Tax Type
BPOL Tax
Local Taxes
Description
Real Estate Brokers and Agents
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
12-06-2000
December 6, 2000
Re: Request for Advisory Opinion
Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This advisory opinion is issued in response to your request for guidance concerning the local license taxation of real estate brokers and agents.
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.
You seek guidance concerning the local license tax deduction granted to real estate brokers in three scenarios.
Scenario One:
Facts
You state that a real estate broker pays "referral fees" to other real estate brokers. You ask whether or not the paying broker is entitled to deduct the amount of these referral fees from its gross receipts.
Opinion
Code of Virginia § 58.1-3732.2 provides that:
[g]ross receipts of real estate brokers for license tax purposes under Chapter 37 (§ 58.1-3700 et seq.) of this title shall not include amounts received by any broker which arise from real estate sales transactions to the extent that such amounts are paid to a real estate agent as a commission on any real estate sales transaction and the agent is subject to the business license tax on such receipts.
In order for a real estate broker to qualify for this deduction, all of the requirements of the statute must be satisfied. One question raised by this scenario is whether or not the statutory requirement that the amounts be paid to a "real estate agent" is satisfied when the payment is made to a real estate broker.
The term "real estate agent" is not defined in Code of Virginia § 58.1-3732.2. Nothing in the statutory language reflects an intent to assign to the term a meaning different from that which it enjoys in ordinary usage. Black's Law Dictionary (Fifth Edition) defines "real estate agent" as a:
[p]erson whose business it is to sell, or offer for sale, real estate for others, or to rent houses, stores, or other buildings, or real estate, or to collect rent for others.
This definition of "real estate agent" does not conflict with Chapter 21 of Title 54.1 of the Code of Virginia which provides for the regulation of this industry. Chapter 21 of Title 54.1 does not use the term "real estate agent." Instead it employs the term "real estate salesperson" to identify certain real estate professionals that are not brokers. Chapter 21 reflects that both real estate brokers and salespersons may act as agents for others in real estate transactions.
In my opinion, the requirement in Code of Virginia § 58.1-3732.2 that the amounts be paid to a "real estate agent" is satisfied when the payment is made to either a real estate salesperson or real estate broker acting as an agent in a real estate sales transaction.
Another question raised by this scenario is whether or not the statutory requirement that the amounts in question be paid as "a commission on any real estate sales transaction" is satisfied when the payment is a "referral fee."
The term "commission" is not defined in Code of Virginia § 58.1-3732.2. Nothing in the statutory language reflects an intent to assign to the term a meaning different from that which it enjoys in ordinary usage. Black's Law Dictionary (Fifth Edition) defines "commission" as:
[t]he recompense, compensation or reward of an agent . . . when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal.
In my opinion, the requirement in Code of Virginia § 58.1-3732.2 that the amounts be paid as a commission is not satisfied unless the referral fee is determined as a percentage on the amount of a real estate transaction.
I am enclosing a copy of Public Document (P.D.) 98-46 (3/11/98), which explains the remaining requirements of Code of Virginia § 58.1-3732.2.
Scenario Two:
Facts
You state that a real estate agent in the office of a local broker engages the assistance of other agents and compensates them out of commissions earned. The broker dispenses the compensation to the assisting agents as, you inform me, the Board of Realtors does not allow agents to pay other agents. You ask whether or not the agent is entitled to deduct these payments under Code of Virginia § 58.1-3732.2.
Opinion
If you are referring to an arrangement within the agent's office, it is my opinion that the paying agent would not be entitled to the deduction under Code of Virginia § 58.1-3732.2, because the plain language of the statute limits this deduction to real estate brokers.
If, however, you are referring to a multiple listing arrangement, please see P.D. 97-404 (10/6/97), which explains the application of Code of Virginia § 58.1-3732.2 to these arrangements.
Scenario Three:
Facts
A broker pays commissions to an agent located in a locality that does not impose a business license tax or fee. You ask whether or not the broker is entitled to the deduction under Code of Virginia § 58.1-3732.2 for commissions paid to this agent.
Opinion
As explained in P.D. 97-8 (1/16/97), the broker is not entitled to the deduction under Code of Virginia § 58.1-3732.2 if the agent is not subject to a business license tax on such receipts in a Virginia locality.
I hope that the above information will be of assistance 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
OTP30330D
Re: Request for Advisory Opinion
Business, Professional, and Occupational License (BPOL) Tax
Dear ****
This advisory opinion is issued in response to your request for guidance concerning the local license taxation of real estate brokers and agents.
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.
You seek guidance concerning the local license tax deduction granted to real estate brokers in three scenarios.
Scenario One:
Facts
You state that a real estate broker pays "referral fees" to other real estate brokers. You ask whether or not the paying broker is entitled to deduct the amount of these referral fees from its gross receipts.
Opinion
Code of Virginia § 58.1-3732.2 provides that:
[g]ross receipts of real estate brokers for license tax purposes under Chapter 37 (§ 58.1-3700 et seq.) of this title shall not include amounts received by any broker which arise from real estate sales transactions to the extent that such amounts are paid to a real estate agent as a commission on any real estate sales transaction and the agent is subject to the business license tax on such receipts.
In order for a real estate broker to qualify for this deduction, all of the requirements of the statute must be satisfied. One question raised by this scenario is whether or not the statutory requirement that the amounts be paid to a "real estate agent" is satisfied when the payment is made to a real estate broker.
The term "real estate agent" is not defined in Code of Virginia § 58.1-3732.2. Nothing in the statutory language reflects an intent to assign to the term a meaning different from that which it enjoys in ordinary usage. Black's Law Dictionary (Fifth Edition) defines "real estate agent" as a:
[p]erson whose business it is to sell, or offer for sale, real estate for others, or to rent houses, stores, or other buildings, or real estate, or to collect rent for others.
This definition of "real estate agent" does not conflict with Chapter 21 of Title 54.1 of the Code of Virginia which provides for the regulation of this industry. Chapter 21 of Title 54.1 does not use the term "real estate agent." Instead it employs the term "real estate salesperson" to identify certain real estate professionals that are not brokers. Chapter 21 reflects that both real estate brokers and salespersons may act as agents for others in real estate transactions.
In my opinion, the requirement in Code of Virginia § 58.1-3732.2 that the amounts be paid to a "real estate agent" is satisfied when the payment is made to either a real estate salesperson or real estate broker acting as an agent in a real estate sales transaction.
Another question raised by this scenario is whether or not the statutory requirement that the amounts in question be paid as "a commission on any real estate sales transaction" is satisfied when the payment is a "referral fee."
The term "commission" is not defined in Code of Virginia § 58.1-3732.2. Nothing in the statutory language reflects an intent to assign to the term a meaning different from that which it enjoys in ordinary usage. Black's Law Dictionary (Fifth Edition) defines "commission" as:
[t]he recompense, compensation or reward of an agent . . . when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal.
In my opinion, the requirement in Code of Virginia § 58.1-3732.2 that the amounts be paid as a commission is not satisfied unless the referral fee is determined as a percentage on the amount of a real estate transaction.
I am enclosing a copy of Public Document (P.D.) 98-46 (3/11/98), which explains the remaining requirements of Code of Virginia § 58.1-3732.2.
Scenario Two:
Facts
You state that a real estate agent in the office of a local broker engages the assistance of other agents and compensates them out of commissions earned. The broker dispenses the compensation to the assisting agents as, you inform me, the Board of Realtors does not allow agents to pay other agents. You ask whether or not the agent is entitled to deduct these payments under Code of Virginia § 58.1-3732.2.
Opinion
If you are referring to an arrangement within the agent's office, it is my opinion that the paying agent would not be entitled to the deduction under Code of Virginia § 58.1-3732.2, because the plain language of the statute limits this deduction to real estate brokers.
If, however, you are referring to a multiple listing arrangement, please see P.D. 97-404 (10/6/97), which explains the application of Code of Virginia § 58.1-3732.2 to these arrangements.
Scenario Three:
Facts
A broker pays commissions to an agent located in a locality that does not impose a business license tax or fee. You ask whether or not the broker is entitled to the deduction under Code of Virginia § 58.1-3732.2 for commissions paid to this agent.
Opinion
As explained in P.D. 97-8 (1/16/97), the broker is not entitled to the deduction under Code of Virginia § 58.1-3732.2 if the agent is not subject to a business license tax on such receipts in a Virginia locality.
I hope that the above information will be of assistance 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
OTP30330D
Rulings of the Tax Commissioner