Tax Type
BPOL Tax
Description
Limitations on rate of licenses; Pass-through services
Topic
Local Power to Tax
Date Issued
02-10-1997
February 10, 1997
Re: Request for Advisory Opinion: BPOL
Funeral Homes
Dear********************
This will respond to your letter, transmitted by facsimile on December 18, 1996, in which you asked whether moneys collected by a funeral home for services which the funeral home does not charge a fee may properly be included in the funeral home's gross receipts.
The license tax is, of course, 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 on the BPOL law and issuing advisory written opinions in specific cases to interpret those provisions and the guidelines issued thereunder. 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 indicate that a certain funeral home provides services to its customers including ordering casket sprays, opening and closing graves, and placing obituaries in local newspapers. You state that the billing funeral home does not charge a fee for the provision of these services but passes through to the family the exact cost billed by the entity providing the service. You further indicate that it is common practice for a funeral home to advance money on behalf of a customer by paying for these services "up front" and later billing the customer.
DETERMINATION
You have asked whether moneys, collected by a funeral home for services for which the funeral home does not charge a fee, may properly be included in the funeral home's gross receipts. Specifically, you asked that if these billings are ancillary or incidental to a licensed business, may such billings be included in gross receipts and be subject to a license tax under Code of Virginia § 58.1-3732. Finally, you asked whether the BPOL Guidelines provide guidance on the license tax treatment of expenses advanced on behalf of a client by a service firm.
PASS THROUGH BILLINGS OF A FUNERAL HOME
Subject to limits in Code of Virginia § 58.1-3703 C, localities may charge a fee for issuing BPOL licenses and may levy a license tax on a business for the privilege of engaging in business within the locality. Code of Virginia §§ 58.1-3700 and 58.1-3703 A (copies enclosed). Localities are not prohibited from imposing a fee for issuing BPOL licenses and/or levying a license tax on funeral homes. Code of Virginia § 58.1-3703 C (copy enclosed). The license tax is levied upon gross receipts. Code of Virginia § 58.1-3706 (copy enclosed).
Gross receipts means the "whole, entire, total receipts, of money or other consideration received by the taxpayer as a result of transactions with others besides himself and which are derived from the exercise of the licensed privilege to engage in a business . . ., without deduction or exclusion except as provided by law." 1997 BPOL Guidelines, page 5 (copy enclosed). A locality may levy a BPOL tax only on the gross receipts of a licensable privilege derived from the exercise of the privilege. Code of Virginia § 58.1-3732 (copy enclosed).
This particular funeral home provides services to its customers including ordering casket sprays, opening and closing graves, and placing obituaries in local newspapers. Moneys are collected by the funeral home for these services. Apparently, it is the funeral home, not the customer, who contracts for these services with the service provider. Paying for these services "up front" is a cost of doing business or an expense of the ultimate service provided by the funeral home. As you indicate, it is common practice within the funeral home industry, at no mark-up, to include these services in the ultimate service offered to the customer.
Some monies received by an agent for reimbursement of costs incurred on behalf of a principal are not included in the agent's gross receipts. Alexandria v. Morrison-Williams Associates. Inc., 223 Va. 349 (1982); Op. Att'y Gen. 281 (1985-1986), (copies enclosed). A funeral home, however, does not enter into an agency relationship with its customers.
Thus, all receipts attributable to the licensable privilege of operating a funeral home are subject to a BPOL tax levied on that privilege. Gross receipts of this funeral home related to the payment of casket sprays, opening and closing of graves, and placing obituaries in local newspapers are attributable to the licensable privilege of operating the funeral home as this funeral home has incorporated these services into the service it ultimately provides to its customers. All such gross receipts are subject to a BPOL license tax.
This funeral home "passes through" its costs for providing these services without charging a fee. However, gross receipts of this funeral home related to the payment of these services are still subject to a BPOL license tax because a gross receipts tax is based upon receipts, not net income.
BPOL GUIDELINES - EXPENSES ADVANCED ON BEHALF OF A CLIENT
Section 3.3.3. of the 1997 BPOL Guidelines (copy enclosed) provides some guidance on the taxation of receipts for expenses advanced on behalf of a client. This section provides examples regarding the taxation of an agent's receipts for expenses advanced on behalf of a client.
I hope that the above information will be beneficial to you. Although letter conforms with the law, it is written only for your guidance, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12018C
Rulings of the Tax Commissioner