Were a commercial printer's mailing-list, campaign, and mail-preparation functions a separate BPOL-taxable service business?

Plain-English summary

Virginia held that the printer's mailing functions were ancillary to its principal printing business and were not a separate BPOL-taxable service business. The taxpayer developed direct-mail campaigns and lists, cleaned mailing data, and prepared printed products for mailing.

Almost every customer using those functions also purchased printed products from the taxpayer. Combining printing and mailing made the printing service more convenient and attractive, rather than establishing an independent commercial-service operation.

Virginia explained that a separate license requires clearly identifiable business activities capable of operating independently. An activity subordinate or auxiliary to the principal business is ancillary. Separate invoice lines do not automatically create separate businesses, while the absence of a separate charge generally supports ancillary treatment.

The case was remanded so the city could reclassify the taxpayer and adjust the 2011 assessment.

What this means for you

• Local BPOL classification turns on the economic relationship between activities, not labels alone.
• Document how often supplemental services are sold without the principal product.
• Separate charges do not by themselves prove a separate business.
• BPOL is locally administered, so the locality makes the initial factual classification.

Common questions

Q: Why were the mailing functions ancillary?
A: Nearly every mailing customer also bought the taxpayer's printed product, and the services supported the printing business.

Q: Can separately stated charges create a separate business?
A: Not by themselves.

Q: What indicates a separate activity?
A: A clearly identifiable operation that can exist independently of the principal business.

Q: What happened to the assessment?
A: Virginia remanded it for city reclassification and adjustment.

Citations and references

• Va. Code § 58.1-3703.1 A 1 and A 5.
• 23 VAC 10-500-110 B.
• 1994 Op. Va. Att'y Gen. 99.
• Virginia Public Documents 97-257 and 05-79.

Subject

Taxpayer's business functions were ancillary to the principal business as a printer.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-112

Original ruling text

June 24, 2013

Re: Appeal of Final Local Determination

Taxpayer: *

Locality: *

Business, Professional and Occupational License (BPOL) Tax

Dear *:

This final state determination is issued upon the application for correction filed by you on behalf of your client, * (the "Taxpayer"), with the Department of Taxation. You appeal a final local determination upholding a BPOL tax assessment for the 2011 tax year issued by the *** (the "City").

The local license tax and fee are imposed and administered by local officials. Virginia Code § 58.1-3703.1 A 5 authorizes the Department to issue determinations on taxpayer appeals of certain 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, regulation, 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 commercial printer located in the City. During the 2011 tax year, the Taxpayer also offered certain mailing services, including direct mail marketing campaign development and design, mailing list development and hygiene, and the preparation of printed products for mailing. In nearly every case, customers who used these mailing services did so in connection with a printed product the Taxpayer produced for them.

Initially, the City classified the Taxpayer as a retailer and assessed BPOL tax. The Taxpayer filed an appeal with the City, contending it was exempt from BPOL tax as a manufacturer. In its final determination, the City concluded that the Taxpayer was a manufacturer, but the City segregated the Taxpayer's mailing functions as a separate line of business and assessed BPOL tax against it under a commercial service classification.

The Taxpayer filed an appeal to the Tax Commissioner, contending that it is a manufacturer, not a commercial service provider, and its print equipment and mail equipment operate together as part of the same process.

ANALYSIS

Multiple Businesses

Virginia Code § 58.1-3703.1 A 1 provides that a separate license will be required for each definite place of business and for each business a taxpayer is operating. Local tax officials are responsible for making the determination as to whether a taxpayer is engaged in a single business or in two businesses, each of which could operate independently of the other. In order to make this determination, the local tax official must be provided with documentation demonstrating the substantiality of each business. See 1994 Op. Va. Att’y Gen. 99.

In order to be required to obtain multiple licenses, the business must be engaged in clearly identifiable separate business activities and not merely activities ancillary to the primary business. In Public Document (P.D.) 97-257 (6/11/1997), the Department concluded that the term "ancillary" refers to business activities that are subordinate, subservient, auxiliary, or in aid of the business' principal business activity. Distinguishing between an ancillary activity and an activity that rises to the level of a separate business can often be accomplished by determining if the activity under scrutiny exists independently of the principal business. To the extent that additional services are offered to make the sale of a good or service more attractive to the consumer, the offering of such supplemental services are usually ancillary to the principal business. In general, an activity for which no separate charge is made will be presumed to be ancillary to the activity for which a charge is made, but separately stating charges for different activities will not create a presumption that each such activity is a separate business. See Title 23 of the Virginia Administrative Code 10-500-110 B.

In P.D. 97-257, the business rented apartments to elderly retired individuals. A rental entitled the resident to a number of additional services including meals, recreation activities, housekeeping, linen service, utilities, transportation, wellness programs, and 24 hour security. The Department reasoned that the additional services made the housing arrangement attractive by making living at the facility convenient, accessible and enjoyable. These services did not exist independently of the primary rental business because if the facility did not offer housing as its basic function, there would be no reason to provide the other services. Therefore, the additional services were not separately licensable in the opinion of the Tax Commissioner. See also P.D. 05-79 (5/23/2005).

The information provided indicates nearly every customer who used the Taxpayer's mailing functions did so in connection with a printed product the Taxpayer produced for the customer. By combining the services, the Taxpayer effectually made its printing service more attractive and convenient for customers.

DETERMINATION

Based on the evidence provided, the Taxpayer's mailing functions did not constitute a separately licensable business, but were ancillary to the principal business as a printer. Accordingly, I am remanding this case back to the City in order to reclassify the Taxpayer in accordance with this determination and make the necessary adjustments to the assessment for the 2011 tax year.

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/1-5324618661.M