Was a reseller of related companies' mobile service a telephone company for Virginia BPOL tax?

Plain-English summary

The mobile-service reseller was a business service, not a telephone company, for BPOL tax. The limited partnership bought mobile service from related FCC-licensed providers and resold it to end users. It held no FCC license or State Corporation Commission certificate.

Virginia's special telephone-company classification applied when an entity met one of the statutory authorization tests. Related-company licensing could matter when the taxpayer itself operated and managed the wireless system under the relevant arrangement.

Here, the taxpayer primarily resold services provided by related entities. No evidence showed that it operated mobile communication sites, towers, switching equipment, or other service facilities. Shared ownership and a common trade name did not establish that the reseller itself provided the mobile telephone service.

The Commissioner ordered the county to reclassify the taxpayer as a business service and adjust the 2007 through 2009 BPOL assessments.

Common questions

Q: Did licensed partners make the reseller a telephone company?
A: No, not without evidence that the reseller itself was authorized or operated the wireless system.

Q: What classification applied?
A: Business service.

Q: Who adjusted the assessment?
A: The county, because BPOL tax is locally administered.

Citations and references

• Va. Code §§ 58.1-2600, 58.1-3703.1, and 58.1-3731.
• Virginia Public Documents 04-6 (February 20, 2004), 06-8 (January 26, 2006), 07-162 (October 17, 2007), and 08-21 (February 29, 2008).

Subject

Taxpayer is not a telephone company, but reselling mobile telephone services to end users.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-183

Original ruling text

November 13, 2012

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 by you on behalf of * (the "Taxpayer") with the Department of Taxation. You appeal an assessment of Business, Professional and Occupational License (BPOL) taxes issued to the Taxpayer by the *** (the "County") for the 2007 through 2009 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

The Taxpayer is organized as a limited partnership and is engaged in the business of reselling mobile telephone services to end users. The Taxpayer purchases the mobile telephone services from third parties that are licensed by the Federal Communications Commission (FCC) to provide such services. The Taxpayer is not licensed by the FCC and does not hold a certificate of convenience and public necessity issued by the State Corporation Commission (SCC).

* (Partner A), a partnership licensed by the FCC, owns a 25% general partnership interest and a 74% limited partnership interest in the Taxpayer. (Partner B), which owns a 1% limited partnership interest in the Taxpayer, is also a federally licensed provider. Both Partners A and B are licensed to operate in Virginia and in other states. The Taxpayer, Partner A, and Partner B all trade as ** (Tradename).

The County classified the Taxpayer as a telephone company and assessed additional BPOL tax. The Taxpayer filed an appeal with the County seeking an abatement of the assessments. The County issued a final determination upholding the assessments. The Taxpayer appeals the County's final determination, contending the Department previously determined that the Taxpayer was not a telephone company.

ANALYSIS

At issue is whether the Taxpayer should be classified as a business service or as a telephone company for purposes of BPOL taxation. Telephone companies are subject to special BPOL tax treatment under those provisions of the statute that address the tax treatment of public service corporations generally. Specifically, Va. Code § 58.1-3731 states:

Every county, city or town is hereby authorized to impose a license tax, in addition to any tax levied under Chapter 26 (§ 58.1-2600 et seq.) of this title, on (i) telephone and telegraph companies . . . at a rate not to exceed one-half of one percent of the gross receipts of such company accruing from sales to the ultimate consumer in such county, city or town.

To be considered a telephone company for regulatory purposes, Va. Code § 58.1-­2600 requires that an entity must possess one of the three following attributes:

1. An entity must hold a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service; or

2. A person must be authorized by the Federal Communications Commission to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934, as amended, where such service includes cellular mobile radio communications services or broadband personal communications services; or

3. A person must hold a certificate issued pursuant to § 214 of the Communications Act of 1934, as amended, authorizing domestic telephone service and belong to an affiliated group including a person holding a certificate of convenience and necessity granted by the State Corporation Commission authorizing telephone service.

The Department addressed the question of the taxation of telephone companies in Public Document (P.D.) 04-6 (2/20/2004). In that advisory opinion, the Tax Commissioner found that a company that meets none of the above requirements should be classified as a "business service" for purposes of the BPOL tax. If, however, a taxpayer meets any one of the three requirements, it should be classified as a telephone company subject to the provisions of Va. Code § 58.1-3731.

The Taxpayer asserts that the Department previously ruled that it is not a telephone company in P.D. 06-8 (1/26/2006) and claims it was operating in the same manner during the 2007 through 2009 tax years as it was in tax year 2004, the year addressed in P.D. 06-8. In its final determination, the County argues that the Department changed its policy in P.D. 07-162 (10/17/2007), and the Taxpayer is similarly situated to the taxpayer in P.D. 07-162. The County, maintains that the Taxpayer has no identity separate and apart from Partners A and B.

In P.D. 07-162, the Department ruled that a taxpayer, which provided mobile telephone service to customers, may be authorized to provide commercial mobile service as defined in § 332(d)(1) of the Communications Act of 1934 under a license granted by the FCC to a related company under the ownership of a common parent corporation and would be considered to be a telephone company for BPOL tax purposes. In P.D. 08-21 (2/29/2008), the Department found a taxpayer that provided mobile telephone services was a telephone company because it had entered into an agreement to provide telephone services with a related entity that was licensed by the FCC under the provisions of the Communications Act of 1934.

These documents did not represent a change in the Department's policy. The determinations were based on the specific facts of each case. In both P.D. 07-162 and P.D. 08-21, it was clearly established that the taxpayer classified as a telephone company was the operating entity and managed the operation of the wireless system.

In this case, the Taxpayer primarily resells services provided by related entities. Further, no evidence has been provided to show that the Taxpayer operated any mobile telephone communications sites, transmission and receiving towers, switching equipment or other equipment or facilities used in the provision of mobile telephone service.

DETERMINATION

Based on the evidence presented, the Taxpayer was merely selling mobile telephone services provided by its related entities. The Taxpayer did not provide mobile telephone services during the tax years at issue and was not a telephone company as set forth in Va. Code § 58.1-2600. As such, the Taxpayer is not subject to the special classification accorded to telephone companies under the provisions of Va. Code § 58.1-3731, and must be classified as a business service for BPOL tax purposes for the 2007 through 2009 tax years.

I am remanding this case back to the County in order to reclassify the Taxpayer in accordance with this determination and make the necessary adjustments to the assessment for the 2007 through 2009 tax years. If you have any questions regarding this determination, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4930707529.B