My holding company is based in Virginia and performs executive functions for a subsidiary that has no office or employees in Virginia -- does that subsidiary owe Virginia BPOL tax just because its parent is here?

Plain-English summary

A company that produces and supplies liquified natural gas globally asked the Department for an advisory opinion on its corporate group's exposure to Virginia's Business, Professional and Occupational License (BPOL) tax. The group's ultimate owner (the "Parent") is a holding company headquartered in Virginia, which owns several limited liability companies treated as disregarded entities for federal tax purposes -- including one (LLC A) that owns and operates a manufacturing plant and export facility located entirely in another state. The Parent performs executive functions (legal, accounting, tax services) for its subsidiaries, for a fee. The specific question: does LLC A owe BPOL tax in the Virginia locality where the Parent is based?

BPOL tax looks at each legal entity separately. BPOL tax is based on a business's own gross receipts from doing business in a locality. When an entity has its own certificate of incorporation/organization and its own federal employer ID number, Virginia treats it as a SEPARATE entity for local business tax purposes -- even if it's part of a larger corporate family. Importantly, an entity's status as a "disregarded entity" for FEDERAL income tax purposes is NOT relevant to whether it's a separate taxpayer for BPOL purposes; the two systems don't line up. So even though LLC A is disregarded for federal tax, it and the Parent are still treated as separate legal entities, each independently required to get a BPOL license and pay BPOL tax only where IT has a definite place of business.

What counts as a "definite place of business." Virginia law defines this as an office or location where a regular and continuous course of dealing occurs for 30 consecutive days or more -- which can include a temporarily or seasonally leased location. Relevant (but not individually decisive) factors include a continuous presence, having an office or phone, receiving mail, having employees, keeping records, and advertising at that location. All the facts and circumstances matter, not any single factor.

Why LLC A owes nothing in Virginia. LLC A's only location is its manufacturing plant and export facility in another state; it has no office, employees, or other Virginia connection. The fact that its related Parent -- a separate legal entity -- happens to be headquartered in Virginia and performs executive services for LLC A doesn't give LLC A itself a definite place of business in Virginia. The Department has previously held the same way: an affiliate whose employees perform services for a separate entity doesn't create a definite place of business for that entity wherever the affiliate happens to be located. Because LLC A has no definite place of business in any Virginia locality, it isn't required to get a BPOL license or pay BPOL tax on its gross receipts, no matter where the Parent sits.

What this opinion does NOT decide. The Department expressly limited this opinion to LLC A's own BPOL liability -- it took no position on whether the Parent itself, or the group's other affiliates (a marketing services LLC and an operations/maintenance services LLC), might have their own BPOL exposure in Virginia or elsewhere.

What this means for you

Multi-entity corporate groups with a Virginia-based holding company or headquarters

A subsidiary doesn't automatically owe BPOL tax in your parent company's Virginia locality just because the parent is headquartered there and provides executive services to the subsidiary. Look at whether the SUBSIDIARY ITSELF has an office or location with a regular, continuous course of dealing (30+ days) in that locality -- if it doesn't, it isn't liable there.

Businesses using disregarded entities (single-member LLCs) for federal tax purposes

Don't assume your federal "disregarded entity" treatment carries over to Virginia's local business taxes. For BPOL purposes, each entity with its own organizational certificate and federal EIN is analyzed SEPARATELY, regardless of how it's treated for federal income tax.

Corporate groups asking for an advisory opinion on one entity's BPOL exposure

Be aware the Department will typically limit its opinion to the specific entity and facts asked about -- as here, where the ruling expressly took no position on the Parent's or the other affiliates' own BPOL liability.

Common questions

Q: My subsidiary is treated as a disregarded entity for federal tax purposes -- does that mean it's not a separate taxpayer for Virginia BPOL tax either?
A: No. Federal disregarded-entity status is irrelevant to BPOL taxation. As long as the entity has its own certificate of incorporation/organization and federal EIN, it's analyzed as a separate entity for BPOL purposes.

Q: Does my subsidiary owe BPOL tax in the locality where our parent company is headquartered, since the parent performs services for it?
A: Not just because of that relationship. Your subsidiary owes BPOL tax only where IT ITSELF has a definite place of business -- an office or location with a regular, continuous course of dealing for 30+ consecutive days. A related entity's Virginia location doesn't create that for your subsidiary.

Q: What counts as a "definite place of business" for BPOL purposes?
A: An office or location where a regular and continuous course of dealing occurs for at least 30 consecutive days. Factors like continuous presence, an office or phone, receiving mail, having employees, recordkeeping, and advertising at that location can help show this, but all facts and circumstances are considered together.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-3703.1 -- Department authority to issue advisory opinions on local business tax matters
• Va. Code § 58.1-3700.1 -- definite place of business defined (30+ consecutive days of regular, continuous dealing)
• 23 VAC 10-500-10 -- BPOL gross receipts defined
• 23 VAC 10-500-30 -- BPOL license required for licensable activity at a definite place of business

Prior rulings the Department relied on (described here, not linked): P.D. 07-191 (11/21/2007), P.D. 11-167 (9/28/2011), and P.D. 20-3 (1/7/2020) -- an entity with its own certificate of incorporation/organization and federal EIN is a separate entity for local business tax purposes; P.D. 99-9 (1/11/1999) -- federal disregarded-entity status is irrelevant to BPOL taxation; P.D. 97-201 (4/25/1997), P.D. 01-215 (12/12/2001), and P.D. 10-277 (12/21/2010) -- factors indicating a definite place of business; P.D. 11-145 (8/5/2011) and P.D. 11-167 -- an affiliate's employees performing services for a separate entity doesn't create a definite place of business for that entity. This ruling applies the same Va. Code § 58.1-3700.1 30-consecutive-day definite-place-of-business test as this corpus's P.D. 24-89, but in a multi-entity corporate group context rather than a home-office context.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-75

Original ruling text

August 7, 2024

Re: Request for Advisory Opinion

Business, Professional and Occupational License Tax

Dear * :

This is in response to your letter in which you request an advisory opinion on behalf of your client, * (the “Parent”) and its related entities, regarding the application of the Business, Professional and Occupational License (BPOL) tax.

The BPOL local license fee and tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue advisory opinions on local business tax matters. The following opinion has been issued subject to the facts presented by the Taxpayer to the Department as summarized below. Any changes in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s website.

FACTS

The Taxpayer produces and provides liquified natural gas on a global basis. The Parent, a holding company headquartered in Virginia, is the ultimate owner of several limited liability companies, including * (LLC A), (LLC B), and ** (LLC C). The limited liability companies are treated as disregarded entities for federal income tax purposes. The Parent performs certain corporate executive functions, including legal, accounting, and tax services, for which its related entities pay a fee.

LLC A owns and operates a manufacturing plant and export facility located in * (State A). Based on the information provided in the request, the facility in State A is LLC A’s only location.

LLC B provides marketing services to related entities. Although the request does not indicate the location of any definite place of business, the facts indicate that all of its employees are located outside the United States. It solicits customers and negotiates contracts for the sale of liquified natural gas outside the United States. The contracts are approved by Parent and fulfilled by LLC A’s operations.

LLC C provides LLC A with operational and maintenance services at LLC A’s manufacturing plant. Under the service arrangement, LLC A has contracted with LLC C to provide personnel to operate and maintain the plant. The request does not specify where LLC C is located or whether it provides similar services to other members of the Taxpayer.

According to the request, neither LLC A, LLC B, nor LLC C have an office, employees, or other connections in Virginia. The Taxpayer requests a ruling concerning whether LLC A would be subject to BPOL tax in the Virginia locality in which the Parent is based.

OPINION

BPOL Taxation of Separate Entities

The BPOL tax is imposed on businesses and professionals for the privilege of doing business in a locality. The tax is based on gross receipts which are defined as “the whole, entire, total receipts, of money or other consideration received by the taxpayer ...” Title 23 of the Virginia Administrative Code (VAC) 10-500-10 [emphasis added]. When a taxpayer holds a separate certificate of incorporation or organization and has its own federal employer identification number, it is considered a separate entity for local business tax purposes. See Public Document (P.D.) 07-191 (11/21/2007), P.D. 11-167 (9/28/2011), and P.D. 20-3 (1/7/2020).

In addition, an entity’s status as a disregarded entity for federal income tax purposes is not relevant to a determination as to whether the entity is subject to BPOL tax. See P.D. 99-9 (1/11/1999). The Parent and LLC A are separate legal entities such that each would be required to obtain a BPOL license and pay BPOL tax if they had gross receipts sitused to a definite place of business within a Virginia locality that has adopted a BPOL ordinance that requires a license.

Definite Place of Business

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 30 consecutive days or more. A definite place of business can include a location leased or otherwise obtained from another entity on a temporary or seasonal basis. Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following onsite activities: (1) a continuous presence; (2) having an office or 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), P.D. 01-215 (12/12/2001), and P.D. 10-277 (12/21/2010). Although these activities are indicative of a definite place of business, all facts and circumstances concerning the nature of a taxpayer’s operations must be considered.

Consistent with the principle that the BPOL tax is assessed on a separate entity basis, the Department has determined that separate entities that had no definite place of business in a Virginia locality were not subject to that locality’s BPOL tax, even if an affiliate’s employees performed services for them in Virginia. See P.D. 11-145 (8/5/2011) and P.D. 11-167.

In this case, although the Parent may be performing some services for LLC A, LLC A itself does not have an office or other location at which occurs a regular and continuous course of dealing in Virginia and thus does not have a definite place of business in a Virginia 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. See Title 23 VAC 10-500-30. Because LLC A does not have a definite place of business in Virginia, it would not be required to obtain a business license or pay BPOL tax on its gross receipts.

This opinion addresses the BPOL tax liability of LLC A only. The Department expresses no opinion about whether and to what extent the Parent, LLC B, or LLC C may be subject to BPOL tax.

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

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4746.X

Related Documents

97-201

99-9

01-215

07-191

10-277

11-145

11-167

20-3