03-4 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Occasional Sale; Telecommunications Industry

Topic

Exemptions

Date Issued

01-31-2003

January 31, 2003

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in reply to your letters in which you seek correction of the sates and use tax assessment issued to *************** (the "Taxpayer"), for the period June 1997 through May 2000. I note that the assessment is paid. I apologize for the delay in the Department's response.

FACTS

The Taxpayer provides equipment engineering and installation services for the telecommunications industry. As a result of the Department's audit, the Taxpayer was assessed the tax on fixed assets acquired in its purchase of a division of another entity (the "Seller").

The Seller, a multifaceted corporation that is comprised of a number of divisions, sells equipment and services to telecommunications companies. As part of its operations, the Seller maintained a field engineering division (the "Division") in Virginia. The Division provided engineering services and installation of the equipment sold by the Seller.

The Seller decided to outsource the Division. The Seller sold the Division to the Taxpayer and the parties entered into two agreements - one for the outsourcing and the other for services. The outsourcing agreement stipulated the terms of the transfer of the Division and its responsibilities to the Taxpayer. The services agreement set out the scope of the services that the Taxpayer would provide to a number of the Seller's customers.

You contend that the sale of the Division to the Taxpayer constitutes the sale of substantially all the assets of a business division. As such, you maintain that the sale of the Division qualifies as an exempt occasional sale.

DETERMINATION

Va. Code § 58.1-609.10(2) provides an exemption from the retail sales and use tax for an occasional sale as defined in § 58.1-602. That section defines an "occasional sale" as:

- 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.

It is clear that the Seller did not sell all or substantially all its assets and that it continues to do business in Virginia. It is, therefore, necessary to look at the sale of the Division to determine if the Division is a "business" for purposes of the occasional sale exemption.

The Tax Commissioner has previously determined that the sale of all or substantially all of the assets of a business division may qualify as an exempt occasional sale. Under this scenario, the business division must be engaged in totally separate and distinct activities based on such considerations as separate books that are separately maintained, separate bank accounts, separation of fixed assets, and the separation of employees. The Tax Commissioner found in Public Document 85-149 (7/11/85) that the sale of a business division qualified for the occasional sale exemption when the division that was sold was "entirely separate and distinct" from another.

It is my understanding that the Division operated as one of a number of subdivisions of a larger umbrella division within the Seller's corporate structure. The Division's books were segregated, but not separate, and reported as part of the financial statements of the umbrella division. The umbrella division maintained bank accounts that were shared by the Division with the other subdivisions. While it is true that the Division maintained separate assets, personnel, and housing, the Division clearly was not entirely separate. Further, the Division was not distinct from the Seller. The Division did not provide services to or derive revenue from its own customers. It operated solely to provide services to the customers of the Seller and was measured on its ability to produce revenue as such.

Based on the foregoing, the sale of the Division to the Taxpayer does not constitute the sale of a separate business for purposes of the occasional sale exemption. Therefore, the tax was properly assessed in the audit, and the Taxpayer is not entitled to a refund.

The Code of Virginia sections and the public document cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have additional questions regarding this response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *******.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/37030J

Rulings of the Tax Commissioner