Does the local business license tax exemption for railroads also cover a Class I railroad's transloading subsidiary?

Plain-English summary

In July 2013, the Spotsylvania County Commissioner of the Revenue asked the AG how to treat a transloading company that ran a rail-to-truck transfer terminal in the county. The company described itself as a subsidiary of a Class I railroad, was a separately incorporated Delaware entity, and shifted other commercial customers' freight between railcars, intermodal containers, and trucks. The question was whether it could claim the local business license tax (BPOL) exemption under § 58.1-3703(C)(1), and whether its property qualified for the special railroad assessment regime under § 58.1-2607.

The § 58.1-3703(C)(1) exemption applies to: (1) "public service corporation[s]"; (2) motor or common carriers of passengers or property formerly certified by the Interstate Commerce Commission; or (3) those presently registered with the Surface Transportation Board for insurance. The AG took each prong in turn.

On "public service corporation," the AG borrowed the § 56-1 definition (Title 56 covers public service company regulation by the State Corporation Commission). That definition reaches "all persons authorized to transport passengers or property as a common carrier." Based on the facts the Commissioner provided, the AG concluded that a corporation operating a rail-to-truck transloading network, off-loading, storing, and re-loading other commercial customers' products between railcars, containers, and trucks, did not appear to fall within that definition. So the public-service-corporation prong was a no.

On the ICC/STB prong, the AG flagged that the answer would change if the subsidiary in fact held an old ICC certificate or had a current STB insurance registration. The Commissioner's request did not contain that information, so the AG offered no opinion on it. Bottom line: the subsidiary needed to produce ICC certification or current STB registration to qualify; absent that, the BPOL exemption did not apply.

On § 58.1-2607's special railroad property assessment, the AG punted on the facts. That statute taxes the real and tangible personal property "of railroads" and "of every railway company," excluding rolling stock and franchise value, at the local real estate tax rate based on a state-determined valuation. Whether the subsidiary's terminal property qualified depended on who owned it. The Commissioner had not provided that information. The AG also cautioned that the Commissioner of the Revenue, not the AG, makes the ultimate factual determination on exemption.

Currency note

This opinion was issued in 2013. 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

Virginia's BPOL system is the local business, professional, and occupational license tax. § 58.1-3703(C)(1) carves out a category of carriers from BPOL: public service corporations and motor/common carriers either formerly certified by the ICC (the old federal railroad regulator that was abolished in 1995) or currently registered with the STB for insurance purposes. The exemption is for the carrier's normal line-of-business activity; it does not necessarily cover every related operation.

"Public service corporation" is not defined in Title 58.1, so the AG used § 56-1, which sits in Virginia's public-utility regulation title and defines the term broadly to include "all persons authorized to transport passengers or property as a common carrier." "Person" in § 56-1 includes individuals, partnerships, LLCs, and corporations.

The opinion did not spell out a separate common-carrier test; it relied on the § 56-1 definition and the facts the Commissioner supplied (including the company's own website description) to conclude the transloading operation did not appear to be a public service corporation.

§ 58.1-2607 applies a different (and generally favorable) tax regime to railroad property: real estate and tangible personal property of railways are assessed by the Department of Taxation and taxed at the locality's general real estate rate, not under the locality's normal personal-property regime. The benefit is significant for line-haul railroads but turns on whether the property is in fact owned by a railway company.

Common questions

Q: When does a transloading company qualify for the § 58.1-3703(C)(1) BPOL exemption?
A: Per the opinion, only if it is a "public service corporation" (essentially, a common carrier), held an ICC certificate during the ICC's existence, or is currently registered with the STB for insurance purposes. Being merely a corporate subsidiary of a Class I railroad was not enough.

Q: Is a transloading subsidiary a "common carrier"?
A: The AG read the facts presented as falling outside the traditional common-carrier definition. The subsidiary served other shippers between rail and truck at a terminal; it did not run line-haul service offered to the public generally. The AG noted he was relying on the Commissioner's description and the company's website.

Q: Does the parent's Class I status pass through to the subsidiary?
A: Per this opinion, no. The State Corporation Commission listed the subsidiary as a separately incorporated Delaware entity, and the AG analyzed it as its own entity. The parent's classification does not automatically extend.

Q: Does § 58.1-2607's railroad property regime apply to the terminal?
A: It depends on ownership. § 58.1-2607 applies to property "of every railway company." Property the subsidiary uses but does not own would not qualify; the AG declined to opine without facts on ownership.

Q: Who decides whether a specific company qualifies?
A: The Commissioner of the Revenue. The AG explicitly noted that his response provides an analysis of the law, but whether an exemption applies in any specific circumstance is a factual determination to be made by the Commissioner of the Revenue.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/11-110_Williams.pdf

Original opinion text

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

July 19, 2013

The Honorable Deborah F. Williams
Commissioner of the Revenue
County of Spotsylvania
Post Office Box 175
Spotsylvania, Virginia 22583

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

Dear Commissioner Williams:

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 inquire whether a corporation claiming to be a subsidiary of a Class I railroad that operates a transloading facility qualifies for the local business license tax exemption provided by § 58.1-3703(C)(1). You further ask whether the corporation is eligible for the real and tangible personal property tax rate provided by § 58.1-2607.

Response

It is my opinion that the exemption afforded under § 58.1-3703(C)(1) does not apply to the subsidiary of a Class I railroad that operates a transloading facility unless it was certified by the Interstate Commerce Commission (ICC) during that agency's existence or is registered with the Surface Transportation Board (STB) for insurance purposes. It is further my opinion that the application of § 58.1-2607 depends on who owns the real and tangible property being taxed. My response provides an analysis of the law; however, whether an exemption applies in any specific circumstance is a factual determination to be made by the Commissioner of the Revenue.

Background

You relate that there is a corporation with a terminal in your county operating a rail-to-track transloading network that includes off-loading, storing and re-loading products for other commercial customers between railcars, containers and trucks. According to the corporation's website, the corporation is a subsidiary of a Class I railroad, but the subsidiary is a separate and distinct company. The same website offers the corporation's transloading services for businesses that do not have direct rail connections. The State Corporation Commission lists the subsidiary corporation as a separate entity in its records, which indicate that it is a Delaware corporation.

Applicable Law and Discussion

Section 58.1-3703(C)(1) expressly prohibits localities from imposing a license fee or levying any license tax

On any public service corporation or any motor carrier, common carrier, or other 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, except as provided in § 58.1-3731 or as permitted by other provisions of law

Thus, whether the corporation is exempt from local license taxation depends on whether it falls within any of the enumerated categories in § 58.1-3703(C)(1).

The corporation qualifies for the exemption if it can be deemed a "public service corporation." "Public service corporation" is not defined within Title 58.1; however, reliance on the definition of "public service corporation" in § 56-1 is appropriate, because Title 56 establishes the regulatory powers and duties of the State Corporation Commission for public service companies and corporations. Section 56-1 provides that "[t]he words 'public service corporation' or 'public service company' shall include ... all persons authorized to transport passengers or property as a common carrier." "'Person' includes individuals, partnerships, limited liability companies and corporations." Based upon the facts that you provide, it does not appear that a corporation operating a rail-to-track transloading network that includes off-loading, storing and re-loading products for other commercial customers between railcars, containers and trucks would fall within the definition of public service corporation. However, § 58.1-3703(C)(1) also provides an exemption for the corporation if it was certified by the ICC or is presently registered for insurance purposes with the STB. That information is not before me and I offer no opinion on whether the exemption would apply based on an existing ICC Certificate or current registration with the STB for insurance purposes.

You also ask whether the real and business tangible property tax provisions of § 58.1-2607 of the Code of Virginia apply to the corporation. Section 58.1-2607 provides:

A. Notwithstanding the provisions of §§ 58.1-2604 and 58.1-2606, and beginning with assessments initially effective January 1, 1980, all assessments of real estate and tangible personal property of railroads shall be made by application of the local assessment ratio prevailing in such taxing district for other real estate as determined or published by the Department [of Taxation] except that land and noncarrier property shall be assessed as provided in § 58.1-2609.

B. The real estate and tangible personal property (other than the rolling stock) of every railway company, but not its franchise, shall be assessed on the valuation fixed by the Department and shall be taxed by a county, city, town, and magisterial district at the real estate tax rate applicable in such respective locality.

Whether a particular piece of real or tangible personal property is property of a railroad or railway company necessarily must be determined on a property-by-property basis. In order for real and tangible personal property to be assessed and taxed pursuant to § 58.1-2607, such property must be owned by a railroad or a railway company. The facts presented in your request do not discuss specific property or identify its ownership. I am therefore unable to opine on the application of § 58.1-2607 on any particular piece of real or tangible personal property.

Conclusion

Accordingly, it is my opinion that the exemption afforded under § 58.1-3703(C)(1) does not apply to the subsidiary of a Class I railroad that operates a transloading facility unless it was certified by the ICC during that agency's existence or is registered with the STB for insurance purposes. It is further my opinion that the application of § 58.1-2607 depends on who owns the real and tangible property being taxed.

With kindest regards, I am

Kenneth T. Cuccinelli, II
Attorney General