Technical Assistance Advisory No. 90-002 Re: FINANCIAL PLANNING SERVICES FOR WHICH AN INVESTMENT ADVISOR'S LICENSE IS REQUIRED UNDER WEST VIRGINIA CODE §
32-2-201 ET SEQ. QUALIFY AS PROFESSIONALSERVICES EXCEPTED FROM THE IMPOSITION OF CONSUMERS SALES AND SERVICE TAX Recently this Office received a letter requesting a ruling on behalf of XYZ, Inc. as to whether financial planning services rendered by a registered investment advisor qualify as professional services excepted from the imposition of consumers sales and service tax. Based upon the information provided, XYZ, Inc. was incorporated for the purpose of providing financial planning services to persons, firms or corporations. This Corporation is a registered investment advisor under the provisions of West Virginia Code §
32-2-201 et seq. and is also a registered investment advisor with the Securities and Exchange Commission under the Investment Advisors Act of 1940. As a registered investment advisor under West Virginia law, XYZ, Inc. is subject to the regulation and control of the Auditor of the State of West Virginia in his capacity as Commissioner of Securities. The Commissioner has a continuing right to review the qualifications of investment advisors and to provide for examinations to ensure that citizens of this State receive competent and current advice from those engaged in the practice of being an investment advisor.Pursuant to West Virginia Code §
32-2-201, it is unlawful for any person to transact business in this State as an investment advisor, except in limited circumstances which relate to registered broker/dealers or where the only clients of the person in this State are investment companies or insurance companies, unless he is registered in accordance with Chapter 32 of the West Virginia Code. The procedure for registration is set forth under West Virginia Code §
32-2-202. There are also administrative regulations which explain and clarify Chapter 32 of the West Virginia Code as it relates to the qualifications and requirements for obtaining a license to engage in the practice of being an investment advisor.As a general rule, an applicant for an investment advisor's license must pass an examination prescribed by the Commissioner of Securities which relates to Chapter 32 of the Code, the Rules of the Commissioner thereunder, the applicable Federal Securities laws and rules of the Securities and Exchange Commission thereunder, general matters concerning the securities business, and such other matters as the Commissioner may determine. Under very limited circumstances, based upon the discretion of the Commissioner, the examination requirement may be waived in whole or in part. In addition to examination requirements, the regulations also provide for net capital requirements, record keeping requirements and reporting requirements. An investment advisor's license expires one year from its effective date unless renewed by application. West Virginia Code §
32-2-204 sets forth the circumstances under which the Commissioner of Securities may by order deny, suspend or revoke any registration.The West Virginia Consumers Sales and Service Tax is codified in Article 15, Chapter 11 of the West Virginia Code. This tax is imposed on sales and leases of tangible personal property and on the dispensing of selected services in this State. See W.
Va. Code §
11-15-3. All sales of tangible personal property or services are presumed to be subject to the consumers sales and service tax unless excepted or exempted. See W.
Va. Code §
11-15-6. Professional services are excepted from the imposition of consumers sales and service tax under West Virginia Code §
11-15-8.For purposes of the consumers sales and service tax the term "professional service" means and includes "an activity recognized as professional under common law, its natural and logical derivatives, and any expansion of the term made by the West Virginia Legislature." See 110 C.S.R. 15, §
2.55 (1989). Section 8.1.1 of the West Virginia Consumers Sales and Service Tax and Use Tax Regulations dictates the following with regard to the professional services exception:8.1.1 Professional Services 220.127.116.11 Professional services, as defined in Section 2 of these regulations, are rendered by physicians, dentists, lawyers, certified public accountants, public accountants, optometrists, architects, engineers, registered professional nurses, veterinarians, physical therapists, ophthalmologists, chiropractors and licensed real estate brokers. Generally, the Tax Department will only recognize as "professional" the activities indicated as such in Chapter 30 of the West Virginia Code. The determination as to whether other activities are "professional" in nature will be determined on a case-by-case basis. When making a determination as to whether other activities fall within the "professional" classification, the Tax Department will consider such things as the level of education required for the activity, the nature and extent of nationally recognized standards for performance, licensing requirements on the State and national level, and the extent of continuing education requirements. 18.104.22.168 Services for which a professional license is required and which are provided by corporations, regardless of whether such corporations are professional or business, are not subject to the sales and service tax. Likewise, non-professional services provided by a professional corporation are subject to the tax. 22.214.171.124 Professional persons who make sales of tangible personal property or who engage in activities which are not professional services shall collect sales and service tax on such sales or services. For example, kennel services provided by a veterinarian are subject to tax. 126.96.36.199 Professional services shall not be related to the quality of performance or expertise of the person performing the service. Professional, when used in these regulations, is not synonymous with excellence. It is the type of service which must be professional, not the quality or manner in which the service is performed. To illustrate: A doctor's service to his patients are professional services whether or not his patients are satisfied with his performance; or, an individual may excel at repairing television sets, but his type of service (repair of television sets) is not considered professional under these regulations even though the manner in which he performs is considered "professional" by his customers or by other television repairmen. 110 C.S.R. 15, §
8.1.1 (1989)Professional services which have been held to be excepted from the imposition of the consumers sales and service tax are not limited to services performed in the practice of law, theology or medicine or in the pursuit of occupations specifically recognized as professions in Chapter 30 of the West Virginia Code. It should be emphasized, however, that the burden of establishing that a person is a member of a recognized profession and rendering a service connected therewith is on the person or the corporation asserting that the service provided is professional and hence excepted from taxation. See Wooddell v. Dailey, 160 W.Va. 65, 230 S.E.2d 466 (1976). In order to prevail in asserting the professional services exception, one must substantiate that he or she is a member of a discipline with widely accepted standards of required study or specified attainments in special knowledge, as distinguished from mere skill. As stated in the above cited regulation, the Department does not recognize as professional services those which do not require the person or organization rendering said service to maintain some type of federal or state license or certification in order to qualify to render the service in question. Having reviewed the provisions of West Virginia Code §
32-2-201 et seq. and the administrative regulations thereto pertaining to investment advisors in light of the criteria set forth under Section 8.1.1 of the consumers sales and service and use tax regulations, we are in agreement with your position that the rendering of financial planning services for which an investment advisor's license is required qualify as professional services excepted from the imposition of the consumers sales and service tax. Thus, when XYZ, Inc. provides financial planning services in accordance with its investment advisor's license it is not required to collect consumers sales and service tax on such services.This Technical Assistance Advisory is based on the laws, regulations and court decisions currently in effect. Any change in such authority may render this ruling null and void upon the effective date of such change. _________________________________ Charles O. Lorensen Secretary, Tax and Revenue Date: August 9, 1990