Tax Type
BPOL Tax
Description
Sales solicitation outside Virginia; Gross receipts
Topic
Local Power to Tax
Rate of Tax
Date Issued
07-30-1997
July 30, 1997
Re: Request for Advisory Opinion: BPOL
Dear******************
This will respond to your facsimile dated July 17, 1997, which asked whether a business located in your jurisdiction is subject to BPOL licensure and taxation.
The license tax is a local tax which is imposed and administered by local officials. The Code of Virginia limits the involvement of the Department of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
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.
FACTS
Company A has an office located in your jurisdiction. It purchases products from companies outside of Virginia. These products are stored in warehouses outside of Virginia. Company A creates television advertisements to sell these products. It then contracts with a media company outside of Virginia to sell the products. The media company purchases television air time for the pre-made commercials. Customers then call the media company via a toll free telephone number to place orders. The ordered product is in turn shipped from the warehouses located outside of Virginia.
Customers purchase products using a credit card only. When a customer places an order, the name of the particular product is reflected on his/her credit card statement. All credit card purchases are transferred to Company A's bank account in Virginia. The amount deposited in Company A's bank account is for the purchase price of the product including applicable Virginia sales tax. Company A pays any necessary expenses to the media company and remits any sales tax to the Virginia Department of Taxation.
You ask whether Company A is subject to licensure, and if so, should the total amount paid to Company A be included in gross receipts.
DETERMINATION
Business License
Code of Virginia § 58.1-3703.1, copy enclosed, provides that a person is subject to licensure if they are engaged in business at a definite place of business in a locality which has a BPOL ordinance. A person is engaged in business if they are occupied in "... a [regular and continuous] course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit." Code of Virginia § 58.1-3700.1 (copy enclosed). If a person is engaged in business, they are so engaged at a definite place of business if their activity occurs at "an office or location at which occurs a regular and continuous course of dealing for 30 consecutive days or more."
Company A purchases products for resale. They create advertisements to sell these products and contract with an outside company to place these advertisements and accept the purchase orders. These activities require time, attention and labor to perform and they are clearly rendered for the purpose of earning a livelihood or profit. Thus, Company A is engaged in business. Also, it is apparent that these activities occur at the office in your locality on a regular and continuous basis for 30 or more consecutive days. Company A has a definite place of business in your locality. It is my opinion that Company A is subject to BPOL licensure since they are engaged in business at a definite place of business in your locality. Since company A is subject to licensure, you may impose a license fee.
Gross Receipts Tax
A locality may only tax those gross receipts which are attributable to a licensed privilege which occurs in that locality. Code of Virginia § 58.1-3703.1 A 3a 2 provides that the gross receipts of a retailer:
-
- ...shall be attributed to the definite place of business at which sales solicitation activities occur, or if sales solicitation activities do not occur at any definite place of business, then the definite place of business from which sales solicitations are directed or controlled...
Company A's office and the out-of-state media company office are both definite places of business. The determinative questions are which activities constitute sales solicitations and which definite place of business should the gross receipts be sited to.
"Sales solicitation is the act or acts directly related to selling particular items or goods to a particular person. Sales solicitation does not include non-solicitation activities prior to or subsequent to the sale." 1997 BPOL Guidelines, page 8 (copy enclosed). You indicated that Company A's office in your locality produces the advertisement for the sale of the product while the out-of-state media company places the advertisement and takes the customer orders via a toll free telephone number. The media company's telephone conversation with the customer is directly related to selling Company A's product since the media company employee is taking the order personally from the customer. The production of the advertisement is not an activity that directly relates to selling the product to a particular person. There is no direct contact with the customer when the advertisement is produced. Advertisement production would be classified as a non-solicitation activity which occurs prior to the sale.
Under the situs rule for retailers, only the gross receipts which can be attributed to the definite place of business where the sales solicitation takes place are subject to taxation unless there is no definite place of business where the sales solicitation takes place. See Code of Virginia § 58.1-3703.1 A 3a 2. Since the sales solicitation takes place at the out-of-state media company's office, no gross receipts are attributable to Company A's activity in your jurisdiction. It is my opinion that you may not tax any of Company A's gross receipts which arise from the retail activities described herein.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12748B
Rulings of the Tax Commissioner