Were furnished corporate apartments a county definite place of business with rental receipts sitused there for BPOL tax?

Plain-English summary

Virginia treated the furnished corporate-housing provider as a real-property lessor with a definite place of business in the county. The company leased apartments from owners, furnished them, paid utilities, and charged clients an all-inclusive fee for stays generally longer than 30 days.

The occupants contracted with the provider, not the property owners. Furnishings, housekeeping, move-in services, maintenance, and utilities did not change the essential rental activity into property management.

The general BPOL prohibition for owners renting their own real estate did not protect this company because it did not own the apartments. The county also had authority under its stated grandfathered license-tax provision.

For a real-property rental business, the rented property itself was a definite place of business. Receipts were therefore sourced to the county where the apartments were located, even though the company directed operations from an out-of-state office. Virginia upheld the 2007-2010 assessments.

What this means for you

• Contract structure can distinguish a lessor from a property manager.
• Added furnishings and services did not override the underlying apartment lease.
• Rented real estate can itself be a definite place of business for BPOL purposes.
• Rental receipts followed the property location rather than an out-of-state management office.

Citations and references

• Va. Code §§ 58.1-3700.1, 58.1-3703(C)(7), and 58.1-3703.1(A)(3)(a).
• Virginia Public Document 99-13 (January 14, 1999).

Subject

Gross receipts derived from leasing of real property in the County would be sitused to the County.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-187

Original ruling text

November 23, 2011

Re: Appeal of Final Local Determination

Locality: *

Taxpayer: *

Business, Professional and Occupational License Tax

Dear *:

This final state determination is issued upon the application for correction filed by * (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals assessments of Business, Professional and Occupational License (BPOL) tax issued to the Taxpayer by the *** (the "County") for the 2007 through 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, regulations and public document 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 provider of furnished corporate housing for client employees for periods that typically last more than 30 days. Specifically, the Taxpayer locates and leases real property from its owners in various Virginia locations. It supplies tangible personal property such as appliances, framed art, televisions, linens, and utensils from unrelated third parties to furnish the apartments. The Taxpayer also covers all utilities such as cable, Internet, electricity, gas and water.

The Taxpayer charges its clients an all-inclusive fee for the apartment, furnishings, utilities and services. It controls and directs the housekeeping, move in and move out procedures and maintenance needs of its client's employees. All of the Taxpayer's activities are directed and controlled from the Taxpayer's office in * (State A).

The Taxpayer was audited by the County for the tax years at issue. The County determined the Taxpayer was engaged in the business of renting real property in the County and assessed a license tax for the 2007 through 2010 tax years. The Taxpayer paid the assessments and filed an appeal with the County, contending it did not have a definite place of business in the County and was not subject to the BPOL tax. In its final local determination, the County upheld the audit assessments, concluding that the Taxpayer had a leasehold interest in the apartments it rented on behalf of its clients and the gross receipts were properly sitused to the locality in which the rental property was located.

The Taxpayer appeals the County's final determination to the Tax Commissioner, contending it does not have a definite place of business in the County because it was not engaged in the business of renting real property. Because it operated as a property management business, the Taxpayer believes its gross receipts would be sitused to State A.

ANALYSIS

License Taxation of Real Property Lessors

In limited circumstances, a locality may tax gross receipts derived from the rental of real property to others. The general rule is that no locality may impose a license fee or levy any license tax:

upon any person, firm or corporation for engaging in the business of renting, as the owner of such property, real property other than hotels, motels, motor lodges, auto courts, tourist courts, travel trailer parks, lodging houses, rooming houses and boardinghouses; however, any county, city or town imposing such a license tax on January 1, 1974, shall not be precluded from the levy of such tax by the provisions of this subdivision.

The prohibition against assessing a BPOL tax on persons renting real property is not absolute. The tax prohibition of Va. Code § 58.1-3703 C 7 only extends to owners of real properly. Additionally, Va. Code § 58.1-3703 C 7 is not applicable to the rental of hotels, motels, motor lodges, auto courts, tourist courts, travel trailer parks, lodging houses, rooming houses, and boardinghouses. Moreover, any locality which, on January 1, 1974, was assessing a license tax on owners of real property for the privilege, of renting the real property they own is not subject to the prohibition.

In this case, the Taxpayer is not the owner of the real property it leases. Therefore, the prohibition against assessing a BPOL tax on persons renting real property in Va. Code § 58.1-3703 C 7 is not applicable. However, I note that the County is permitted to impose a license tax on real estate lessors under the grandfather clause contained in Va. Code § 58.1-3703 C 7.

Classification

The Taxpayer contends it was engaged in property management services rather than the business of renting real property because it performed services beyond subletting property for its clients. The County asserts that the Taxpayer was engaged in leasing real property because the Taxpayer had a leasehold interest in the property that it sublet, and the additional services provided were the same as those provided by other lessors.

The documents presented indicate the leases giving rise to the assessments are between the Taxpayer and the consumer (tenant). There is no contractual agreement between the tenant and the owner of the property. The Taxpayer is in the business of renting real property to others. The fact that the Taxpayer offers furnished units and other amenities does not change the essential activity. Accordingly, it is my determination that the County properly classified the Taxpayer's business.

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 thirty consecutive days or more. "A definite place of business may include . . . real property leased to another." [Emphasis Added.]

The Taxpayer contends that it did not have a definite place of business in the County because it did not have an office in the County. The Taxpayer further asserts that all its activities were directed and controlled from its office in State A.

For businesses engaged in the licensable privilege of renting real property, the physical property being rented is deemed to be a definite place of business. See P.D. 99-13 (1/14/1999). As such, the Taxpayer had a definite place of business in the County because it was engaged in the leasing of real property within the County.

Situs

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 these 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.

Gross receipts from the rental or leasing of real property are attributed or sourced to the locality in which the real property is being rented. See P.D. 99-13. Any gross receipts that the Taxpayer derived from the leasing of the real property in the County would be sitused to the County.

DETERMINATION

Based on the evidence presented, the Taxpayer was engaged in a licensable business during the tax years at issue and such business was conducted at a definite place of business within the County. The County's assessments for the 2007 through 2010 tax years are upheld.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4794014761.B