Tax Type
BPOL Tax
Description
BPOL tax liability of real estate brokers and agents
Topic
Local Power to Tax
Date Issued
03-11-1998
March 11, 1998
Dear********:
The license tax is a local tax that 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 ask the following questions:
1. If one locality subjects real estate brokers and their real estate agents to a local business license tax and a second locality subjects only real estate brokers to such business license tax, would real estate brokers in the second locality be subject to tax on their full gross receipts with no allowable exclusion for commissions paid to real estate agents?
2. Out-of-state real estate brokers sometimes refer clients, seeking to move into Virginia, to real estate brokers located in the ***** ("Locality'). The out-of-state broker may be paid a commission between 30% and 35% from the local broker if the local broker sells a house to such clients. In reporting taxable BPOL gross receipts, would the local broker be able to deduct or exclude the commissions paid to out-of-state brokers in these circumstances?
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703C, 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 at a definite place within the locality. Code of Virginia §§ 58.1-3700 and 58.1-3703A (copies enclosed). (Effective July 1, 1998, localities can impose either a license tax or a license fee on a business at a definite place of business, but not both.)
Exclusion from Gross Receipts of a Real Estate Broker
The local license tax is generally measured by gross receipts. Unless otherwise provided by law, gross receipts means "the whole entire, total receipts, without deduction.' Code of Virginia § 58.1-3700.1 (copy enclosed).
The local license tax as applied to real estate brokers is one exception to the general rule of imposing the tax on a business's gross receipts. An amount equal to the sales commissions paid by a real estate broker to his agent(s) are excluded from the broker's taxable BPOL gross receipts provided that such real estate agent(s) are subject to the business license tax on the commissions. The exclusion is also conditioned on the real estate broker identifying each agent to whom the commission has been paid and the jurisdiction in the Commonwealth where the agent is licensed. Code of Virginia § 58.1-3732.2 (copy enclosed).
Local License Taxation of Real Estate Brokers and Agents
Your first question is whether the license tax treatment of real estate brokers in one Virginia locality impacts the license tax treatment of real estate brokers in another locality.
Public Document 97-8 (copy enclosed) states that an important goal in the BPOL reform process was maintaining the localities' flexibility in administering the local license tax. Consistent with this goal it is appropriate that the localities apply the license tax in a manner which best serves the interests of the locality provided such application is not inconsistent with or contrary to the framework established in §§ 58.1-3700 et seq. Code of Virginia. Although § 58.1-3732.2 applies to real estate brokers and agents it does not preclude an approach in which the locality opts to subject only the broker to license taxes and fees. This approach would be within the discretion of the particular locality involved.
This public document makes clear that a locality may choose to subject only real estate brokers to license taxes and fees. In making this choice, a locality need not take into consideration the local license tax policies of neighboring localities with respect to real estate brokers and agents.
Taxable BPOL gross receipts of a real estate broker are those gross receipts attributed to a definite place of business in the locality less an amount equal to sales commissions paid to real estate agents, provided the agents are subject to a business license tax on such commissions in the locality or elsewhere in Virginia. "The broker claiming the exclusion shall identify on its license application each agent to whom the excluded receipts have been paid, and the jurisdiction in the Commonwealth of Virginia to which the agent is subject to business license taxes.' Code of Virginia § 58.1-3732.2. Of course, if the broker's agents are not subject to a business license tax on sales commissions received from the broker, such sales commissions may not be excluded from the broker's gross receipts.
Sales Commissions Paid to Out-of-State Brokers
Out-of-state real estate brokers and agents (i.e., brokers and agents with no definite place of business in Virginia) are not subject to the Virginia local license tax. This includes sales commissions received from Virginia real estate brokers. However, the exclusion under § 58.1-3732.2 is limited to an amount equal to sales commissions paid to real estate agents subject to a license tax on such commissions in the Commonwealth. As a result, a Virginia real estate broker may not exclude an amount equal to sales commissions paid to out-of-state brokers when reporting taxable gross receipts.
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, and the final determination is with the locality.
Dear********:
The license tax is a local tax that 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 ask the following questions:
1. If one locality subjects real estate brokers and their real estate agents to a local business license tax and a second locality subjects only real estate brokers to such business license tax, would real estate brokers in the second locality be subject to tax on their full gross receipts with no allowable exclusion for commissions paid to real estate agents?
2. Out-of-state real estate brokers sometimes refer clients, seeking to move into Virginia, to real estate brokers located in the ***** ("Locality'). The out-of-state broker may be paid a commission between 30% and 35% from the local broker if the local broker sells a house to such clients. In reporting taxable BPOL gross receipts, would the local broker be able to deduct or exclude the commissions paid to out-of-state brokers in these circumstances?
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703C, 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 at a definite place within the locality. Code of Virginia §§ 58.1-3700 and 58.1-3703A (copies enclosed). (Effective July 1, 1998, localities can impose either a license tax or a license fee on a business at a definite place of business, but not both.)
Exclusion from Gross Receipts of a Real Estate Broker
The local license tax is generally measured by gross receipts. Unless otherwise provided by law, gross receipts means "the whole entire, total receipts, without deduction.' Code of Virginia § 58.1-3700.1 (copy enclosed).
The local license tax as applied to real estate brokers is one exception to the general rule of imposing the tax on a business's gross receipts. An amount equal to the sales commissions paid by a real estate broker to his agent(s) are excluded from the broker's taxable BPOL gross receipts provided that such real estate agent(s) are subject to the business license tax on the commissions. The exclusion is also conditioned on the real estate broker identifying each agent to whom the commission has been paid and the jurisdiction in the Commonwealth where the agent is licensed. Code of Virginia § 58.1-3732.2 (copy enclosed).
Local License Taxation of Real Estate Brokers and Agents
Your first question is whether the license tax treatment of real estate brokers in one Virginia locality impacts the license tax treatment of real estate brokers in another locality.
Public Document 97-8 (copy enclosed) states that an important goal in the BPOL reform process was maintaining the localities' flexibility in administering the local license tax. Consistent with this goal it is appropriate that the localities apply the license tax in a manner which best serves the interests of the locality provided such application is not inconsistent with or contrary to the framework established in §§ 58.1-3700 et seq. Code of Virginia. Although § 58.1-3732.2 applies to real estate brokers and agents it does not preclude an approach in which the locality opts to subject only the broker to license taxes and fees. This approach would be within the discretion of the particular locality involved.
This public document makes clear that a locality may choose to subject only real estate brokers to license taxes and fees. In making this choice, a locality need not take into consideration the local license tax policies of neighboring localities with respect to real estate brokers and agents.
Taxable BPOL gross receipts of a real estate broker are those gross receipts attributed to a definite place of business in the locality less an amount equal to sales commissions paid to real estate agents, provided the agents are subject to a business license tax on such commissions in the locality or elsewhere in Virginia. "The broker claiming the exclusion shall identify on its license application each agent to whom the excluded receipts have been paid, and the jurisdiction in the Commonwealth of Virginia to which the agent is subject to business license taxes.' Code of Virginia § 58.1-3732.2. Of course, if the broker's agents are not subject to a business license tax on sales commissions received from the broker, such sales commissions may not be excluded from the broker's gross receipts.
Sales Commissions Paid to Out-of-State Brokers
Out-of-state real estate brokers and agents (i.e., brokers and agents with no definite place of business in Virginia) are not subject to the Virginia local license tax. This includes sales commissions received from Virginia real estate brokers. However, the exclusion under § 58.1-3732.2 is limited to an amount equal to sales commissions paid to real estate agents subject to a license tax on such commissions in the Commonwealth. As a result, a Virginia real estate broker may not exclude an amount equal to sales commissions paid to out-of-state brokers when reporting taxable gross receipts.
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, and the final determination is with the locality.
Rulings of the Tax Commissioner