Tax Type
BPOL Tax
Local Taxes
Description
Separately licensable businesses
Topic
Local Power to Tax
Date Issued
07-30-1999
July 30, 1999
Dear *******************
The local license tax and fee are imposed and administered by local officials. Code of Virginia § 58.1-3701 authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Code of Virginia § 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 with the exception of those appeals in which a local ordinance is relevant to the appeal of an assessment. Code of Virginia § 58.1-3701. The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below.
This determination addresses the license classification of a business which provides energy audits and other energy related services. Copies of cited sources are enclosed. Code of Virginia § 58.1-3703.1(A)(5)(a) provides that, on appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
FACTS
The Taxpayer provides energy related services, including (1) energy audits, energy ratings and plan reviews for homeowners, and (2) quality control inspections of heat pump installations for an electric utility.
Historically, the City has required the Taxpayer to obtain two business licenses. One is a "personal services' license for services provided to homeowners, and the other is a "commercial services license' for services provided to the electric utility.
In 1997, the first year that license tax thresholds became effective, the Taxpayer applied for both licenses. The Taxpayer reported that its taxable volume (i.e., its 1996 gross receipts) from its personal service business was *****, and its taxable volume from its commercial service business was *****. As the taxable volume from each business was less than ***** the threshold for license taxation in the City, the Taxpayer reported that it was only liable for a ***** fee for each business.
In 1998, the Taxpayer again applied for both licenses. The Taxpayer reported that its taxable volume (i.e., its 1997 gross receipts) from its personal service business was and its taxable volume from its commercial service business was *****. As the taxable volume from each business was less than the threshold for license taxation in the City, the Taxpayer reported that it was only liable for a ***** fee for each business.
The City audited these returns and, in a departure from past treatment of the Taxpayer, determined that both of the Taxpayer's activities should be classified as commercial services. As the Taxpayer's combined volume each year exceeded the ***** threshold, the City determined that the Taxpayer was subject to a license tax on its total volume and assessed additional license taxes.
The Taxpayer sought correction of this assessment at the local level and filed this appeal after the City rejected its arguments.
ANALYSIS
In order for the Taxpayer to obtain a business license (and be eligible for the threshold) for each activity, each activity must be a separate licensable business.
Taxpayers Engaged in Multiple Business Activities
Localities may require a company with multiple businesses to have a separate license for each business and, accordingly, each business must separately meet the threshold amount before being subject to tax. A company that has one business which is composed of a primary activity and an auxiliary or ancillary activity, however, is only required to have one license based on the primary activity and is subject to tax on total gross receipts at a rate also based on the primary activity. See Public Document 97-304 (7/18/97). An ancillary activity is one which is subordinate, subservient, or auxiliary to the business' primary activity. 1997 Guidelines § 1.
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- Distinguishing between an ancillary activity and an activity which rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business.
- Distinguishing between an ancillary activity and an activity which rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business.
The Taxpayer provides services to both residential customers and commercial customers. The Taxpayer does not engage in one activity to support the other. Each activity serves different customers and can be performed independently of the other. Receipts from each activity are substantial. Accordingly, neither activity is ancillary. Each activity is a primary business activity which may be considered a separate licensable business if the local ordinance provides for a different classification for each activity.
Classification
Section 18-99 of the City's Code provides for a "personal services business classification.' Section 18-2 of the City's Code defines "personal services' to mean "[r]endering for compensation any repair, personal, business or other services not specifically classified as "financial, real estate, or professional services' under this chapter, or rendered in any other business or occupation not specifically classified in this chapter . . .' In the absence of another, more specific, classification, both of the Taxpayer's activities would fit within the personal services classification.
However,§ 18-74 of the City's Code does provide such a specific classification, "commercial service businesses.' This classification "include(s) those businesses set out below and any miscellaneous commercial service business not elsewhere classified.' Even though the local ordinance's definition of personal services includes business services, the presence of the "commercial services' category manifests the City's intent to provide a classification for commercial services separate from that of personal services.
Neither Chapter 37 of the Code of Virginia (§§ 58.1-3700, et seq.) nor the 1997 Guidelines distinguish between personal and business or commercial services. However, the 1984 Guidelines provide guidance. 1984 Guidelines § 4-3 defines "personal service' to mean "[a]ny service rendered for compensation either upon or for persons, animals or personal effects is a personal service, unless the service is specifically provided for under another section of these Guidelines.'
Although the 1984 Guidelines do not define "commercial services,' 1984 Guidelines § 4-4 provides that "[a]ny service rendered for compensation to any business, trade, occupation or governmental agency is a business service, unless the service is specifically provided for under another section of these guidelines.' Under the 1984 Guidelines' definitions, services performed for homeowners are personal services and services performed for businesses are business or commercial services. As each of the Taxpayer's businesses fall within separate license tax classifications, each is a licensable business.
CONCLUSION
It is my determination that under the local ordinance the Taxpayer is engaged in two licensable businesses. As the taxable volume of each business for license years 1997 and 1998 did not exceed the City's threshold, the City's audit assessments of additional taxes for license years 1997 and 1998 were incorrect. I am returning this matter to the City for a correction of the license years 1997 and 1998 assessments consistent with this determination and a refund of any tax, penalty and interest erroneously collected. If you have other questions, please do not hesitate to contact ***** Tax Policy Analyst, in my Office of Tax Policy, at *****.
Rulings of the Tax Commissioner