Did an independent truck driver owe city BPOL tax when he lived there but leased and drove his tractor for an out-of-state motor carrier?

Subject

Taxpayer was engaged in a licensable business during the tax years at issue

Plain-English summary

Virginia found the independent truck driver was engaged in licensable business at his city residence. He owned a commercial tractor, leased it to a State A motor carrier, and drove it as an independent contractor.

The motor carrier's BPOL exemption did not automatically flow to the driver. He had to qualify separately, such as through the specified carrier certification. The record did not show that he did.

A businessperson with no other definite place of business is treated as operating from the residence. The driver had no office elsewhere, and as an independent contractor he directed and controlled his own services even if the carrier gave operating instructions. With only one definite place, his service receipts were attributed there.

The record also suggested two activities: driving services and leasing the tractor. Virginia remanded the case so the city could determine whether they were substantial, independently operating businesses requiring separate licenses. The driver had 45 days to provide documentation.

What this means for you

• A carrier's exemption does not automatically protect its independent contractors.
• If you have no other definite business location, your residence can become the BPOL situs even without a home office or parked vehicle.
• Independent control over services matters more than where the carrier dispatches from.
• Driving and equipment leasing may be separate licensable businesses.

Common questions

Did the out-of-state tractor registration prevent city BPOL tax?

No. Virginia focused on the driver's business and lack of another definite place of business.

Did the remand cancel the assessments?

No. The city had to reconsider classification if the driver timely documented the driving and leasing activities; otherwise its determination stood.

Citations and references

• Va. Code §§ 58.1-3703.1, 58.1-3703 C(1), and 58.1-3700.1.
• Short Brothers, Inc. v. Arlington County, 244 Va. 520, 423 S.E.2d 172 (1992).
• P.D. 99-84; 1997 Op. Va. Att'y Gen. 183; 1994 Op. Va. Att'y Gen. 99.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-42

Original ruling text

March 16, 2011

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License Tax

Dear *:

This final state determination is issued upon the application for correction filed on behalf of your client, * (the "Taxpayer"), with the Department of Taxation. The Taxpayer appeals an assessment of Business, Professional and Occupational License (BPOL) taxes issued to the Taxpayer by the *** (the "City") for the 2009 and 2010 tax years.

The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL tax assessment is deemed prima facie correct, i.e. , the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below. The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site.

FACTS

During the tax years at issue, the Taxpayer, a resident of the City, was a tractor trailer driver that owned a commercial tractor that was leased to a business (the motor carrier) located in * (State A). The Taxpayer operated the truck as an independent contractor on behalf of the State A company.

The City determined the Taxpayer was engaged in a licensable business activity within its jurisdiction for the tax years at issue. As such, the City issued BPOL tax assessments to the Taxpayer for the 2009 and 2010 tax years.

The Taxpayer appealed the City's assessments. In its final determination, the City determined that the Taxpayer's residence was his definite place of business because he was engaged in business but maintained no definite place of business elsewhere. The Taxpayer filed an appeal with the Tax Commissioner, contending he did not have a definite place of business in the City, was, not engaged in a licensable business activity within the City, and the motor carrier is exempt from the BPOL tax.

ANALYSIS

Exemption for Motor Carriers

The Taxpayer asserts that: the motor company for which the Taxpayer operates the tractor is exempt from the BPOL tax, and such exemption applies to the Taxpayer. A truck driver may be exempt from license taxation under Va. Code § 58.1-3703 C 1, which exempts:

any public service corporation or any motor carrier, common carrier, or any carrier of passengers or property formerly certified by the Interstate Commerce Commission or presently registered for insurance purposes with the Surface Transportation Board of the United States Department of Transportation, Federal Highway Administration . . .

Further, 1997 Op. Va. Att'y Gen. 183 explains this exemption and also explains that the truck driver may be considered a public service corporation exempt from license taxation if he has been issued a certificate of public convenience and necessity as a common carrier by the Virginia Department of Motor Vehicles. Under this statute and opinion, while a motor carrier may be eligible for the exemption, a truck driver operating as an independent contractor for the motor carrier would be required to qualify for the exemption separately from the motor carrier. See also Public Document (P.D.) 99-84 (4/22/1999).

Definite Place of Business

The Taxpayer also contends that he did not have an office in his home, his tractor was not parked at his residence, the tractor was registered in State A and the mobile phone he used for his business did not have a Virginia area code. Accordingly, the Taxpayer believes that he did not have definite place of business in the City.

The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. Virginia Code § 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. The statute goes on to state that when an individual engaging in a business activity maintains no definite place of business, their residence is deemed to be the definite place of business.

In P.D. 99-84, the Department opined that the home of truck driver who owned his truck, but leased it to an out-of-state business and operated the truck as an independent contractor, would be considered to be a definite place of business if he did not maintain a definite place of business elsewhere. In this case, the Taxpayer is engaged in a business, resides in the City, and does not maintain a definite place of business elsewhere.

Situs

The Taxpayer further argues that the gross receipts from his business were attributed to activities that are controlled by the motor carrier in State A. Alternatively, the Taxpayer states that all of his services are performed outside the City.

The general rule for establishing situs for the BPOL tax is that whenever the tax is measured by gross receipts, "the gross receipts included in the taxable measure shall be only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within [the] jurisdiction." See Va. Code § 58.1-3703.1 A 3 a.

In determining the situs of gross receipts, Va. Code §§ 58.1-3703.1 A 3 a 4 and 58.1-3703.1 A 3 b state that receipts from services are to be taxed based on (in order): (i) the definite place of business at which the service is performed, or if not performed at any definite place of business, (ii) the definite place of business from which the service is directed or controlled; or as a last resort (iii) when it is impossible or impractical to determine where the service is performed or from where the service is directed or controlled, by payroll apportionment between definite places of business.

Because the Taxpayer was an independent contractor of the motor carrier, he was considered to be performing services to the motor carrier. While the motor carrier may have provided instructions as to how the services are performed, the Taxpayer was responsible for directing and controlling the services he performed for the motor carrier.

In addition, the statute clearly requires the gross receipts from services to be attributed to a definite place of business. The Taxpayer did not have a definite place of business outside the City. In Short Brothers. Inc. v. Arlington County , 244 Va. 520, 423 S.E.2d 172 (1992), the Virginia Supreme Court ruled that all gross receipts of a business with only one definite place of business are attributable to that definite place of business. The evidence indicates that the Taxpayer's sole definite place of business was in the City.

Multiple Businesses

Documents provided with the appeal indicate that the tractor owned by the Taxpayer may have been leased to the motor carrier. Virginia Code § 58.1-3703.1 A 1 provides that a separate license shall be required for each definite place of business and for each business a taxpayer is operating. Local tax officials are responsible for making the determination as to whether a taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other. In order to make this determination, the local tax official must be provided with documentation demonstrating the substantiality of each business. See 1994 Op. Va. Att'y Gen. 99.

Neither the City's final determination nor the statement of assessment clearly indicates the business classification under which the Taxpayer was assessed. Based on the information provided, the Taxpayer could have been engaged in a business service by driving the tractor and the rental of tangible personal property by leasing the truck to the motor carrier.

DETERMINATION

Based on the evidence presented, the Taxpayer was engaged in a licensable business during the tax years at issue and such business was considered to have been conducted at the Taxpayer's residence in the City because he did not maintain a definite place of business elsewhere.

In addition, the Taxpayer may be engaged in multiple businesses. Therefore, I am remanding this case back to the City with the instruction to reconsider the Taxpayer's assessments for the 2009 and 2010 tax years. If the Taxpayer can provide the City with sufficient documentation regarding his truck driving and leasing businesses, the City must adjust its assessment accordingly. The Taxpayer should provide the City with the indicated documentation within 45 days of the date of this letter. Otherwise, the City's final determination will stand.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4596338283.B