Can a Virginia city tax a contractor's business activities performed on a federal military base?

Plain-English summary

Chesapeake City Attorney Hallman asked the AG to sort out a tax-jurisdiction dispute. An engineering company headquartered in Chesapeake provides Navy vessel maintenance services, including at the Joint Expeditionary Base Little Creek-Fort Story (JEB Little Creek) in Virginia Beach. The company had been paying Business Professional and Occupational License (BPOL) tax on its gross receipts to Chesapeake for years. Virginia Beach started assessing BPOL tax on the same gross receipts based on the work performed at the base.

Hallman asked two questions:

1. Does the federal government's exclusive jurisdiction over JEB Little Creek bar Virginia Beach from imposing a BPOL tax on activities performed there?
2. Does the contractor's on-base service trailer (with desks, computers, and phone, but no mail service, no advertising, no on-site commercial solicitation) constitute a "definite place of business" sufficient to anchor the BPOL tax to Virginia Beach?

The AG answered no to the federal jurisdiction question (it does not bar the tax) and left the definite-place-of-business question to factual determination by the local commissioner of the revenue.

Federal jurisdiction over the base. Under U.S. Const. art. I, § 8, cl. 17, Congress has exclusive jurisdiction over places purchased with the consent of the state. In 1902, the Virginia General Assembly consented to federal acquisition for federal purposes. In 1940, Virginia provided that ceded jurisdiction would revert to the Commonwealth only if the land was sold or leased to a private individual or business (with carve-outs for post exchanges and similar military activities). JEB Little Creek was created in 1942 and made a permanent Navy base in 1946. The Navy has never sold or leased it to a private party, so the federal government retains exclusive jurisdiction.

The Buck Act ends the analysis on the tax question. 4 U.S.C. §§ 105-110 (the Buck Act) lets states tax income earned within a federal area, with "income tax" defined to include any tax levied on or measured by net income, gross income, or gross receipts. In Howard v. Commissioners of Sinking Fund, the Supreme Court applied the Buck Act to uphold a Louisville occupational tax measured by 1% of income earned in the city by employees working at a federally-owned plant within city boundaries. Even though the tax was not an "income tax" under Kentucky law, it was an "income tax" under the Buck Act's broader federal definition.

The Virginia Beach BPOL tax is assessed on gross receipts. That fits the Buck Act's gross-receipts trigger. Under the Buck Act, Virginia Beach can tax those receipts even though they were earned on land under exclusive federal jurisdiction.

Definite place of business. Section 58.1-3703.1(A)(3)(a) requires that when a license tax is based on gross receipts, only those gross receipts attributable to a "definite place of business" within the jurisdiction count. Section 58.1-3700.1 defines a definite place of business as "an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more." 23 Va. Admin. Code § 10-500-10 adds that it must be a place where the business "holds [it]self out or avails [it]self to the public for 30 consecutive days or more, exclusive of holidays and weekends."

For contractors specifically, § 58.1-3703.1(A)(3)(a)(1) attributes gross receipts to the definite place of business "at which his services are performed, or if his services are not performed at any definite place of business, then the definite place of business from which his services are directed or controlled."

Whether the company's trailer qualifies is a question of fact. The AG flagged the relevant factors:

• Continuous presence on the site.
• An office with a phone.
• Mail reception.
• Employees.
• Record keeping.
• Advertising or holding oneself out as engaging in business at the location.

The AG noted (without deciding) that the trailer had a phone and computers and continuous use, but no mail service, no advertising, and no authority to solicit. The factual determination is the local commissioner of the revenue's call (or a trier of fact if litigated).

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

BPOL tax rules have continued to evolve, and Virginia courts and the Tax Commissioner regularly issue rulings on the contractor "definite place of business" analysis. The Buck Act framework is federal law and has been stable, but the local tax treatment of contractors with multi-jurisdictional operations should be checked against current statutes, regulations, and recent Tax Department guidance.

Common questions

What does "exclusive federal jurisdiction" mean if Virginia Beach can still tax?

Exclusive jurisdiction means Virginia generally cannot enforce state law on the base (criminal jurisdiction, civil regulation, and so on). But Congress can carve out exceptions, and the Buck Act is exactly that: a Congressional carve-out letting states impose income-style taxes on activities within federal enclaves.

Could Chesapeake and Virginia Beach both tax the same gross receipts?

That's the operational question the AG opinion sets up but does not fully resolve. The rule is that gross receipts get attributed to the definite place of business where services are performed (or directed if no DPOB exists at the work site). If the trailer is not a DPOB, the receipts attribute to the Chesapeake headquarters. If the trailer is a DPOB, the receipts attribute to Virginia Beach. The two localities should not both tax the same receipts; the determination of which locality gets them is a factual question.

What if a contractor has multiple sites all over the state?

Each site is analyzed individually under the DPOB test. Receipts get attributed to the specific site where services are performed (or where they are directed if performed at no DPOB). For large multi-site contractors, this can be a substantial allocation exercise.

What's "BPOL" in plain terms?

BPOL stands for Business, Professional, and Occupational License. It is a Virginia local tax most commonly imposed on gross receipts from business activity within the locality. Some localities charge it as a flat fee for small businesses, but for larger operations it scales with gross receipts.

Background and statutory framework

The constitutional anchor:

• U.S. Const. art. I, § 8, cl. 17. Congressional exclusive jurisdiction over places purchased with state consent.

The Virginia cession statutes:

• The 1902 Act. Virginia consents to federal acquisition; cedes exclusive jurisdiction (except state-court process) for as long as the U.S. owns the land.
• The 1940 Act. Ceded jurisdiction reverts to Virginia if land is sold or leased to a private party for private industry or business, with carve-outs for post exchanges, officers' clubs, and similar national-defense activities.

The Buck Act:

• 4 U.S.C. §§ 105-110. No person is relieved of liability for state income tax by reason of residing within a federal area or earning income there. State has full jurisdiction to levy and collect.
• 4 U.S.C. § 110(c). "Income tax" means any tax measured by net income, gross income, or gross receipts.

The BPOL statutes:

• Va. Code Ann. § 58.1-3700.1. "Definite place of business" definition.
• Va. Code Ann. § 58.1-3703.1(A)(3)(a). Gross receipts must be attributable to a DPOB within the jurisdiction.
• Va. Code Ann. § 58.1-3703.1(A)(3)(a)(1). Contractor receipts attributed to the DPOB where services are performed, or where directed if no DPOB at the work site.

The BPOL regulations:

• 23 Va. Admin. Code § 10-500-10. DPOB requires holding out to the public for 30 consecutive days (exclusive of holidays and weekends).

The case law:

• The Supreme Court has held that immunity is not conferred simply because a state tax falls on the earnings of a contractor providing services to the government.
• Howard v. Commissioners of Sinking Fund: the Buck Act lets Louisville impose an occupational tax on employees of a federally-owned plant within the city; "income tax" is broadly defined.

The factual record:

• Engineering company headquartered in Chesapeake.
• Provides Navy vessel maintenance at multiple naval facilities, including JEB Little Creek.
• Multi-year presence on JEB Little Creek with a service trailer.
• Trailer has desks, computers, phone service; no mail service, no advertising, no commercial solicitation authority from the Navy.
• Majority of contract cost generated from Chesapeake headquarters work (engineering, costing, scheduling, change order processing, personnel management, billing).
• Company has been paying BPOL tax to Chesapeake for years; Virginia Beach recently assessed BPOL tax on the same receipts.

The AG's two-step framework:

1. Federal exclusive jurisdiction does not bar BPOL tax. The Buck Act resolves this.
2. Whether the trailer is a DPOB is a fact question, resolved by the local commissioner of the revenue (or trier of fact in litigation) under the §§ 58.1-3700.1 and 58.1-3703.1 framework.

Citations

• Va. Code § 2.2-505
• U.S. Const. art. I, § 8, cl. 17
• 4 U.S.C. §§ 105-110 (Buck Act)
• 4 U.S.C. § 110(c)
• Va. Code Ann. § 58.1-3700.1
• Va. Code Ann. § 58.1-3703.1(A)(3)(a)
• Va. Code Ann. § 58.1-3703.1(A)(3)(a)(1)
• 23 Va. Admin. Code § 10-500-10
• Howard v. Commissioners of Sinking Fund, 344 U.S. 624 (1953)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2012/11-029_Hallman.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

900 East Main Street
Richmond, Virginia 23219
February 24, 2012
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Ronald S. Hallman, Esquire
City Attorney for the City of Chesapeake
Office of the City Attorney
306 Cedar Road
Chesapeake, Virginia 23322

Dear Mr. Hallman:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You ask whether the City of Virginia Beach has authority to assess a Business Professional and Occupation License (BPOL) Tax on an engineering company with headquarters in Chesapeake but which carries out business at the Joint Expeditionary Base Little Creek-Fort Story (JEB Little Creek) located in the City of Virginia Beach. Specifically, you ask two questions: 1) whether the United States' exclusive jurisdiction over JEB Little Creek prohibits assessment of a BPOL tax on activities performed at that location; and 2) whether the company, by operating a service trailer on the base, maintains such activities at JEB Little Creek as to constitute a "definite place of business" for purposes of the BPOL tax.

Response

It is my opinion that, although the United States government exercises exclusive jurisdiction over the Naval Base of JEB Little Creek, such jurisdiction does not prohibit the City of Virginia Beach from assessing a BPOL tax on activities carried out by a private company on that land. It further is my opinion that whether the activity of a business at a particular location is sufficient for it to become a "definite place of business" is a question of fact to be determined by the local taxing official, or by a trier of fact if litigated, consistent with the definitions set forth in § 58.1-3700.1 and 23 Va. Admin. Code § 10-500-10.

Background

You indicate that there is an engineering company ("the Company") that maintains an office in Chesapeake, Virginia. The Company renders vessel maintenance, alteration and repair services to the United States Navy, often at the naval facilities, where the vessel in need of repair is located.

The Company for several years has performed its services at JEB Little Creek and maintained a trailer there to support the same. You report the following additional facts to me. This trailer is used for administrative purposes and contains desks and computers so that on-site personnel may interact with, and follow the directions of, the project manager in the Company's Chesapeake office. The trailer does not have mail service but does have telephone service. The Company does not advertise its presence or its services from the trailer, and the Navy has not granted the Company the authority to conduct commercial solicitation activities on JEB Little Creek. The Company says that a majority of the contract costs result from work performed at its Chesapeake office, including engineering services, costing and scheduling of work, change order processing, personnel management and billing.

The Company has been reporting and paying a BPOL tax on the gross receipts earned on the vessel repair contracts to the City of Chesapeake for several years. Recently, the City of Virginia Beach has assessed a BPOL tax on the same gross receipts.

Applicable Law and Discussion

Your first inquiry is whether Virginia Beach has the authority to assess a BPOL tax on activities conducted at JEB Little Creek, which is the property of the United States government. It is my opinion that Virginia Beach is not prohibited from assessing a BPOL tax on activities conducted there.

The first issue to determine is whether the United States indeed exercises exclusive jurisdiction over JEB Little Creek. Article I, § 8, Clause 17 of the Constitution of the United States authorizes Congress to exercise exclusive jurisdiction "over all places purchased by the consent of the legislature of the state in which the same shall be."

In 1902, the Virginia General Assembly ceded jurisdiction to the United States over land acquired for Federal purposes (subject to the right of the Commonwealth to serve process on said lands).

The 1902 Act provides:

1. Be it enacted by the general assembly of Virginia, That the consent of the State of Virginia is hereby given, in accordance with the seventeenth clause, eighth section, of the first article of the constitution of the United States, to the acquisition by the United States, by purchase, condemnation, or otherwise, of any land in this State required for sites for custom houses, courthouses, post offices, arsenals, or other public buildings whatever, or for any other purposes of the government.

2. That exclusive jurisdiction in and over any land so acquired by the United States shall be, and the same is hereby, ceded to the United States for all purposes except the service upon such sites of all civil and criminal process of the courts of this State; but the jurisdiction so ceded shall continue no longer than the said United States shall own such lands.

3. The jurisdiction ceded shall not vest until the United States shall have acquired the title to said lands by purchase, condemnation, or otherwise; and so long as the said lands shall remain the property of the United States when acquired as aforesaid, and no longer, the same shall be and continue exempt and exonerated from all State, county, and municipal taxation, assessment, or other charges which may be levied or imposed under the authority of this State.

4. This act shall take effect and be in force from and after its passage.

In 1940, the General Assembly established the following conditions under which state jurisdiction may be reasserted:

[I]n the event that the said lands or any part thereof shall be sold or leased to any private individual, or any association or corporation, under the terms of which sale or lease the vendee or lessee shall have the right to conduct thereon any private industry or business, then the jurisdiction ceded to the United States over any such lands so sold or leased shall cease and determine, and thereafter the Commonwealth of Virginia shall have all jurisdiction and power she would have had if no jurisdiction or power had been ceded to the United States. This provision, however, shall not apply to post exchanges, officers' clubs, and similar activities on lands acquired by the United States for purposes of National defense.

Therefore, once the ceded property is sold or leased to a "private" individual, association, or corporation and the terms of the sale or lease provide the buyer or lessee with the right to conduct "any private industry or business" thereon, Virginia would regain exclusive jurisdiction over the property.

JEB Little Creek was created in 1942 and was made a permanent base of the United States Navy in 1946. Based upon the facts provided to me, the United States Navy has never sold or leased this land to a private individual as would restore Virginia's exclusive jurisdiction over the property under the 1940 Act. JEB Little Creek, therefore, is under the exclusive jurisdiction of the United States government.

The analysis, however, does not end there. The issue is now whether or not the federal government's exclusive jurisdiction over JEB Little Creek bars Virginia Beach from assessing a BPOL tax on activities carried out on the property.

The 1902 Act of Assembly, cited above, does exempt all land under federal jurisdiction from state and local taxation, as is required by the Supremacy Clause of the Constitution of the United States. Nonetheless, whether state and local governments have authority to tax activities carried out on federal property is a different question, one which the Supreme Court of the United States has answered clearly in the affirmative.

The Court has concluded that:

[I]mmunity cannot be conferred simply because the state tax falls on the earnings of a contractor providing services to the Government. And where a use tax is involved, immunity cannot be conferred simply because the State is levying the tax on the use of federal property in private hands, even if the private entity is using the Government property to provide the United States with goods or services.

This issue is further defined by 4 U.S.C. §§ 105-110, known as the Buck Act, which provides, in pertinent part:

No person shall be relieved from liability for any income tax levied by any State, or by any duly constituted taxing authority therein, having jurisdiction to levy such a tax, by reason of his residing within a Federal area or receiving income from transactions occurring or services performed in such area; and such State or taxing authority shall have full jurisdiction and power to levy and collect such tax in any Federal area within such State to the same extent and with the same effect as though such area was not a Federal area.

Section 110(c) of the Buck Act defines "income tax" as follows:

The term 'income tax' means any tax levied on, with respect to, or measured by, net income, gross income, or gross receipts.

Interpreting the Buck Act in Howard v. Commissioners of Sinking Fund, the Supreme Court upheld a Louisville, Kentucky occupational tax or license fee applied to employees of a plant on federal land within the boundaries of the city. The Court held that a tax or license fee imposed by the City of Louisville for the privilege of working within the City, measured by one percent of income earned within the City, was an "income tax" within the meaning of the Buck Act, and was authorized by that Act to be applied to payments received by federal employees for services performed at the plant, even though such tax or fee was not an "income tax" under state law.

This is directly analogous to the case in question. The Virginia Beach BPOL tax is assessed on the gross receipts reported by the company. Thus, based on Howard, it must be considered an "income tax," which a city is authorized to assess even on income earned on federal property.

You next ask whether the company, by operating a service trailer on the base, maintains such activities at JEB Little Creek as to constitute a "definite place of business" for purposes of the BPOL tax.

Section 58.1-3703.1(A)(3)(a) requires that when a license tax is based on gross receipts, the gross receipts shall be "only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within this jurisdiction." Section 58.1-3700.1 defines a definite place of business as "an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more."

Section 58.1-3703.1(A)(3)(a)(1) further defines a "definite place of business" for contractors:

(1) The gross receipts of a contractor shall be attributed to the definite place of business at which his services are performed, or if his services are not performed at any definite place of business, then the definite place of business from which his services are directed or controlled.

Whether a location constitutes a definite place of business is a question of fact. "This Office historically has declined to render opinions that involve determinations of fact rather than questions of law." Accordingly, I am unable to render an opinion regarding whether a particular location constitutes a definite place of business. Nevertheless, I note that the following factors might be considered in the determination: "(1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out in as engaging in business at the particular location."

Conclusion

It is my opinion that, although the United States government exercises exclusive jurisdiction over the Naval Base of JEB Little Creek, this jurisdiction does not prohibit the City of Virginia Beach from assessing a BPOL tax on activities carried out by a private company on that land. It further is my opinion that whether the activity of a business at a particular location is sufficient for it to become a "definite place of business" is a question of fact to be determined by the local taxing official, or by a trier of fact if litigated, consistent with the definitions set forth in § 58.1-3700.1 and 23 Va. Admin. Code § 10-500-10.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General