04-178 | Virginia Tax

Tax Type

BPOL Tax

Description

Surviving corporation of a business merger

Topic

Corporate Distributions and Adjustments

Payment and Refund

Date Issued

10-06-2004

October 6, 2004

Dear **********:

This is in response to your letter in which you request an advisory opinion regarding the application of the Business, Professional and Occupational License (BPOL) tax to the surviving corporation of a business merger.

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 issue advisory opinions on local license tax issues. 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. Any change in the facts or the introduction of facts by another party may lead to a different result.

The Code of Virginia sections and public document cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us.

FACTS

***** ("Corporation A") was a Delaware holding company not doing business in Virginia. Corporation A owned 100 percent of ***** ("Corporation B"), a Virginia corporation doing business in Virginia. Corporation B was subject to local licensure in your locality for license year 2003. In November 2003, Corporation B was merged into Corporation A, with Corporation A surviving under the provisions of Va. Code § 13.1-894 et seq.

You ask if "the local business license is a privilege that transfers by operation of the law to the survivor of a statutory merger under Virginia law."

OPINION

Virginia Code § 13.1-897 provides that when a merger takes effect, "every other corporation party to the merger merges into the surviving corporation and the separate existence of every corporation except the surviving corporation ceases."

Public Document 99-237 (8/23/97) addressed a corporation that was bought by a limited liability company (LLC). The business did not change location, officers or its principal business. The Tax Commissioner determined that the LLC was a new business and should be treated accordingly for license tax purposes.

The same analysis applies to the situation presented in your letter. When the merger took effect, Corporation B ceased to exist. Because Corporation A is an entity that is different from Corporation B, and Corporation A was not subject to the locality's license tax prior to the merger, it should be considered a beginning business for purposes of the local license tax.

Many local ordinances provide that a beginning business must calculate its license tax liability for its first year based on its estimated first year receipts. At the end of the first license year, the business's license tax liability is adjusted to reflect actual first year receipts. After the first whole license year, each succeeding year's tax is based upon the prior year's gross receipts and is not corrected to reflect actual gross receipts.

For purposes of local license taxation, because Corporation B ceased to exist in November 2003, it should not be assessed in license year 2004. Furthermore, in accordance with Va. Code § 58.1-3710, a refund may be due to Corporation B for the unused portion of its business license in 2003.

If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/51307H

Rulings of the Tax Commissioner