Tax Type
Retail Sales and Use Tax
Description
Occasional Sale
Topic
Property Subject to Tax
Date Issued
06-06-2001
June 6, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter in which you seek correction of a sales and use tax assessment issued to ***** (the "Taxpayer") for the period January 1997 through August 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates convenience stores and service stations in Virginia. At issue in this case is the Taxpayer's purchase of assets from ***** (the "Seller"). You maintain that the purchase of these assets is an exempt occasional sale.
Prior to the sale, the Seller owned and operated five convenience stores. These locations also made retail sales of gasoline. In addition, the Seller operated a wholesale home heating fuel business and a propane home delivery business. The Seller sold four of the convenience store locations, substantially at the same time, to the Taxpayer. Within a few months, the fifth convenience store location was sold to another purchaser. Accordingly, the Seller has completely vacated the convenience store/retail gasoline business.
Pursuant to the Purchase Agreement, the Seller sold to the Taxpayer all of the tangible assets, intangible assets, and inventory associated with the four locations. Also, the Seller entered into a noncompetition agreement with the Taxpayer that prevents the Seller from operating convenience stores and retail gasoline locations for a period of 10 years within 25 miles of any of the four locations sold to the Taxpayer. However, the Seller remains free to continue its existing remaining petroleum businesses (the wholesale home heating fuel business and the propane home delivery business).
The sale of assets did not include the sale of land and buildings owned by the Seller. In this regard, the Seller owned both the land and buildings at three of the locations, and the Seller retained these real property assets. As part of the Purchase Agreement between the Taxpayer and the Seller, this real property was leased to the Taxpayer for an initial period of 15 years. At the fourth location, the Seller owned the building, but not the land.
In addition to the outright sale and purchase of assets, the Taxpayer and the Seller exchanged certain tangible assets through a like-kind exchange. Through this exchange of assets the Taxpayer provided: (1) a truck and two delivery tanks in exchange for a tractor and trailer; (2) about 700 liquid petroleum tanks in exchange for underground fuel tanks and installation; and (3) computerized propane registers in exchange for JCV readers and dispensers.
The Taxpayer maintains that a credit should be allowed for the value of the items purchased for the tax-free exchange portion of the transaction. I understand that the Taxpayer paid the sales tax on the purchase of most of the tangible personal property it subsequently exchanged with the Seller. However, the tax was not paid to the vendor on the purchase of some of the liquid petroleum tanks. These tanks were included in the assessment (in addition to the tangible personal property purchased from the Seller's convenience store locations).
DETERMINATION
Occasional sale issue
Code of Virginia § 58.1-609.10(2) provides an exemption from the tax for an occasional sale as defined in § 58.1-602. That section defines an "occasional sale" as:
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- A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration, including the sale or exchange of all or substantially all the assets of any business and the reorganization or liquidation of any business, provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration. (Emphasis added.)
It is clear in this case that the Seller did not sell all or substantially all of its assets. This is because the Seller remains in business with its wholesale heating oil and propane delivery operations. Further, the Seller continues to own the real property it owned prior to its sale of the convenience stores.
Notwithstanding the above, the department has previously determined that the sale of a separate and distinct activity of a multifaceted business may qualify as the sale of all or substantially all the assets of a business. There are a number of factors in this case that suggest that the Seller's convenience store activities were separate and distinct from the remaining operations: (1) the assets of the convenience stores were not used in the operation of the Seller's heating fuel and propane delivery operations; (2) employees were not interchanged between the Seller's activities; (3) the Seller used separate checking accounts for its convenience store activities; (4) there appears to be no flow of economic activity between the convenience stores and the other operations; and (5) the convenience stores were housed separately from the other operations. On the other hand, some of the accounting functions and accounting personnel were shared among the Seller's operations.
I find that the sale of the Seller's convenience store operation in this case is the sale of substantially all the assets of a business. The transaction is, therefore, an occasional sale and is exempt from the tax.
Like-kind exchange issue
The Taxpayer claims that it should be given credit for the value of certain property because that property was traded for assets acquired from the Seller under a like-kind exchange. Code of Virginia § 58.1-603 imposes the tax on the "gross sales price of each item or article of tangible personal property sold at retail or distributed" in Virginia. The term "sales price" is defined as the "total amount for which tangible personal property or services are sold" but further provides that:
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- Where used articles are taken in trade, or in a series of trades as a credit or part payment on the sale of new or used articles, the tax levied by this chapter shall be paid on the net difference between the sales price of the new or used articles and the credit for the used articles.
By virtue of the occasional sale exemption, no tax is applied to the "sales price" of the tangible personal property sold by the Seller to the Taxpayer. Further, many of the other items acquired by the Taxpayer (such as motor vehicles, intangible assets, and improvements to realty) are not subject to sales and use taxation whether purchased outright or acquired through a like-kind exchange. Accordingly, the application of the tax to the items acquired by the Taxpayer through the like-kind exchange is a moot point because there is no sales price on which to apply the tax.
In any event, the tax does apply to the Taxpayer's purchase of the tangible personal property it subsequently exchanged for some of the Seller's assets. These items were not purchased for resale, but rather for the Taxpayer's own use. In this respect, "use" is defined in Code of Virginia § 58.1-602 as:
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- The exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business. (Emphasis added)
In this case, the Taxpayer's purchases of delivery tanks, liquid petroleum tanks, and computer registers were not for resale in the regular course of business. These items were purchased for the Taxpayer's use in acquiring property from the Seller. As such, the purchases of these items are taxable.
Based on this determination, the purchases from the Seller associated with the occasional sale issue will be removed from the assessment. A revised assessment, with interest accrued to date, will then be issued. No additional interest will accrue on the revised assessment provided it is paid within 45 days from the date of this letter.
If you have any questions regarding this letter, please contact ****** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27737I
Rulings of the Tax Commissioner