Can the City of Alexandria, which is grandfathered to tax real estate rentals, adjust its BPOL tax rate on those rentals up or down?

Plain-English summary

Senator Ebbin asked a narrow but practically important question. In 1974, the Virginia General Assembly imposed a moratorium on locality BPOL taxes for real-estate rentals (with limited carve-outs for hotels, motels, B&Bs, and similar lodging). Localities that already had a BPOL tax on real-estate rentals as of January 1, 1974 were grandfathered. The City of Alexandria is grandfathered: it taxes residential rentals at 50 cents per $100 of gross receipts and commercial rentals at 35 cents per $100, and these rates have been in place since before 1974. The senator asked whether the city could adjust the tax rate up to the state's general maximum of 58 cents per $100.

The Attorney General said yes. The grandfather clause in Code § 58.1-3703(C)(7) preserves Alexandria's authority "to levy such tax." It does not freeze the rate. The statute speaks to whether the locality may impose the tax, not at what rate. Had the legislature wanted to lock in the existing rates, it could have written language to that effect; it did not. Under the rule that the legislature is presumed to have chosen its words with care, the AG concluded the city can adjust the rate up or down within the general state maximum (58 cents per $100 of gross receipts), or eliminate the tax entirely, by City Council vote.

Currency note

This opinion was issued in 2018. 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.

Background and statutory framework

Code § 58.1-3703 authorizes Virginia localities to impose Business, Professional, and Occupational License (BPOL) taxes on various activities. Subsection (C) lists categories where the General Assembly has restricted local authority. Subsection (C)(7) created the 1974 moratorium on BPOL taxes for real-estate rentals: localities cannot impose a BPOL tax "[u]pon any person, firm or corporation for engaging in the business of renting, as the owner of such property, real property other than hotels, motels, motor lodges, auto courts, tourist courts, travel trailer parks, campgrounds, bed and breakfast establishments, lodging houses, rooming houses, and boardinghouses."

The 1974 Act (1974 Va. Acts ch. 196) included a grandfather clause: "any county, city or town imposing such a license tax on January 1, 1974, shall not be precluded from the levy of such tax." So localities that already had a real-estate rental BPOL tax as of January 1, 1974 could keep it; those that did not could no longer adopt it. The General Assembly's purpose was apparently to limit the spread of real-estate rental BPOL taxes while not stripping existing localities of revenue they had been relying on.

The textual point on which the AG hung the answer: the grandfather clause speaks to the "levy of such tax," not to the rate. The AG noted that the General Assembly knew how to limit rates when it wanted to (the AG cited 1974 Va. Acts ch. 196, clause (4), as showing that the legislature could specify rate limits when it intended). Because § 58.1-3703(C)(7) imposes no rate cap on grandfathered localities specifically (the general BPOL rate cap of 58 cents per $100 in § 58.1-3706 still applies), a grandfathered locality has the same rate flexibility as any other locality that imposes the BPOL tax.

Common questions

Why is Alexandria allowed to tax rentals when most localities cannot?
Because it was already taxing rentals on January 1, 1974, when the General Assembly imposed a moratorium on new locality BPOL taxes for real-estate rentals. The grandfather clause in § 58.1-3703(C)(7) preserved the authority of localities already imposing the tax.

What does Alexandria currently charge?
At the time of the opinion: 50 cents per $100 of gross receipts on residential real-estate rentals, and 35 cents per $100 on commercial real-estate rentals.

What is the upper limit on the rate?
The general BPOL tax rate cap of 58 cents per $100 of gross receipts. The grandfather clause does not lower or raise this cap.

Can Alexandria eliminate the tax entirely?
Yes. The grandfather clause preserves the authority to levy the tax; it does not require Alexandria to keep imposing it. The City Council can reduce the rate to zero or repeal the tax by ordinance.

Could Alexandria adopt a new BPOL tax on a category of rentals it doesn't currently tax?
The grandfather clause is about whether the locality "had" a tax on January 1, 1974. The opinion assumed the existing rates "apply to the rental of any category of residential or commercial real estate." If a category of rental was not covered by the 1974 ordinance, expanding to that category would arguably be outside the grandfather and into the moratorium.

What is the categorical exclusion for hotels and similar lodging?
Even without the grandfather clause, § 58.1-3703(C)(7) does not prohibit BPOL taxes on hotels, motels, motor lodges, auto courts, tourist courts, travel trailer parks, campgrounds, B&Bs, lodging houses, rooming houses, and boardinghouses. Localities can tax those rentals freely regardless of grandfather status.

Could Alexandria be required to lower the rate to a level it had on January 1, 1974?
According to this opinion, no. The grandfather is about authority, not rate. The City Council can adjust the rate as it sees fit within the general BPOL rate cap.

Citations

• Va. Code § 58.1-3703(C)(7) (grandfather clause for real-estate rental BPOL tax)
• 1974 Va. Acts ch. 196 (original moratorium and grandfather)
• Alger v. Commonwealth, 267 Va. 255 (2004) (legislature chose words with care)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2018/18-036-Ebbin-issued.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

September 28, 2018

The Honorable Adam P. Ebbin
Member, Senate of Virginia
Post Office Box 26415
Alexandria, Virginia 22313

Dear Senator Ebbin:

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

Issue Presented
You ask whether a locality grandfathered under § 58.1-3703(C)(7) to assess business,
professional and occupational license (BPOL) tax on the rental of real estate may adjust the tax rate up to
the state maximum of 58 cents per $100 of gross receipts.

Background
You relate that the City of Alexandria ("the City") currently imposes BPOL taxes on the rental of
residential and commercial real estate at rates of 50 cents and 35 cents per $100 of gross receipts,
respectively. You further state that "these rates have been in place since well before 1974." I will assume
for purposes of this opinion that the rates were in place prior to 1974, and that they apply to the rental of
any category of residential or commercial real estate.

Applicable Law and Discussion
In 1974, the General Assembly placed a moratorium on localities' authority to impose a BPOL
tax "[u]pon any person, firm or corporation for engaging in the business of renting, as the owner of such
property, real property other than hotels, motels, motor lodges, auto courts, tourist courts, travel trailer
parks, campgrounds, bed and breakfast establishments, lodging houses, rooming houses, and
boardinghouses."[1] The Act, which was amended in 1974 and is codified at § 58.1-3703(C)(7), also
includes a grandfather clause, which provides that "any county, city or town imposing such a license tax
on January 1, 1974, shall not be precluded from the levy of such tax."[2] Therefore, although a moratorium
exists on the imposition of BPOL taxes for real estate rentals except for the categories designated in the
statute, a locality may continue to impose such taxes if they were already in place on January 1, 1974.

Although § 58.1-3703(C)(7) prohibits a locality from levying a BPOL tax on categories of
residential or commercial property unless such tax was imposed on January 1, 1974, it does not follow
that a locality which continues to impose the tax under the grandfather clause is prohibited from adjusting
the rate of the tax, either up or down. The grandfather clause does not speak to the rate of the tax, but
rather to the authority of the localities "to levy such tax."[3] "We 'assume that the legislature chose, with
care, the words it used when it enacted the relevant statute.'"[4] Had the legislature intended to limit the
rate of taxation allowed by those grandfathered localities, it could have done so by using language to that
effect.[5] As it did not, § 58.1-3703(C)(7) cannot be read to limit a locality's authority to change the rate of
the BPOL tax which it is authorized to impose.

Conclusion
Accordingly, it is my view that the City of Alexandria, as a grandfathered locality, with an
affirmative vote by its City Council may adjust, up or down, the rate of its BPOL tax on the rental of
residential and commercial real estate, or eliminate it altogether.
With kindest regards, I am,
Very truly yours,

Mark R. Herring
Attorney General

1. 1974 Va. Acts ch. 196.

2. Id.

3. Section 58.1-3703(C)(7).

4. Alger v. Commonwealth, 267 Va. 255, 261, 590 S.E.2d 563, 566 (2004) (quoting Barr v. Town & Country Props., Inc., 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990)).

5. See 1974 Va. Acts ch. 196, clause (4).