Tax Type
BPOL Tax
Local Taxes
Description
Limited liability companies
Topic
Local Power to Tax
Date Issued
01-11-1999
January 11, 1999
Re: Request for Advisory Opinion
Business, Professional, & Occupational License (BPOL) Tax
Dear ****
This will respond to your facsimile transmitted on December 14, 1998 requesting an advisory opinion regarding the local license taxation of limited liability companies.
Although the BPOL tax is a local license tax that is imposed and administered by local officials, the Virginia Department of Taxation may promulgate guidelines and issue advisory opinions on a limited basis according to Virginia statute. The Department, however, is not required to interpret local ordinances.
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. Copies of cited sources are enclosed for your review.
FACTS
You inform me that your client (hereinafter "the Operating LLC") is a limited liability company (hereinafter a "LLC") organized under the laws of Delaware and is a wholly owned subsidiary of another Delaware LLC (hereinafter "the Parent LLC"). For federal income tax purposes, the Parent LLC will be taxed as a partnership. The Operating LLC will be treated as a "disregarded entity" under Treasury Regulations § 301.7701-1 et seq. (the "check the box" regulations) and its income and deductions will be reported on the partnership return filed by the Parent LLC. The Operating LLC is considering operating two separate facilities in Virginia. You state that each business will be organized as a separate legal subsidiary wholly owned by the Operating LLC. Your client is contemplating structuring each of these new entities as a single member LLC. You also state that for federal income tax purposes, they will both be treated as "disregarded entities." You ask whether or not a LLC is a business subject to the local license tax.
OPINION
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or 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 58.1-3703(A). Business means "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." Code of Virginia § 58.1-3700.1. A definite place of business means "an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends." 1997 BPOL Guidelines, page 4.
Code of Virginia § 58.1-3703(A) authorizes localities to impose a license tax or fee on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein." Furthermore, Code of Virginia § 58.1-3703.1 (the Uniform Ordinance Provisions) provides that "every person shall apply for a license when engaging in a business in [a Virginia] jurisdiction."
In Public Document 97-343, the Department ruled that if a single member LLC or QSSS is disregarded as a separate taxable entity for federal income tax purposes under Treasury Regulations § 301.7701-1 et seq. (the "check the box" regulations), it will be disregarded as a separate taxable entity for Virginia income tax purposes. This ruling reflects Virginia's conformity to the Internal Revenue Code (IRC) in computing Virginia taxable income. Virginia's conformity to federal law is set forth in Code of Virginia § 58.1-301, which provides that the terms used in the Virginia income tax statutes will have the same meaning as used in the IRC. For Virginia, federal taxable income (FTI) and federal adjusted gross income (FAGI), the starting points for determining income taxable in Virginia for corporations and individuals, respectively, are identical to that as defined by the IRC. Id.
However, in Public Document 98-157, the Department determined that for retail sales and use tax purposes, a single member LLC is considered a separate legal entity subject to the applicable Virginia sales and use tax laws, regardless of which "check the box" elections the entity chooses for federal income tax purposes. Virginia sales and use tax law, unlike Virginia income tax law, is not tied to federal income tax law by the concept of conformity and has a specific definition of "dealer" for the purposes of the retail sales and use tax.
It is my opinion that for BPOL tax purposes, a LLC, like any other person, firm, or corporation, may be subject to local license taxation based on its activities at a definite place of business in Virginia regardless of which federal "check the box" elections the entity chooses for federal income tax purposes. As a general rule, the measure of a license tax, if based on gross receipts, is the gross receipts attributed to a business's definite place of business in Virginia. Code of Virginia § 58.1-3703.1(A)(3)(a).
In summary, whether the contemplated limited liability companies, the Operating LLC or the Parent LLC is subject to a BPOL tax depends on whether each maintains a definite place of business in Virginia. As stated in Public Document 97-305,
[t]o constitute a definite place of business in a locality, a [taxpayer] must have an office or a location at which occurs a regular and continuous course of dealing for thirty (30) consecutive days or more. Indicators of such a presence may be employees at the location, advertising or otherwise holding oneself out as engaging in business at such location.
The situs rules of Code of Virginia § 58.1-3703.1 generally must be used in determining the lawful amount of BPOL tax that can be assessed upon a business.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the requirements of the law, it is written only for your guidance. If you have other questions, please do not hesitate to contact ************ at ************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP20168D
Rulings of the Tax Commissioner