United States: Virginia Tax Commissioner Holds Leasing And Operation Of Commercial Tractor Were Business Services For BPOL Purposes

In a recently issued ruling, the Virginia Tax Commissioner has held that the activities of a taxpayer that leased a commercial tractor to a motor carrier and operated it on the carrier's behalf constituted business services subject to the business, professional and occupational license (BPOL) tax in the county where the taxpayer resided.1 Although the activities were not classified as business services under the Standard Industrial Classification (SIC) system, they constituted business services for purposes of the BPOL tax.


In Virginia, localities are authorized to impose a BPOL tax generally based on the taxpayer's gross receipts for the privilege of conducting business.2 The tax is imposed at different rates according to a taxpayer's classification,3 which often leads to controversies surrounding the proper business classification of a specific taxpayer.4 Determining the classification of a taxpayer is based on consideration of all the facts and circumstances.5 The taxpayer requesting the Commissioner's ruling owned a commercial tractor that he leased to a motor carrier and operated on the carrier's behalf as an independent contractor.6 The county of the taxpayer's residence determined that he had underpaid the county BPOL tax and issued an assessment. The taxpayer appealed to the county and argued that he was not required to have a business license in the county because his tractor had never been sitused in the county, no management or work was done in the county and the tractor was leased to a business in another locality. In its final determination, the county concluded that the taxpayer generated gross receipts solely from the leasing service and the gross receipts were properly sitused because the taxpayer operated the business from his residence in the county. Also, the county determined that it had correctly classified the taxpayer's operations as a business service. The taxpayer filed an appeal with the Tax Commissioner and argued that he should have been classified as a contractor rather than a provider of business services.

Activities Properly Classified as Business Services

In rejecting the taxpayer's argument that he should be classified as a contractor, the Tax Commissioner considered the extensive statutory definition of the term.7 Because the various activities provided in the statute relate to construction, the taxpayer's business did not involve any of the statutory activities. The Tax Commissioner determined that the fact that the taxpayer had a contract to rent the tractor was not sufficient to classify him as a contractor for purposes of the BPOL tax.

The Tax Commissioner also rejected the taxpayer's argument that his business should not be classified as a business service for BPOL tax purposes because it was not classified as a business service under the SIC. As explained by the Tax Commissioner, industrial classification systems such as the SIC or the newer, more expansive North American Industrial Classification System (NAICS) "may serve as useful guideposts for determining classifications for BPOL tax purposes, but they do not control, or even create a presumption as to the correct classification for BPOL purposes."8 Thus, the fact that the taxpayer's activity was not classified as a business service under the SIC was not controlling.

The BPOL tax's repair, personal or business service classification includes all services not classified as financial, real estate or professional.9 A regulation provides a detailed list of business services that includes: (i) packing, crating, shipping, hauling or moving goods or chattels for others;10 and (ii) renting or leasing any items of tangible personal property.11 Because the taxpayer was leasing tangible personal property to another business, the Tax Commissioner concluded that he was providing a business service. Furthermore, the lease was not a short-term rental classified as a retail sale.12

Multiple Businesses

A BPOL tax statute provides that a separate license is required for each definite place of business and for each business a taxpayer is operating.13 The Tax Commissioner noted that the taxpayer may have generated gross receipts from two different business activities: (i) leasing tangible personal property to the motor carrier; and (ii) operating the motor vehicle on the carrier's behalf. Both activities would be classified as business services, but each business is required to meet a certain gross receipts threshold before the BPOL tax may be imposed.14 The Tax Commissioner remanded the case with directions to the taxpayer to provide the county with sufficient documentation to determine whether the taxpayer was engaged in multiple businesses, and if so, whether such minimum BPOL thresholds were reached.


This ruling provides guidance concerning how counties should classify taxpayers for purposes of the BPOL tax. As explained by the Tax Commissioner, the classification of a taxpayer under the SIC or the NAICS is merely instructive and does not control the classification for BPOL tax purposes. The Tax Commissioner's ruling is consistent with its historic policy in this area. Taxpayers that have multiple streams of revenue should evaluate whether they need multiple BPOL tax licenses, and/or whether such revenue streams are being properly classified. With the annual BPOL tax filing due date of March 2014 approaching, now is an optimum time for companies to review their revenue streams. This ruling illustrates that a taxpayer that leases equipment and also operates the equipment for another party is performing two separate business services that would require the taxpayer to obtain separate BPOL tax licenses. If the activities are closely related, it may not be readily apparent that the taxpayer needs multiple licenses.


1 Ruling of Commissioner, P.D. 13-214, Virginia Department of Taxation, Nov. 22, 2013.

2 VA. CODE ANN. § 58.1-3703.

3 VA. CODE ANN. § 58.1-3706.A.1, .4.

4 For example, activities performed by contractors may be taxed at a maximum rate of 16 cents per $100 of gross receipts, while business services may be taxed at a maximum rate of 36 cents per $100 of gross receipts.

5 Some of the factors to be considered include: (i) the nature of the taxpayer's business; (ii) the method the taxpayer uses to generate gross receipts; (iii) the location where the taxpayer conducts its business; (iv) the taxpayer's customers; (v) how the taxpayer holds itself out to the public; and (vi) the taxpayer's North American Industry Classification System (NAICS) code.

6 Interestingly, the "facts" section of the decision indicates that the taxpayer "operated [the tractor] on the carrier's behalf as an independent contractor." However, the decision later states that "[t]he information provided does not clarify if the [t]axpayer also operated the vehicle."

7 VA. CODE ANN. § 58.1-3714.D.

8 Citing 23 VA. ADMIN. CODE § 10-500-140, which clarifies the use of the NAICS codes to classify a business for BPOL tax purposes.

9 23 VA. ADMIN. CODE § 10-500-500.

10 23 VA. ADMIN. CODE § 10-500-500(54).

11 23 VA. ADMIN. CODE § 10-500-500(67).

12 VA. CODE ANN. §§ 58.1-3510.4; 58.1-3706.C.

13 VA. CODE ANN. § 58.1-3703.1.A.1.

14 23 VA. ADMIN. CODE § 10-500-110.

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