Did a four-corporation chain with the stated 80%-plus voting ownership qualify as a BPOL affiliated group, excluding intercompany employee-leasing receipts?

Subject

Corporate chain met the BPOL affiliated-group tests

Plain-English summary

Virginia concluded that the four corporations and their common parent formed an affiliated group for BPOL purposes. One or more group members owned at least 80% of the voting interests in every corporation subject to inclusion, and the common parent directly owned at least 80% of at least one group member. No entity had nonvoting stock.

Because the employee-leasing company and the recipient corporation belonged to that affiliated group, the leasing receipts were excluded from gross receipts subject to BPOL tax under Va. Code § 58.1-3703(C)(10).

What this means for you

• The affiliation test could be met through direct and chain ownership by group members.
• The common parent separately had to meet the direct 80% test for at least one member.
• Nonvoting ownership classes also mattered when present; none existed here.
• Qualifying intercompany receipts between affiliated members were excluded from BPOL receipts.

Citations and references

• Va. Code §§ 58.1-3700.1 and 58.1-3703(C)(10).
• 23 VAC 10-500-10.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-63

Original ruling text

May 13, 2009

Re: Request for Advisory Opinion

Business, Professional and Occupational License Tax

Dear *:

This is in response to your letter in which you request an advisory opinion regarding the interpretation of the affiliated group provisions of the Business, Professional and Occupational License (BPOL) tax.

The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations and public documents cited are available online at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site.

FACTS

A family of corporations (the "VA Group") is headquartered in Virginia. The relationship between the members of the VA Group has been as follows:

^ * (P) owns 100% of (Corp1), and (Corp2) and 50% of *** (Corp3).

^ Corp1 owns 98.787% of * (Corp4), which in turn owns the other 50% of Corp3.

^ None of the entities of the Taxpayer have issued non-voting stock.

Corp2 is an employee leasing company that leases employees to Corp3. Both Corp2 and Corp 3 are headquartered in a Virginia and have a definite place of business where gross receipts are sitused.

The Taxpayer asks whether these corporations constitute an affiliated group for BPOL tax purposes and whether the receipts earned by Corp2 from Corp3 would be considered exempt intercompany receipts between members of an affiliated group.

OPINION

Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-500-10 and Va. Code § 58.1-3700.1, a chain of entities may be considered as members of an affiliated group if:

1. ownership interests possessing at least 80% of the voting power of all classes of ownership interests and at least 80% of each class of the nonvoting interests of each of the entities subject to inclusion, except the common parent entity, is owned directly by one or more of the other entities in the chain of entities; and

2. the common parent entity directly holds at least 80% of the voting power of all classes of ownership interests and at least 80% of each class of the nonvoting ownership interest of at least one of the other entities in the chain.

In this case, the first requirement is met because at least 80% of the voting interests of Corp1, Corp2, Corp3, and Corp4 are owned by one or more members of the VA Group. In addition, P directly holds at least 80% of the voting interests of Corp1 and Corp2, thus meeting the second requirement. Accordingly, the VA Group is an affiliated group under Va. Code § 58.1-3700.1.

Under the provisions of Va. Code § 58.1-3703 C 10, receipts or purchases made by members of an affiliated group of entities from other members of the same affiliated group are exempt from the BPOL tax. Because Corp2 and Corp3 are members of an affiliated group, the gross receipts Corp2 receives from Corp3 for leasing employees would be excluded from receipts subject to BPOL tax.

If you have any questions regarding this advisory opinion, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3190699904.o