December 10, 2018
Re: Request for Advisory Opinion
Business, Professional and Occupational License Tax
Dear *****:
This will reply to your letter in which the ***** (the “City”) requests an advisory opinion regarding whether an individual is conducting a business for the purposes of the Business, Professional and Occupational license (BPOL) tax.
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 these facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and regulations cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site.
FACTS
An individual serves on the board of directors of a bank. The City requests an opinion concerning whether the compensation he receives for such services is subject to BPOL tax.
OPINION
The BPOL tax is a tax on the privilege of doing business within a locality. The Attorney General of Virginia has opined that corporate directors are not normally considered to be conducting a business for purposes of the BPOL tax, even when their remuneration may be substantial. See 1984-1985 Report of the Attorney General 345. That opinion was based on an interpretation of Virginia Code § 58.1-266.1 in effect at that time, which stated:
The council of any city or town, and the governing body of any county, may levy and provide for the assessment and collection of city, town or county license taxes on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein . . . .” (Emphasis in the original).
The Attorney General reasoned that the underlined terms were activities that were one’s livelihood and means of support. Because corporate directorships were not commonly considered as requiring an individual’s primary attention as a livelihood or means of support, then the individual would not normally be considered to be in the business of being a corporate director.
This interpretation, however, preceded the enactment of certain definitions governing the BPOL tax statutes. See Virginia Code § 58.1-3700.1, which was added by 1996 Senate Bill 587 (Chapter 715 of the 1996 Acts of Assembly) and 1996 House Bill 293 (Chapter 720 of the 1996 Acts of Assembly). The term “business” is now defined as:
a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction . . . The following acts shall create a rebuttable presumption that a person is engaged in a business: (i) advertising or otherwise holding oneself out to the public as being engaged in a particular business or (ii) filing tax returns, schedules and documents that are required only of persons engaged in a trade or business.
See also Title 23 of the Virginia Administrative Code (VAC) 10-500-10. In addition, although employees are generally not engaged in a licensable activity separate from that of their employer, independent contractors are engaged in business separate from those who contract for their services. See Title 23 VAC 10-500-130 A and B. Further, Title 23 VAC 10-500-130 D provides that “[I]ocalities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable.”
The director in this case receives fees that are reported on a federal Form 1099 and a Schedule C of his federal income tax return, consistent with the status of an independent contractor. Under the statutory definition of “business” now in effect, such reporting creates a rebuttable presumption that the director is engaged in business. See Virginia Code § 58.1-3700.1. In addition, the City states that the director has monthly meetings and some level of preparation goes into each meeting, suggesting a continuous and regular course of dealing, rather than irregular and isolated transactions.
The Department expresses no opinion concerning the application of any other aspect of BPOL tax law to the facts presented, including the classification or situs of any gross receipts. 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/1848.M