Could a city impose its grandfathered telephone-company BPOL rate or service receipts tax on a cellular provider with a local retail kiosk?

Subject

City could tax kiosk retail sales but not the cellular-service receipts

Plain-English summary

Virginia ruled that the city could not impose BPOL tax on the provider's cellular-service receipts. The city's grandfathered telephone-company ordinance required conducting a telephone exchange and using city streets for telephone works. The PCS provider did not fit that narrower local definition merely because it made State Corporation Commission filings.

The provider did have a definite place of business in the city: a staffed kiosk where customers bought phones and accessories, entered service contracts, and received account or technical help. But the core phone service was directed and controlled from headquarters outside the city, so those service receipts were not sitused to the kiosk.

Retail sales at the kiosk were a separate licensable business and remained taxable. Virginia remanded the case for revised assessments and refunds for 2001-2004.

What this means for you

• Read the locality's exact ordinance; it may be narrower than the state-law category.
• A retail location can be a definite place of business without sourcing all company service receipts there.
• For services, identify where performance, direction, and control occur.
• Separate retail sales from service activities when they are independently licensable.

Common questions

Did the local kiosk create BPOL nexus?

It created a definite place for the kiosk's retail activity, but did not source the phone-service receipts there.

Why did the 3% grandfathered rate fail?

The provider did not satisfy the telephone-exchange definition in the city's ordinance.

What could the city tax?

Gross receipts from separately licensable phone and accessory retail sales at the kiosk.

Citations and references

• Va. Code §§ 58.1-2600, 58.1-3731, 58.1-3700.1, 58.1-3703, and 58.1-3703.1(A)(3).
• 2000 BPOL Guidelines §§ 2.9 and 3.6.
• P.D. 04-17, 97-201, and 01-43.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-13

Original ruling text

February 4, 2009

Re: Appeal of Final Local Determination

Taxpayer: *

Locality Assessing Tax: *

Business, Professional and Occupational License Tax

Dear *:

This final state determination is issued upon the application for correction filed by you on behalf of the * (the "Taxpayer") with the Department of Taxation. You appeal a final local determination made by the Commissioner of the Revenue of the *** (the "City") denying the Taxpayer's request for the refund of Business, Professional and Occupational License (BPOL) taxes paid for tax years 2001 through 2004.

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

The Taxpayer is a federally licensed provider of cellular mobile radio communications service, specifically personal communication service (PCS). The Taxpayer provides the Parent's PCS service to customers in the City. The Taxpayer provides its PCS service using multichannel base stations ( i.e. , towers) that provide telecommunications service to mobile cell phones over a wide area using PCS frequencies. The Taxpayer leases seven towers within the City. The Taxpayer also owns a store located in the City that sells cell phones and its PCS services.

The Taxpayer filed its initial BPOL tax return for the 2000 tax year and paid the BPOL tax at the rate of 50¢ per $100 with the return. In 2001, the City determined that the Taxpayer was a telephone company that can be taxed at the 3% rate grandfathered under Virginia law. The Taxpayer filed BPOL returns for the 2001 through 2004 tax years paying BPOL tax at the 3% rate. In June 2004, the Taxpayer filed a refund claim for BPOL taxes paid for the tax years at issue. The City issued a final determination denying the refund.

The Taxpayer filed an appeal with the Department, contending that it was not a telephone company under the City's ordinances and did not have a definite place of business in the City. The City argues that the Taxpayer is a telephone company despite the Department's determination to the contrary in Public Document (P.D.) 04-17 (05/21/04). The City argues that the Taxpayer is required to make annual filings to the State Corporation Commission (SCC) as a telephone company, and that no legislative record or other evidence can be found indicating a restrictive reading of the ordinance at issue. The City also believes that the Taxpayer operates a definite place of business within the City in the form of a store that sells cell phones and PCS service contracts to customers.

ANALYSIS

City Ordinance

It has long been held that "if the language of a statute is plain and unambiguous, and its meaning perfectly clear and definite, effect must be given to it." 1993 Report of the Att'y Gen . 256, citing Temple v. City of Petersburg , 182 Va. 418 (1944). In P.D. 04-17, the Department found that the City's definition of a telephone company as found in the local ordinance was clearly more restrictive than the definition in Va. Code § 58.1-2600. Specifically, the City's ordinance defined telephone companies as entities "conducting a telephone exchange in this city and using and occupying the streets in the city and constructing and maintaining the works of the telephone company or any part thereof, along, over or under the streets . . . ."

The City's argument that the Taxpayer is a telephone company because it filed an annual report with the SCC does not make it a telephone company for purposes of the City's ordinance. The City could have adopted this more expansive definition of a telephone company in its local ordinance, which would have served to include cellular telephone companies in their taxing authority as provided for in Va. Code § 58.1-3731. The City did not elect to do so, however, and adopted the more restrictive definition of telephone companies noted above.

Definite Place of Business

Concluding that it is not a telephone company under the City's BPOL ordinances, the Taxpayer further argues that it did not have a definite place of business in the City for the tax years at issue and, therefore, may not be taxed by the City as a business service. Virginia Code § 58.1-3700.1 3 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. A definite place of business for a person engaged in business may include a location leased or otherwise obtained from another person on a temporary or seasonal basis and real property leased to another.

Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following on-site activities: (1) a continuous presence; (2) having an office with a 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 P.D. 97-201 (4/25/1997).

The Taxpayer argues that the mere location of communications equipment in the City does not constitute a definite place of business. The Taxpayer cites P.D. 01-43 (4/16/01), in which the Department held that the mere presence of an Internet server does not constitute a definite place of business.

The Taxpayer, however, leases a kiosk in the City. During business hours, customers can buy phones and accessories and enter into contracts for cellular service. Sales representatives can inquire about customer balances and assist with technical issues associated with individual phones. The Taxpayer has a continuous presence and employees in the City and holds itself out as engaging in the sale of the Taxpayer's cellular service for 30 consecutive days or more. Thus, the issue becomes what portion, if any, of the services would be sitused to the City.

Situs

The BPOL tax may be imposed by jurisdictions on "businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town . . . ." See Va. Code § 58.1-3703. 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. As applied to business and personal services Va. Code § 58.1-3703.1 A 3 a (4) provides:

The gross receipts from the performance of services shall be attributed to the definite place of business at which the services are performed or, if not performed at a definite place of business, then from the definite place of business from which the services are directed or controlled.

The situs of business service providers is discussed in 2000 BPOL Guidelines § 3.6. In example 3 of that section, a real estate management agency headquartered in one jurisdiction owns rental property in other jurisdictions. Rental, repair and management decisions are made at headquarters. The agency would source appropriate gross receipts to the locality where it has its headquarters since it is the definite place of business where the rental activity is directed and controlled.

In the instant case, the same analysis would apply. The Taxpayer's headquarters is located outside the City. It directs and controls its phone service from its headquarters. Activities that were conducted at the kiosk included executing service contracts, providing assistance with customer accounts and assisting with technical issues. These activities, however, are ancillary to the Taxpayer's business which is providing telephone service. Therefore, the receipts attributed to telephone services would not be sourced to the City.

Pursuant to the 2000 BPOL Guidelines § 2.9., multiple businesses conducted by a person at a single location are required to obtain a separate license for each business. As such, sales of cellular phones and accessories that occur at the kiosk are separately licensable for BPOL tax purposes from the Taxpayer's phone service. Because the Taxpayer has a definite place of business in the City that is performing retail sales, the Taxpayer's business selling phones and accessories is subject to the BPOL tax as a retailer.

DETERMINATION

Because the phone service was directed and controlled from a definite place of business outside the City, the City cannot impose the BPOL tax on the Taxpayer for its phone services. Furthermore, based on the City's ordinance in effect at the time the grandfather clause was enacted, and because the Taxpayer is not engaged in conducting a "telephone exchange service" as required by the ordinance as of January 1, 1972, the grandfathered rate of 3% does not apply to the Taxpayer. The City may only assess the BPOL tax on gross receipts related to sales generated by the Taxpayer's kiosk as a separately licensable business. I am remanding this case back to the locality in order to adjust the assessments and issue appropriate refunds for the 2001 through 2004 tax years in accordance with this determination.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2206549025.B