Tax Type
BPOL Tax
Local Taxes
Description
Air transportation
Topic
Local Power to Tax
Date Issued
10-04-1999
October 4, 1999
Re: Request for Advisory Opinion Business, Professional and Occupational License (BPOL) Tax
Dear ****
This will respond to your letter requesting an advisory opinion as to the local license taxation of ***** (the "Taxpayer"). 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. The department is not 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 opinion has been made based on 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
The Taxpayer is a travel agency which is a participating agent in the Standard Ticket and Area Settlement Plan (the "Area Settlement Plan") administered by the Airlines Reporting Corporation (the "ARC"). The Area Settlement Plan is a contractual agreement between the ARC and participating travel agents, air carriers and railroads.
As a participating agent, the Taxpayer must enter into the Agent Reporting Agreement. This agreement "establishes a principal-agent relationship between the Agent and the appointing carriers" and provides that:
the Agent engages in the sale of air transportation to the public as an agent for and on behalf of the carriers . . . The Agent shall designate a bank account for the benefit of ARC and the carrier for deposit of . . . the proceeds of the sales of air transportation and ancillary services for which ARC traffic documents were issued . . . The Agent recognizes that the proceeds of the sales, less the Agent's commissions, on these ARC traffic documents are the property of the carrier and shall be held in trust until accounted for to the carrier.
Additionally, the Taxpayer sells cruises, tours and other travel products which are not subject to the Agent Reporting Agreement or a similar arrangement establishing a principal-agent relationship.
The Taxpayer asserts that it is subject to local license taxation solely on its commission income, not on its gross sales. You seek guidance as to the license taxation of the Taxpayer.
OPINION
License Taxation of Costs Passed on to Customers
"Gross receipts" means "the whole, entire, total receipts, without deduction." Code of Virginia § 58.1-3700.1. Guidelines § 1 expands the statutory definition to clarify that gross receipts are:
[the] whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law.
In general, the cost of travel products sold by the Taxpayer is a cost of doing business. Payments received by the Taxpayer on account of such costs are attributable to the licensable privilege of engaging in business and must be included in gross receipts.
License Taxation of Air Transportation Sales Subject to ARC Settlement Plan
With respect to sales of air transportation and ancillary services subject to the Agent Reporting Agreement with the ARC, the Taxpayer acts as an agent of the air carriers pursuant to an enforceable agency agreement. The Taxpayer deposits customer payments into a trust account. Other than its commissions, the Taxpayer is not entitled to withdraw any funds for its own benefit. "[M]oney handled by one as an agent of a principal is not characterized as gross receipts of the agent." 1985-1986 Op. Att'y Gen. 281, 282. See Alexandria v. Morrison- Williams Associates, Inc., 223 Va. 349 (1982). Accordingly, the Taxpayer is entitled to exclude from its gross receipts the proceeds of the sales of air transportation and ancillary services subject to the Agent Reporting Agreement with the ARC. With respect to those sales, the Taxpayer is subject to license taxation solely on its commission income.
Federal Preemption of License Taxation of Air Transportation
As a result of federal preemption, a locality may be prohibited from imposing its local license tax on gross receipts associated with certain sales of air transportation. In pertinent part, 49 U.S.C. § 40116 (b) provides:
[A] State [or] a political subdivision of a State . . . may not levy or collect a tax, fee, head charge, or other charge on (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale of air transportation; or (4) the gross receipts from that air commerce or transportation.
"[A]ir commerce" means foreign air commerce, interstate air commerce, the transportation of mail by aircraft, the operation of aircraft within the limits of a Federal airway, or the operation of aircraft that directly affects, or may endanger safety in, foreign or interstate air commerce. § 49 U.S.C. 40102(a)(3). "[A]ir transportation" means foreign air transportation, interstate air transportation, or the transportation of mail by aircraft. § 49 U.S.C. 40102(a)(5)
The United States Court of Appeals for the Third Circuit has held that this statute preempts gross receipt taxation of travel agents on their gross ticket sales, but not on the commission income of the agents from such sales. Travel Services, Inc. v. Government of Virgin Islands, 904 F.2d. 186 (1990).
I am not aware of any legal authority interpreting the validity or scope of this statute with respect to Virginia local license taxes. As this issue concerns the law of federal preemption, rather than that of local license taxation, you should consult the Attorney General or your county attorney to determine the impact of 49 U.S.C. § 40116.
CONCLUSION
Although I believe this letter conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please contact *****, Tax Policy Analyst, in my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22303D
Re: Request for Advisory Opinion Business, Professional and Occupational License (BPOL) Tax
Dear ****
This will respond to your letter requesting an advisory opinion as to the local license taxation of ***** (the "Taxpayer"). 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. The department is not 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 opinion has been made based on 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
The Taxpayer is a travel agency which is a participating agent in the Standard Ticket and Area Settlement Plan (the "Area Settlement Plan") administered by the Airlines Reporting Corporation (the "ARC"). The Area Settlement Plan is a contractual agreement between the ARC and participating travel agents, air carriers and railroads.
As a participating agent, the Taxpayer must enter into the Agent Reporting Agreement. This agreement "establishes a principal-agent relationship between the Agent and the appointing carriers" and provides that:
the Agent engages in the sale of air transportation to the public as an agent for and on behalf of the carriers . . . The Agent shall designate a bank account for the benefit of ARC and the carrier for deposit of . . . the proceeds of the sales of air transportation and ancillary services for which ARC traffic documents were issued . . . The Agent recognizes that the proceeds of the sales, less the Agent's commissions, on these ARC traffic documents are the property of the carrier and shall be held in trust until accounted for to the carrier.
Additionally, the Taxpayer sells cruises, tours and other travel products which are not subject to the Agent Reporting Agreement or a similar arrangement establishing a principal-agent relationship.
The Taxpayer asserts that it is subject to local license taxation solely on its commission income, not on its gross sales. You seek guidance as to the license taxation of the Taxpayer.
OPINION
License Taxation of Costs Passed on to Customers
"Gross receipts" means "the whole, entire, total receipts, without deduction." Code of Virginia § 58.1-3700.1. Guidelines § 1 expands the statutory definition to clarify that gross receipts are:
[the] whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of a licensed privilege to engage in a business . . . without deduction or exclusion except as provided by law.
In general, the cost of travel products sold by the Taxpayer is a cost of doing business. Payments received by the Taxpayer on account of such costs are attributable to the licensable privilege of engaging in business and must be included in gross receipts.
License Taxation of Air Transportation Sales Subject to ARC Settlement Plan
With respect to sales of air transportation and ancillary services subject to the Agent Reporting Agreement with the ARC, the Taxpayer acts as an agent of the air carriers pursuant to an enforceable agency agreement. The Taxpayer deposits customer payments into a trust account. Other than its commissions, the Taxpayer is not entitled to withdraw any funds for its own benefit. "[M]oney handled by one as an agent of a principal is not characterized as gross receipts of the agent." 1985-1986 Op. Att'y Gen. 281, 282. See Alexandria v. Morrison- Williams Associates, Inc., 223 Va. 349 (1982). Accordingly, the Taxpayer is entitled to exclude from its gross receipts the proceeds of the sales of air transportation and ancillary services subject to the Agent Reporting Agreement with the ARC. With respect to those sales, the Taxpayer is subject to license taxation solely on its commission income.
Federal Preemption of License Taxation of Air Transportation
As a result of federal preemption, a locality may be prohibited from imposing its local license tax on gross receipts associated with certain sales of air transportation. In pertinent part, 49 U.S.C. § 40116 (b) provides:
[A] State [or] a political subdivision of a State . . . may not levy or collect a tax, fee, head charge, or other charge on (1) an individual traveling in air commerce; (2) the transportation of an individual traveling in air commerce; (3) the sale of air transportation; or (4) the gross receipts from that air commerce or transportation.
"[A]ir commerce" means foreign air commerce, interstate air commerce, the transportation of mail by aircraft, the operation of aircraft within the limits of a Federal airway, or the operation of aircraft that directly affects, or may endanger safety in, foreign or interstate air commerce. § 49 U.S.C. 40102(a)(3). "[A]ir transportation" means foreign air transportation, interstate air transportation, or the transportation of mail by aircraft. § 49 U.S.C. 40102(a)(5)
The United States Court of Appeals for the Third Circuit has held that this statute preempts gross receipt taxation of travel agents on their gross ticket sales, but not on the commission income of the agents from such sales. Travel Services, Inc. v. Government of Virgin Islands, 904 F.2d. 186 (1990).
I am not aware of any legal authority interpreting the validity or scope of this statute with respect to Virginia local license taxes. As this issue concerns the law of federal preemption, rather than that of local license taxation, you should consult the Attorney General or your county attorney to determine the impact of 49 U.S.C. § 40116.
CONCLUSION
Although I believe this letter conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please contact *****, Tax Policy Analyst, in my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22303D
Rulings of the Tax Commissioner