Tax Type
BPOL Tax
Description
Companies improving home sites
Topic
Local Power to Tax
Date Issued
10-17-1997
October 17, 1997
Re: Request for Advisory Opinion: BPOL
Dear*****************
This will respond to your letter of September 17, 1997, requesting an advisory opinion.
The license tax is a local tax which is imposed and administered by local officials. The Code of Virginia limits the involvement of the Department of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
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.
FACTS
You have inquired as to whether two companies engaged in the business of subdividing and improving home sites for sale in your County should be subject to licensure there. The companies maintain their offices in an adjoining county. No local office, such as a site trailer or other location is maintained in your jurisdiction. The improvement to the housing developments includes grading, installing curbing and gutters and installing common elements which will ultimately be managed by the homeowner's association for the development. All of the work at the development is performed by a general contractor on behalf of the companies. None of the construction work is directly performed by the companies or their respective employees.
The companies have provided you with a letter dated June 27, 1997, asserting that they should not be subject to the BPOL tax imposed in your locality. The grounds for their position can be summarized from their letter as follows:
-
- 1. The companies do not maintain a "definite place of business" in ********County (the "County") as defined in Virginia Code § 58.1-3703.1 and the corresponding provisions of the County Code.
-
- 2. The companies are not performing any "services" for any other party, as defined in the Virginia or Codes, rather they are contracting with others to have services performed on their behalf.
-
- 3. The companies are not "contractors" as defined in § 58.1--3714.B. of the Virginia Code and the corresponding provisions of the County Code because they are not performing any work on behalf of others, on property, but rather, they have hired others, who would presumably be subject to County taxes, to do work for them.
I will address each of the forgoing questions below. To better focus our response on the factors necessary to resolve this issue, l will proceed in reverse order.
Definition of Contractor
The companies are engaged in the subdividing and development of residential building lots for sale in the County. The relationship between development companies and contractors is explained at page 93 of the 1997 BPOL Guidelines. The Guidelines note that the contractor classification includes "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 defining the contractor classification to include developers, this provision of the Guidelines takes into account not only the § 58.1-3714.B definition of contractors but also § 58.1-3706 A 1 which establishes the rate limitation for contractors and persons constructing for their own account for sale. Thus, 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.
Performing Services for "others"
In order for the BPOL tax to be imposed, the taxpayer must be engaged in the exercise of a licensable privilege. In order for a contractor to be subject to licensure, it must be providing services to a third party. Under this rule, a homeowner making improvements or repairs to his own home is not a considered a contractor engaged in the exercise of a licensable privilege because he is not providing services to a third party.
The companies in question here argue that the rule that applies to homeowners above should also apply to them. We cannot agree. The homeowner is making improvements only for himself while the companies are making improvements in order to satisfy the expectations of its customers. Thus, while the buyers of the home sites for whom the improvements are installed are not identified at the time that the work commences, the services and improvements provided under the direction of the companies are nonetheless provided specifically for these third party buyers not merely the companies. Hence, the Guidelines provide that developers improving their own property for purposes of resale as well as contractors working for an identified third party are subject to the tax. See page 94 Guidelines.
No "Definite Place of Business"
A "definite place of business" is defined in Code of Virginia § 58.1-3700.1 and the Guidelines as an office or a location at which occurs a regular and continuous course of dealing for 30 consecutive days or more. As stated above, the companies are a contractor for purposes of the BPOL tax. In the particular trade of contracting, a contractor has a definite place of business where it establishes its presence for the purpose of regularly and continuously carrying on its trade for a period of more than 30 days.
As the developer and owner of the real estate in your County, the companies have clearly established their presence in your locality for a period exceeding 30 days. The fact that some of the companies' activities are carried on through third party contractors does not change this result.
Even if the companies did not have a definite place of business in your locality, as contractors, they would be subject to Code of Virginia § 58.1-3715 which provides that contractors may be subject to licensure in any jurisdiction where they will do more than $25,000 in business for the year.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance. If you have any further questions or comments, please do not hesitate to let me know.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12988D
Rulings of the Tax Commissioner