at the market price which is set nationally. The Business in turn contacts a recycling mill which agrees to purchase and pick up the materials for an agreed upon price. The Business essentially acts as a "middleman' in the arrangement, buying and selling the recyclable material.
The recyclable materials are not physically handled by the Business. However, title to the materials does pass to the Business, which lists its occupation as a wholesaler on its 1996 corporate income tax return. You ask what is the proper license tax classification for the Business?
OPINION
Services are "things purchased by a customer which do not have physical characteristics, or which are not goods, wares, or merchandise.' 1997 BPOL Guidelines, page 8. Conversely, a person having title to goods and later reselling the goods is a merchant. Commonwealth v. Wytheville Knitting Mills Employees Welfare Ass'n, 195 Va. 663 (1954). In this case, for purposes of the local license tax, the Business is a merchant as it buys and sells recyclable materials. The Business agrees to sell recyclable materials to its customers, who in turn contact the Business for one primary reason, to purchase recyclable materials.
Is the Business a Retail or Wholesale Merchant?
The two primary merchant classifications under the local license tax are retailing and wholesaling. A retail sale is a "sale of goods, wares and merchandise for use or consumption by the purchaser or for any purpose other than resale by the purchaser, but does not include sales at wholesale to institutional, commercial and industrial users which are classified as wholesale sales.' 1997 BPOL Guidelines, page 8. A wholesale sale is:
Local License Taxation of Wholesalers
Generally, wholesalers are subject to a license tax measured by purchases at a rate of $.05 per $100 of purchases. Code of Virginia § 58.1-3716. A wholesaler taxed on its purchases must determine the tax situs of its purchases by the definite place of business at which or from which deliveries of the purchased goods, wares and merchandise are made to customers. Code of Virginia § 58.1-3703.1 (A)(3)(a)(2).
You state that the City uses purchases as the measure for imposing a BPOL tax on wholesalers. In this case, however, delivery of the recyclable materials from the Business to its buyers is made from definite places of business outside the City. As a result, the Business is not liable to the City for a BPOL tax measured by its purchases. This is because the Business can only be liable for a BPOL tax at its definite places of business from which recyclable materials are delivered to customers, none of which are located in the City.
While the Business is not subject to the City's BPOL tax, it does maintain an office in the City from which it buys and sells recyclable materials. Therefore, because the Business is clearly engaged in business at a definite place in the City, the City may impose a license fee, but not a local license tax, upon the Business.
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
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 liability of a taxpayer (the "Business') who acts as a "middleman' in the brokering of salvaged goods. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. Section 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 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
You state that the Business, which has a business office in your locality (the City'), is involved in the brokering of salvage between two separate entities, some of whom gather recyclable material for sale, and some of whom purchase the recyclable material for use in manufacturing new products. The Business contacts a "customer' who agrees to sell recyclable materials to the Business for an agreed upon sum, usually at the market price which is set nationally. The Business in turn contacts a recycling mill which agrees to purchase and pick up the materials for an agreed upon price. The Business essentially acts as a "middleman' in the arrangement, buying and selling the recyclable material.
The recyclable materials are not physically handled by the Business. However, title to the materials does pass to the Business, which lists its occupation as a wholesaler on its 1996 corporate income tax return. You ask what is the proper license tax classification for the Business?
OPINION
Services are "things purchased by a customer which do not have physical characteristics, or which are not goods, wares, or merchandise.' 1997 BPOL Guidelines, page 8. Conversely, a person having title to goods and later reselling the goods is a merchant. Commonwealth v. Wytheville Knitting Mills Employees Welfare Ass'n, 195 Va. 663 (1954). In this case, for purposes of the local license tax, the Business is a merchant as it buys and sells recyclable materials. The Business agrees to sell recyclable materials to its customers, who in turn contact the Business for one primary reason, to purchase recyclable materials.
Is the Business a Retail or Wholesale Merchant?
The two primary merchant classifications under the local license tax are retailing and wholesaling. A retail sale is a "sale of goods, wares and merchandise for use or consumption by the purchaser or for any purpose other than resale by the purchaser, but does not include sales at wholesale to institutional, commercial and industrial users which are classified as wholesale sales.' 1997 BPOL Guidelines, page 8. A wholesale sale is:
-
- a sale of goods, wares and merchandise for resale by the purchaser, including sales when the goods, wares and merchandise will be incorporated into goods for sale, and also includes sales to institutional, commercial, industrial and governmental users which because of the facts and circumstances surrounding the sales, such as the quantity, price, or other terms, indicate that they are consistent with sales at wholesale.
- a sale of goods, wares and merchandise for resale by the purchaser, including sales when the goods, wares and merchandise will be incorporated into goods for sale, and also includes sales to institutional, commercial, industrial and governmental users which because of the facts and circumstances surrounding the sales, such as the quantity, price, or other terms, indicate that they are consistent with sales at wholesale.
Local License Taxation of Wholesalers
Generally, wholesalers are subject to a license tax measured by purchases at a rate of $.05 per $100 of purchases. Code of Virginia § 58.1-3716. A wholesaler taxed on its purchases must determine the tax situs of its purchases by the definite place of business at which or from which deliveries of the purchased goods, wares and merchandise are made to customers. Code of Virginia § 58.1-3703.1 (A)(3)(a)(2).
You state that the City uses purchases as the measure for imposing a BPOL tax on wholesalers. In this case, however, delivery of the recyclable materials from the Business to its buyers is made from definite places of business outside the City. As a result, the Business is not liable to the City for a BPOL tax measured by its purchases. This is because the Business can only be liable for a BPOL tax at its definite places of business from which recyclable materials are delivered to customers, none of which are located in the City.
While the Business is not subject to the City's BPOL tax, it does maintain an office in the City from which it buys and sells recyclable materials. Therefore, because the Business is clearly engaged in business at a definite place in the City, the City may impose a license fee, but not a local license tax, upon the Business.
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
Rulings of the Tax Commissioner