Could a city impose BPOL tax on a fuel wholesaler that owned and operated pumps and tanks at a local retailer?

Subject

Definite Place of Business;Classification; Situs and Gross Receipts Sitused to Different Locality

Plain-English summary

A fuel distributor had its main business location in a town but owned and operated storage tanks, pumps, and signage at a retailer's gas station in a city. Fuel passed from the distributor to the retailer before the retailer sold it to consumers.

Virginia said the distributor appeared to have a definite place of business in the city. Even without an office, phone, employees, or records there, its continuous operation of the fuel equipment for more than 30 days supported that conclusion.

The distributor's sales to the retailer were wholesale because the retailer bought the fuel for resale. If the distributor was taxable in the city, wholesale-merchant classification was therefore appropriate.

The opinion could not decide how much gross-receipts tax the city could impose. For a grandfathered locality taxing wholesalers on gross receipts, receipts follow the place where sales solicitation occurs or, if solicitation spans localities, where it is initiated, directed, or controlled. The facts did not establish that location.

Virginia also has no BPOL throwback rule. The city could not tax receipts attributable to business in another locality merely because that other locality imposed no gross-receipts BPOL tax.

Citations and references

• Va. Code §§ 58.1-3701, 58.1-3700.1, 58.1-3706 A, and 58.1-3703.1 A 3 a 2.
• 23 VAC 10-500-10, 10-500-150 C, 10-500-170, and 10-500-350 B.
• P.D. 97-201, P.D. 10-69, and P.D. 03-5.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-46

Original ruling text

April 7, 2016

Re: Request for Advisory Opinion
Business, Professional and Occupational License Tax

Dear *:

This is in response to your correspondence in which you request an advisory opinion concerning the proper tax treatment of a business (the "Taxpayer') for purposes of the Business, Professional and Occupational License (BPOL) tax in the * (the "City").

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 on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.

FACTS

The Taxpayer is a fuel distributor with a definite place of business in a town (the "Town") that imposes a BPOL fee. A retailer operates a gas station in the City. The retailer either owns the station, or leases it from the Taxpayer or an unrelated third party. The Taxpayer owns the storage tanks, fuel pumps, and signage. The retailer owns the sales inventory.

Ownership of the fuel is transferred from the Taxpayer to the retailer, then from the retailer to the consumer when fuel is purchased at the pump. The retailer is billed, at a discounted price, for the number of gallons extracted from the storage tanks. The City uses gross receipts as the basis for assessing the BPOL tax on wholesalers.

The City requests a ruling on the following: (1) Does the Taxpayer have a definite place of business in the City; (2) Is the Taxpayer subject to licensure as a wholesale merchant in the City; and (3) Is the method in which the City assesses BPOL tax affected by the Town not assessing a BPOL tax based on gross receipts?

OPINION

Definite Place of Business

The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. Where a Virginia locality has adopted a BPOL ordinance that requires a license, every person engaged in a licensable activity at a definite place of business in such locality must apply for a license.

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 30 consecutive days or more. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following onsite activities: (1) a continuous presence; (2) having an office or phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See Public Document (P.D.) 97-201 (4/25/1997). Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer's operations must be considered.

In this case, the Taxpayer does not have an office or phone, have employees or conduct record keeping at the retailer's location. However, it would have a continuous presence and would presumably maintain and operate the pumps and storage tanks. In P.D. 10-69 (5/12/2010), the Department determined that a wholesaler of petroleum products had a definite place of business in the locality in which it continuously owned and operated the fuel terminals. In this case, the Taxpayer owns and operates the fuel pumps, storage tanks and signage in the City for a continuous period of more than 30 days. As such, it appears the Taxpayer would have a definite place of business in the City.

Classification

The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is imposed at different rates according to the classification of an enterprise. See Va. Code § 58.1-3706 A. These classifications are regulated under Title 23 of the Virginia Administrative Code (VAC) 10-500-10 et seq. Classification of a specific business must be determined based on consideration of all the facts and circumstances. Some of the factors to be considered include:

1. What is the nature of the enterprise's business?

2. How does the enterprise generate gross receipts?

3. Where does the enterprise conduct its business?

4. Who are the enterprise's customers?

5. How does the enterprise hold itself out to the public?

6. What is the enterprise's North American Industry Classification System (NAICS) code?

Under Title 23 VAC 10-500-10, a "retail sale" is defined as "a sale of goods, wares and merchandise for use or consumption by the purchaser or for any purpose other than resale by the purchaser, but does not include sales at wholesale to institutional, commercial, industrial, and governmental users that are classified as wholesale sales." While no single factor, such as price, purpose, or place, can always distinguish between wholesale and other types of sales, retail merchants typically purchase inventory for resale and sell such inventory to an individual consumer for the consumer's own personal use. See Title 23 VAC 10-500-350 B.

In this case, title to the fuel is first passed from the Taxpayer to the retailer, then from the retailer to the end user. The fuel is not sold directly to the ultimate consumer by the Taxpayer. As such, sales between the Taxpayer and the retailer would be wholesale sales because the fuel is subsequently sold by the retailer to an end user. If it is subject to a BPOL tax in the City, the Taxpayer would be properly classified as a wholesale merchant.

Situs

The measure of the BPOL tax on wholesalers is generally based upon their purchases. Purchases are attributed to the definite place of business at or from which deliveries of the goods are made to customers. Virginia Code § 58.1-3703.1 A 3 a 2. However, Virginia localities that taxed wholesale sales based on gross receipts prior to January 1, 1964 are grandfathered to continue to assess a BPOL tax on wholesalers upon gross receipts. You state that the City is grandfathered to assess a BPOL tax against wholesale merchants based on gross receipts.

If a wholesaler is subject to a license tax measured by gross receipts, its gross receipts are attributed to the definite place of business where sales solicitation activities occur, or, if sales solicitation activities are not performed in any one locality, then they are attributed to the definite place of business from which the sales solicitation activities are initiated, directed or controlled. See Title 23 VAC 10-500-170.

In order to determine situs, one must determine the locality in which the sales solicitation for the sale of fuel between the Taxpayer and the retailer occurs. If the sales solicitation occurred in multiple jurisdictions, then the locality in which the sales solicitation activities are initiated, directed or controlled must be determined. The facts do not indicate whether the sales solicitation between the Taxpayer and retailer occurs in the City, Town, or elsewhere. Nor do the facts as presented show where the sales solicitation is initiated, directed or controlled. As such, it would be incumbent upon the City to determine where the sales solicitation activity occurred or was directed or controlled in order to properly situs the Taxpayer's gross receipts.

Gross Receipts Sitused to Different Locality

The City asks whether it would be prohibited from assessing a BPOL tax on the Taxpayer because the Town does not impose the tax. Title 23 VAC 10-500-150 C provides that when a BPOL tax is measured by gross receipts, the gross receipts included in the taxable measure are only those gross receipts attributed to the exercise of a privilege subject to licensure at a definite place of business within Virginia. As such, there is no "throw-back rule" in Virginia. A locality may only tax those gross receipts attributable to business conducted within its locality. It cannot tax the gross receipts attributable to business conducted in another locality if that locality does not impose a BPOL tax. See P.D. 03-5 (2/3/2003).

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6220956428.B