Tax Type
BPOL Tax
Local Taxes
Description
Trustee fees
Topic
Local Power to Tax
Date Issued
07-29-1999
` July 29, 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 proper application of the local license (BPOL) tax to trustee fees received by an attorney. 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
A local attorney (the "Taxpayer') initially reported income from trustee fees on Profit or Loss From Business federal tax returns ("Schedule C') for tax years 1992, 1993, and 1994. The Taxpayer later filed Amended U.S. Individual Income Tax Tax Returns ("1040x') for the same tax years to "delete the earned income subject to self employment tax as reported on Schedule C and report it as other income' on the Taxpayer's U.S. Individual Income Tax Return ("1040').
You ask if the trustee fees are subject to your locality's BPOL tax or fee. I understand that this question is currently being litigated. The department has on several occasions asked for, but not received, the pleadings that have been filed in this case. Because I have not had the opportunity to review these pleadings, I cannot provide specific guidance on whether or not this Taxpayer is subject to your locality's local license tax or fee. I must confine my response to a general statement of the law, and will only apply this law to the facts which appear undisputed on their face.
OPINION
Subject to limits in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing a BPOL license or may levy a license tax on a business for the privilege of engaging in business at a definite place of business within the locality. Code of Virginia Secs.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 rebuttable presumption arises that a person is engaged in business when such person files "tax returns, schedules and documents that are required only of persons engaged in a trade or business.' Id.
The facts clearly show that the Taxpayer, in reporting his income from trustee fees for tax years 1992, 1993, and 1994, initially filed Schedule C to report such income for each tax year. A Schedule C is a tax form typically filed by a person engaged in business. This schedule contains line items for a business to report its gross income, business expenses incurred, and net income subject to federal income taxes (I will note that the department has not been provided with a copy of these Schedule C's, but has learned of their existence from the Taxpayer's written statements on 1040x explaining why the Taxpayer had amended his individual income tax returns.) Because the Taxpayer filed business income tax returns when reporting his income from trustee fees, a rebuttable presumption arises that the Taxpayer was engaged in a business subject to local license taxes or fees in earning such income.
To overcome this presumption, the Taxpayer has the burden of proving that he was not engaged in such business. The Taxpayer must explain why he was in error when he reported trustee fees as business income on Schedule C, and prove that his actions in amending his individual income tax returns to report trustee fees as individual income (as opposed to business income) were the correct legal remedy.
Conclusion
The facts provided to the department lead me to initially presume that the Taxpayer's trustee fees were earned as part of a business activity subject to a local license tax or fee. However, the department has not been furnished with enough facts for it to make any other conclusions, including what specific Virginia locality can lawfully impose a license tax or fee on such trustee fees should the Taxpayer fail to overcome the presumption that such fees were earned in a 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
OTP/16721
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 proper application of the local license (BPOL) tax to trustee fees received by an attorney. 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
A local attorney (the "Taxpayer') initially reported income from trustee fees on Profit or Loss From Business federal tax returns ("Schedule C') for tax years 1992, 1993, and 1994. The Taxpayer later filed Amended U.S. Individual Income Tax Tax Returns ("1040x') for the same tax years to "delete the earned income subject to self employment tax as reported on Schedule C and report it as other income' on the Taxpayer's U.S. Individual Income Tax Return ("1040').
You ask if the trustee fees are subject to your locality's BPOL tax or fee. I understand that this question is currently being litigated. The department has on several occasions asked for, but not received, the pleadings that have been filed in this case. Because I have not had the opportunity to review these pleadings, I cannot provide specific guidance on whether or not this Taxpayer is subject to your locality's local license tax or fee. I must confine my response to a general statement of the law, and will only apply this law to the facts which appear undisputed on their face.
OPINION
Subject to limits in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing a BPOL license or may levy a license tax on a business for the privilege of engaging in business at a definite place of business within the locality. Code of Virginia Secs.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 rebuttable presumption arises that a person is engaged in business when such person files "tax returns, schedules and documents that are required only of persons engaged in a trade or business.' Id.
The facts clearly show that the Taxpayer, in reporting his income from trustee fees for tax years 1992, 1993, and 1994, initially filed Schedule C to report such income for each tax year. A Schedule C is a tax form typically filed by a person engaged in business. This schedule contains line items for a business to report its gross income, business expenses incurred, and net income subject to federal income taxes (I will note that the department has not been provided with a copy of these Schedule C's, but has learned of their existence from the Taxpayer's written statements on 1040x explaining why the Taxpayer had amended his individual income tax returns.) Because the Taxpayer filed business income tax returns when reporting his income from trustee fees, a rebuttable presumption arises that the Taxpayer was engaged in a business subject to local license taxes or fees in earning such income.
To overcome this presumption, the Taxpayer has the burden of proving that he was not engaged in such business. The Taxpayer must explain why he was in error when he reported trustee fees as business income on Schedule C, and prove that his actions in amending his individual income tax returns to report trustee fees as individual income (as opposed to business income) were the correct legal remedy.
Conclusion
The facts provided to the department lead me to initially presume that the Taxpayer's trustee fees were earned as part of a business activity subject to a local license tax or fee. However, the department has not been furnished with enough facts for it to make any other conclusions, including what specific Virginia locality can lawfully impose a license tax or fee on such trustee fees should the Taxpayer fail to overcome the presumption that such fees were earned in a 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
OTP/16721
Rulings of the Tax Commissioner