Tax Type
BPOL Tax
Local Taxes
Description
Insurance activity
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
10-08-1999
October 8, 19999
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") doing business as ****. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. §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
The Taxpayer states that it is a subcontractor participating in the TRICARE health insurance program. The TRICARE program provides health insurance for active duty military personnel and their dependents through a region-wide, at risk, fixed price contracting scheme. The prime contractor has assumed the risk for the performance of the entire region and has ceded to the Taxpayer, through its subcontract, an undifferentiated portion of the risk and delegated specific administrative duties to the Taxpayer within the states of North Carolina and Virginia. The Taxpayer states that it is operating as an insurance entity, not a mere administrator.
The Taxpayer asserts that it is not subject to local license taxation as (1) it is an insurance company exempt from local license taxation under Code of Virginia § 58.1-3703 (C)(11), and (2) the local license tax ordinance is preempted by federal law concerning the TRICARE program. You seek guidance as to the local license taxation of the Taxpayer.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia §§ 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 definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends." 1997 BPOL Guidelines § 1.
Local License Taxation of Insurers
Code of Virginia § 58.1-3703 (C)(11) provides an exemption from local license taxation for "any insurance company subject to taxation under Chapter 25 (§ 58.1-2500 et seq.) of this title or on any agent of such company." This exemption relates to all activities of an insurance company, not merely activities traditionally conducted by an insurance company. Public Document 97-310 (7/28/97).
If the Taxpayer is subject to the state license tax imposed on insurance companies by Code of Virginia § 58.1-2500 et seq., it is exempted from local license taxation by Code of Virginia § 58.1-3703 (C)(11). The information provided to me, however, is insufficient to determine whether or not the Taxpayer is subject to state license taxation. You may wish to contact the State Corporation Commission, which is responsible for the state license tax, to assist in this determination.
I would also note that if the Taxpayer is not subject to the state license tax on insurance companies under Code of Virginia § 58.1-2500 et seq because of federal preemption (see discussion below), then it follows that federal preemption would also bar Virginia's localities from imposing local license taxes.
Federal Preemption of Local License Taxes in Relation to TRICARE Regional Contracts
Federal preemption provisions may prohibit the locality from imposing its license tax on gross receipts associated with the performance of its subcontract under the TRICARE program. In pertinent part, 32 Code of Federal Regulations § 199.17(a)(7) provides that:
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- (ii) [A]ny State or local law relating to health insurance, prepaid health plans, or other health care delivery or financing methods is preempted and does not apply in connection with TRICARE regional contracts. Any such law, or regulation pursuant to such law, is without any force or effect, and State or local governments have no legal authority to enforce them in relation to the TRICARE regional contracts. . .
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- (iii) The preemption of State and local laws set forth in paragraph (a)(7)(ii) of this section includes State and local laws imposing premium taxes on health or dental insurance carriers or underwriters or other plan managers, or similar taxes on such entities. . . Preemption, however, does not apply to taxes, fees, or other payments on net income or profit realized by such entities in the conduct of business relating to DoD health services contracts, if those taxes, fees or other payments are applicable to a broad range of business activity . . .
The Taxpayer asserts that the local license tax is preempted by this regulation. I am not aware of any law interpreting the validity or scope of this regulation. I would note that claims of federal preemption have been addressed by the courts in other situations. I am enclosing a copy of De Buono, et al. v. NYSA-ILA Medical and Clinical Services Fund, 117 S. Ct. 1747, 520 U.S. 806 (1997). This case holds that federal preemption imposed by the Employee Retirement Income Security Act does not preclude the State of New York from imposing a gross receipts tax on the income of medical centers operated by ERISA funds. As this issue concerns the law of federal preemption, rather than that of local license taxation, you should consult the Attorney General or your city attorney to determine the impact of this and other cases limiting federal preemption.
I hope that the above information will be beneficial to you. 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 do not hesitate to contact ****, Tax Policy Analyst, in my Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22804D
Rulings of the Tax Commissioner