Extras on Excise: Virginia BPOL Tax has a Distinctly Local Flavor

In response to a request from a state senator, the Office of the Attorney General of Virginia issued an official advisory opinion addressing whether the city of Alexandria is permitted to increase its BPOL tax rate on income from the rental of real property since its ability to tax such activity was grandfathered. At the heart of the question presented to the attorney general is whether executing a change to characteristics of taxation that were in place when a grandfather clause took effect would eliminate the grandfathered privilege.

Local governments are empowered to set their own tax rates and fees provided they are in accord with statutory limitations. Virginia law allows counties, cities, and towns to impose the Virginia business, professional, and occupational license (BPOL) tax upon approval by a local governing body.

State law imposes a myriad of limitations on tax rates and fees that are based on both population and business type. For example, retail sales rates may not exceed $0.20 per $100 of gross receipts; financial, real estate, and professional services rates may not exceed $0.58 per $100 of gross receipts; and repair, personal, and business services rates may not exceed $0.36 per $100 of gross receipts. Also, in a locality with a population greater than 50,000, BPOL can only be imposed on a person whose gross receipts are $100,000 or greater.

Since 1974, Virginia has prohibited the imposition of BPOL tax against property owners on income generated from the rental of real property, excluding hotels and other similar short-term lodging. However, if a locality was already taxing this activity as of Jan. 1, 1974, it was permitted to continue the taxation under a grandfather clause set forth in Code of Virginia § 58.1-3703(C)(7).

In the advisory opinion, Virginia Attorney General Mark Herring notes that Virginia law does not state that a grandfathered locality is prohibited from adjusting the rate of tax on the rental of real property, and that the Legislature’s choice to not include such language should be given effect. He concludes that the grandfather clause only regulates a local government’s authority to continue imposing the BPOL tax in spite of the moratorium, and thus, a locality may increase or decrease the tax rate within the applicable statutory parameters and may also eliminate the tax on that activity if it chooses.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Do you agree with the attorney general’s opinion? Why or why not?

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