Document Number
04-44
Tax Type
BPOL Tax
Description
Insurance agents engaged in multiple businesses
Topic
Local Taxes Discussion
Date Issued
08-12-2004



August 12, 2004


Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) tax

Dear ********:

This is in response to your letter in which you request an advisory opinion on the applicability of the BPOL tax to insurance agents engaged in multiple businesses.

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. 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.

You present three scenarios in your letter and ask how the BPOL tax would apply in each situation. 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. Copies of the Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.

Scenario 1:

A sole proprietor (the "Taxpayer's is both an insurance agent and a financial planner. In his capacity as an insurance agent, the Taxpayer is subject to taxation under the provisions of Va. Code § 58.1-2500 et seq. The Taxpayer is also engaged in the financial planning business and represents himself as a member of the National Association of Securities Dealers (NASD).

The BPOL tax is gross receipts based privilege tax imposed on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged in such activities. Virginia Code § 58.1-3703(C) prohibits localities from imposing a license fee or license tax on specific business entities and activities. Included among these is a provision prohibiting the imposition of the BPOL tax on certain insurance companies:
    • No county, city or town shall impose a license fee or levy any license tax: ... [o]n any insurance company subject to taxation under Chapter 2500 (§ 58.1-2500 et seq.) of this title or on any agent of such company. Va. Code § 58.1-3703(C)(11).

This exemption from local license taxation is reflected in Va. Code § 58.1-2508(B). This Code section provides that the state license tax on certain insurance companies and the tax on real estate and tangible personal property and other related fees "shall be in lieu of all fees, licenses, taxes and levies whatsoever, state, county, city or town." [Emphasis added.]

For the purposes of Chapter 25 of Title 58.1, an "insurance company" is defined as "any company engaged in the business of making contracts of insurance." See Va. Code § 58.1­2500. Your questions deal with situations in which a taxpayer appears to be engaging in a line of business in addition to the provision of insurance. You ask if the gross receipts attributable to the "other line of business" are subject to the BPOL tax. In a 1988 opinion, the Virginia Attorney General addressed a similar question. He found that:
    • The clear language of Sec. 58.1-3703(B)(11) prohibits the imposition of the local business license tax '[o]n any insurance company subject to taxation' under Ch. 25. (Emphasis added.) The language of the statute prohibits any local business license tax on a particular type of business, without limiting the prohibition to the nature of the business's gross receipts. See 1987-1988 Att'y Gen. Ann. Report at 509 (4/29/1988).

Furthermore, Scenario 1 was addressed in Public Document (P.D.) 97-310 (7/28/1997). The Tax Commissioner found that because the exemption specified in Va. Code § 58.1­3703(C)(11) relates to all activities of an insurance company, not merely the activities traditionally conducted by an insurance company. The fact that the company had developed a separate line of business that involved the sales of securities did not disqualify the insurance company from the exemption. In those instances when two separate corporations were created, however, the Tax Commissioner opined in P.D. 97-310 that:
    • Where an insurance company or bank has created an entirely separate corporation to provide investment services and these companies are not operating as banks or insurance companies or otherwise subject to the state insurance license tax or bank franchise tax, these separate corporations are not exempt from the BPOL tax. The corporations will be subject to the local license tax, provided such a tax is imposed by the locality involved.

The same analysis does not apply, however, to a person who is an agent of an insurance company that is subject to taxation under the provisions of Va. Code § 58.1-2500, but has a separate line of business as a financial planner. The taxes levied by Va. Code § 58.1­2501 are imposed upon the "direct gross premium income" of the insurance company itself, not the insurance agent (except indirectly, insofar as the insurance agent collects, receives or derives such income from insurance business in the Commonwealth on behalf of the insurance company as its agent, and what the agent remits to the company becomes part of the "direct gross premium income"). Thus, the immunity of the insurance agent from local license taxes relates solely to the "direct gross premium income" The exemption would also extend to any other gross receipts for the insurance company’s noninsurance gross receipts passing through the hands of the insurance company’s agent as agent for the company. that belongs to the insurance company and that the agent collects on behalf of and passes to the company.

None of the prior opinions of the Attorney General or rulings of the Tax Commissioner extend the insurance company's exemption for gross receipts from business activity to insurance agents who are not acting as agents. After consulting with officials at the State Corporation's Bureau of Insurance, it is my opinion that the prohibition of Va. Code § 58.1­3703(C)(11) against localities imposing license taxes on insurance agents operates only for those receipts that are received by the agent in his capacity of an "agent of such company." Gross receipts that an individual receives on his or her own behalf from any other business would not qualify for the exemption because the person is not, for purposes of that other noninsurance business, an "agent of such company" in respect of those receipts. In that case, the person is acting in and for his or her own right, not that of the insurance company. Accordingly, the exemption does not apply and is not available to the insurance agent on his or her gross receipts from the financial planning portion of the business.

It is particularly clear that if the Taxpayer has established two separate corporations through which it conducts these separate lines of business, the financial planning business would, of course, be subject to the BPOL tax. Because the Taxpayer's financial planning business is a separately incorporated line of business operating as an adjunct to the insurance business, it would not be exempt from the BPOL tax under the provisions of Va. Code § 58.1.3700 et seq.

Scenario 2

The Taxpayer owns and operates a real estate title and settlement corporation that performs title insurance and real estate settlement services. The Taxpayer is licensed as a title insurance agent by the State Corporation Commission (SCC). The corporation is not.

Under the provisions of Va. Code § 38.2-1800, a title insurance agent is defined as follows:
    • 'Title insurance agent' means an agent licensed in this Commonwealth to sell, solicit, or negotiate title insurance, and performing all of the services set forth in § 38.2-4601.1, on behalf of title insurance companies licensed under Chapter 46 (§ 38.2-4600 et seq.) of this title. [Emphasis added.]

The law further provides that "No company other than an insurance company organized as a stock company and licensed to transact title insurance shall transact title insurance in this Commonwealth." See Va. Code § 38.2-4603. The Taxpayer cannot transact title insurance unless it is licensed by the SCC.

Finally, all of the provisions of the insurance law, "relating to insurance and insurers generally shall apply to title insurance and title insurance companies." See Va. Code § 38.2-4602. As such, for purposes of taxation, all such companies and their agents are subject to the provisions of Va. Code § 58.1-2500 and, therefore, are exempt from the local license tax on gross receipts from insurance.

In the scenario you present, the Taxpayer is holding itself out as a "title and settlement company." As a title insurance agent, the Taxpayer should be licensed by the SCC and the title insurance company would be subject to the fees and taxes imposed by the SCC on its gross receipts from insurance, including those insurance gross receipts passing through its agent. The Taxpayer is not, therefore, subject to the BPOL tax on its gross receipts from insurance. For the reasons stated above, the Taxpayer's gross receipts received from the real estate settlement business activity are not received in the Taxpayer's capacity as an agent for the title insurance company and the real estate settlement gross receipts are subject to the local BPOL tax. As in Scenario 1, if the Taxpayer has established two separate corporations through which it conducts the title insurance business and the real estate services business, the real estate services business would be subject to the BPOL tax under the provisions of Va. Code § 58.1­3700 et seq.

Question 3

The Taxpayer is engaged in the business of renting automobiles and also offers optional insurance coverage to the lessee.

Virginia Code § 46.2-368 provides for the issuance of "certificates of self-insurance" to persons who meet the following qualifications:
  • 1. The person is the owner or lessee of twenty or more vehicles, and
  • 2. The person has and will continue to have financial ability to respond to a judgment as provided in this chapter, obtained against the person, arising out of the ownership, maintenance, use, or operation of his motor vehicles.

The certificate of self-insurance issued provides for protection against the uninsured or underinsured motorist to the extent required by Va. Code § 38.2-2206. This section provides for the extent of protection against the uninsured or underinsured motorist that must be afforded to motorists covered by ordinary insurance plans regulated by the SCC. Virginia Code § 46.2-368 requires the same protection be afforded to motorists operating under a certificate of self­insurance.

Persons who hold certificates of self-insurance do not come under the regulation of the SCC; therefore, they are not subject to taxation under the provisions of Va. Code § 58.1-2500 et seq. Rental car agencies generally hold certificates of self insurance and, as such, are subject to the local license tax under the provisions of Va. Code § 58.1-3700 et seq.

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/47574H


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46