August 13, 2015
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****:
This is response to your letter in which you request an advisory opinion regarding the applicability of the Business, Professional and Occupational License (BPOL) tax to telecommunications companies. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to promulgate guidelines and 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 these facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulations 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 telecommunications companies at issue (the "Taxpayers") provide both telephone and data transmission services. The particular data transmission service in question is a document exchange service known as Electronic Data Interchange (EDI). The Taxpayers separately state charges for the software and data transmission components of this service. The request seeks guidance on three issues stated below.
DETERMINATION
1. Are revenues from data transmission services included in the measure of gross receipts subject to BPOL taxation?
Virginia Code § 58.1-3731 provides that, for purposes of the BPOL tax, public service companies, including telephone companies, are to be taxed as follows:
Every county, city or town is hereby authorized to impose a license tax, in addition to any tax levied under Chapter 26 (§ 58.1-2600 et seq.) of this title, on (i) telephone and telegraph companies . . . at a rate not to exceed one-half of one percent of the gross receipts of such company accruing from sales to the ultimate consumer in such county, city or town. However, in the case of telephone companies, charges for long distance telephone calls shall not be included in gross receipts for purposes of license taxation.
In addition, a grandfather provision permits certain localities to continue to impose the BPOL tax on public service corporations or companies at the same rate they imposed prior to the 1972 legislation. See Public Document (P.D.) 04-138 (9/16/2004).
Virginia Code § 58.1-2600 defines a "telephone company" as:
1. a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or
2. a person authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or broadband personal communications services; or
3. a person holding a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belonging to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service . . . .
The Department addressed the question of the taxation of telephone companies in P.D. 04-6 (2/20/2004). In that opinion, the Tax Commissioner found that a company that meets none of the above requirements should be classified as a "business service" for purposes of the BPOL tax. If, however, a taxpayer meets any one of the three requirements, it should be classified as a telephone company subject to the provisions of Va. Code § 58.1-3731.
The gross receipts of telephone companies are defined in Va. Code § 58.1-2600 as:
the total of all revenue derived in the Commonwealth, including but not limited to income from the provision or performance of a service or the performance of incidental operations not necessarily associated with the particular service performed, without deductions for expenses or other adjustments.
In addition, the Attorney General has held that "public service corporations that conduct several separate business activities should be assessed the public utility rate of one-half of one percent of the gross receipts of the corporation consistent with the definition of gross receipts contained in [Va. Code] § 58.1-2600." See 1995 Report of the Att'y Gen. at 277. See P.D. 02-23 (3/27/2002) for further discussion of this issue.
Accordingly, in P.D. 04-138, all of the revenue from the telephone and business data services a telephone company provided in a Virginia locality was included in the gross receipts subject to BPOL tax. Therefore, if a taxpayer is classified as a telephone company pursuant to Va. Code § 58.1-2600, it is the Department's opinion that any revenues from data transmission services the taxpayer provides in the Commonwealth would be considered gross receipts under Va. Code § 58.1-2600. The revenues would not be subject to a Virginia locality's BPOL tax, however, unless it accrued from sales to an ultimate consumer in such locality. See Va. Code § 58.1-3731.
If a taxpayer meets none of the requirements to be a telephone company pursuant to Va. Code § 58.1-2600, it would be classified as a "business service" for purposes of the BPOL tax. See P.D. 04-6.
For purposes of the BPOL tax, those services that are not classified as "professional" come under the category of "repair, personal; business and other services." Other services not clearly identified as financial, real estate or professional are classified as "repair, personal, business and other services" under Title 23 of the Virginia Administrative Code (VAC) 10-500-490 to 10-500-510. This is a catchall category, acknowledged in the BPOL regulations as follows:
Definitions of repair service, personal service, and business service have been omitted since this classification applies to all services not classified as financial, real estate or professional.
See Title 23 VAC 10-500-500.
For a company classified as a business service, gross receipts are defined as the "whole, entire, total receipts, without deduction." See Virginia Code § 58.1-3700.1. As such, revenue derived from the data transmission services of a business service company would also be considered gross receipts for purposes of the BPOL tax. The gross receipts of a business service company, however, are only subject to BPOL tax in a Virginia locality to the extent the receipts may be sitused there pursuant to Va. Code § 58.1-3703.1 A 3.
2. Does the exclusion for long distance telephone calls in Va. Code § 58.1-3731 apply to information being transmitted in the form of data rather than voice messages?
In Shelor Motor Co. v. Miller, 261 Va. 473, 479, 544 S.E.2d 345, 348 (2001), the Court stated, "It is well settled that when the language of a statute is plain and unambiguous, we are bound by the plain meaning of that language." In addition, by reason of their character as legislative grants, statutes relating to exemptions allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority. See DKM Richmond Associates, L.P., v. City of Richmond, 249 Va. 401, 407, 457 S.E.2d 76, 80 (1995).
Under Va. Code § 58.1-3731, the exclusion from gross receipts applies only to charges for "long distance telephone calls." The term "telephone" is defined as "[a]n instrument that directly modulates carrier waves with voice or other acoustic source signals to be transmitted to remote locations and that directly reconverts received waves into audible signals." American Heritage Dictionary 1250 (2nd Col. Ed. 1985). In the Department's opinion, the phrase "long distance telephone calls" is not broad enough to include the Taxpayers' data transmissions which involve document exchanges made by computers and which appear to lack an auditory component. In addition, the exclusion only applies to telephone companies. As such, it would not be available to any Taxpayer properly classified as a "business service" (or other type of business) rather than a telephone company.
3. Does the exclusion for long distance telephone calls in Va. Code § 58.1-3731 apply to voice calls or data messages that originate in Virginia and terminate in another state, but remain in the same local exchange calling area (i.e., LATA)?
"Long distance telephone calls" are not expressly defined for purposes of Va. Code § 58.1-3731. Statutes may be considered in pari materia when they relate to the same or closely connected subject. See Prillaman v. Commonwealth, 199 Va. 401, 405, 100 S.E.2d 4, 7 (1957). Statutes which are in pari materia should be construed together, even if they contain no reference to each other and were passed at different times. Id. at 406, 100 S.E.2d at 7 (citing Mitchell v. Witt, 98 Va. 459, 461, 36 S.E. 528, 528 (Va. 1900)). The Department, therefore, believes it is appropriate to look to other parts of the Code of Virginia and Virginia Administrative Code dealing with telecommunications matters in order to determine what constitutes a "long distance telephone call" for purposes of Va. Code § 58.1- 3731.
For purposes of the Pay-Per-Call Services Act, Chapter 33 of Title 59.1 of the Code of Virginia, "long distance carrier" means "any interexchange telephone company providing services within the Commonwealth." See Va. Code § 59.1-429. This definition is reflected in the regulations of the State Corporation Commission (SCC) pertaining to public utilities and telecommunications, which define an "interexchange carrier (IXC)" as "a carrier that offers interexchange long-distance telecommunications services." See Title 20 VAC 5-413-5. Another regulation, Title 20 VAC 5-413-30, refers to the "long-distance charges of [an] IXC" in the context of when a local exchange carrier (LEC) may restrict a customer's access to the IXC. These provisions suggest that long distance calls are linked to interexchange services.
"Interexchange telephone service" is defined elsewhere in the Code of Virginia, in relevant part, as "telephone service between points in two or more exchanges that is not classified as local exchange telephone service." See Virginia Code § 56-1. "Local exchange telephone service" means "telephone service provided in a geographical area established for the administration of communication services . . . . Local exchange service, as opposed to interexchange service, consists of telecommunications between points within an exchange or between exchanges which are within an area where customers may call at specified rates and charges." Id. In addition, "local service area" is defined elsewhere in the Code of Virginia as "the entire area composed of an exchange or exchanges within which are located the telephones which a customer may call at the rates and charges specified for local exchange service." See Va. Code § 56-434.1 C.
Construed together, these provisions suggest that to be a long distance telephone call, the call must occur between two or more exchanges, but not be part of a local exchange service. In addition, because the term "local exchange telephone service" refers broadly to "geographical area" and "area," it appears that such service does not necessarily have to occur in the same state. It appears, therefore, that any interstate calls that are part of a local exchange service would not be considered long distance calls.
The Taxpayers should be aware, however, that the Virginia statutes and regulations cited do not specifically refer to the term Local Access and Transport Area (LATA). As such, the Taxpayers must determine whether the calls in question are part of a local exchange telephone service, regardless of whether they remain within the same LATA. In addition, as explained in the answer to question 2 above, data transmissions would not qualify for the exclusion for long distance telephone calls regardless of whether they are interstate.
If you have any questions regarding this opinion, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5750265990.M