Document Number
13-221
Tax Type
BPOL Tax
Description
State contractor's license required; purchases real property for the purpose of rehabilitation and resale for profit
Topic
Appeals
Classification
Local Power to Tax
Taxability of Persons and Transactions
Date Issued
12-13-2013


December 13, 2013



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

Dear *****:

This is in response to your letter in which ***** (the "Taxpayer") requests an advisory opinion as to application of the Business, Professional and Occupational License (BPOL) to the purchase and renovation of investment property.

The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 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 summarized below. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.

FACTS

The Taxpayer purchases real property for the purpose of rehabilitation and resale for profit. It contracts with general contractors to perform all the repairs and improvements. The general contractors are responsible for all work performed including the acquisition of building permits, inspections, code compliance, hiring of subcontractors, and any other activity necessary to renovate the dwelling.

The Taxpayer applied to the ***** (the "County") for a business license as a business service provider. The County denied the application, concluding that the Taxpayer is subject to the license tax as a contractor. It also stated that the Taxpayer is required to get a state contractor's license through the Department of Professional Occupational Regulation (DPOR).

The Taxpayer requests an advisory opinion as to whether if should be properly classified as a service provider or a contractor. Further, it asks whether it is required to get contractor's license from the DPOR.

OPINION

Classification

The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is imposed at different rates according to the classification of an enterprise. See Va. Code § 58.1-3706. The classifications are explained under Title 23 of the Virginia Administrative Code (VAC) 10-500-10 et seq. Classification of a specific business must be determined based on consideration of all the facts and circumstances. Some of the factors to be considered include:
  • 1. What is the nature of the enterprise's business?
    2. How the enterprise generates gross receipts.
    3. Where the enterprise conducts its business.
    4. Who are the enterprise's customers?
    5. How the enterprise holds itself out to the public.
    6. The enterprise's NAICS code.

The Taxpayer contends that it is not a contractor because it does not engage in any type of renovating activities. It asserts that the buying and selling of real estate for profit does not always require contracting activities. In addition, the Taxpayer argues that its activities do not meet the definition of contractor as set forth in Va. Code § 58.1-3714 D.

Virginia Code § 58.1-3714 D 1 provides that a contractor is any entity "[a]ccepting or offering to accept orders or contracts for doing any work on or in any building or structure requiring the use of [various building materials]." Under Title 23 of the Virginia Administrative Code (VAC) 10-500-240 A, a contractor is a person who accepts contracts to perform, or regularly performs, or engages others to perform any of the work listed in Va. Code § 58.1-3714. The BPOL statutes do not require a business enterprise to be licensed as a contractor under Va. Code § 54.1-1100 et seq. In this case, the Taxpayer is engaging others to perform all the activities required to renovate the real property. These activities would include the work listed in Va. Code § 58.1-3714 D.

Further, Title 23 VAC 10-500-240 B states that contractors include "persons who subdivide and improve real estate, and speculative builders who build houses or other buildings with the intention to offer the subdivided lots or completed buildings for sale."

In addition, "a business making improvements to its own real estate with the intention of offering the real estate for sale, may be properly classified and subject to the tax as a contractor." See Public Document (P.D.) 97-423 (10/17/1997), P.D. 04-83 (8/25/2004) and P.D. 13-76 (5/23/2013).

The Taxpayer also argues that if all purchasers of investment property are classified as contractors, entities that do not do any renovations to the purchased property may also be considered contractors for BPOL purposes. Virginia Code § 58.1­3714 D requires that a taxpayer perform actual work, or engage someone to perform actual work on buildings, structures or real estate in order to be classified as a contractor. Therefore, a purchaser of real property who does not perform any work to improve the property, or engage someone to work on the property, would not be classified as a contractor for purposes of the business license tax.

In this case, the Taxpayer indicates that he engaged general contractors to renovate and repair dwelling units that were bought for the purpose of resale. If these contractors actually performed the renovation activities, the Taxpayer could be classified as a contractor pursuant to Title 23 VAC 10-500-240. Such a determination is a factual matter for the locality to decide. Accordingly, the Taxpayer would be required to provide documentation satisfactory to the County that it was not engaged in activities consistent with a contracting business.

State Contractors License

As to the matter of the state contractor's license, the Department lacks the authority to issue advisory opinions concerning whether any business would be required to obtain a state contractor's license from DPOR. The Taxpayer should contact DPOR to determine which type of contractor's license, if any, would be required for his business activities.

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



Craig M. Burns
Tax Commissioner


AR/1-5488532980.B

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46