Tax Type
Retail Sales and Use Tax
Description
Stock transaction and other purchases qualified as an occasional sale
Topic
Corporate Distributions and Adjustments
Documents Subject to Tax
Exemptions
Date Issued
12-08-2004
December 8, 2004
RE: § 58.1-1821 Application: Retail Sales and Use Tax
Dear **********:
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This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued by the Department for the period June 1999 through February 2002. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer purchased stock from its Parent company as part of a recapitalization agreement. The recapitalization agreement transferred a portion of the Parent's consulting services to the Taxpayer. The Taxpayer treated the transaction as an asset sale for federal tax purposes under Internal Revenue Code § 338(h)(10) treatment. The Taxpayer also purchased items of tangible personal property from the Parent as part of a transition services agreement. The transition services agreement was entered into within a month of when the recapitalization agreement was executed. As a result of an audit by the Department, the Taxpayer was assessed tax on these purchase transactions. You maintain that the purchases were properly made exempt of the tax because the stock transaction qualified as an occasional sale.
DETERMINATION
In Public Document (P.D.) 94-106 (4/8/94), the Department addressed the applicability of the retail sales and use tax to a stock sale by a taxpayer making an election under Internal Revenue Code § 338(h)(10) election. The Department determined that while the Internal Revenue Code views this type of transaction as an asset sale for federal tax purposes, as a factual matter the transaction is a sale of stock. The Department determined the transaction is the sale of intangible personal property and was thus not subject to the tax.
Virginia Code § 58.1-609.10 2 provides that the retail sales and use tax shall not apply to "an occasional sale, as defined by Va. Code § 58.1-602." Virginia Code § 58.1-602 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." [Emphasis added.]
Title 23 of the Virginia Administrative Code 10-210-1080 further clarifies this issue providing, in pertinent part, that "the term occasional sale means the sale or exchange of all or substantially all the assets of a business, or the reorganization or liquidation of any business."
In the Taxpayer's case, the sale of stock is a sale of intangible personal property and is not subject to the retail sales and use tax. The fact that the Taxpayer treated the transaction, for federal tax purposes, as an asset sale under Internal Revenue Code § 338(h)(10) has no bearing on the status of the transaction for Virginia sales and use tax purposes. Furthermore, the documentation provided with your letter indicates the tangible personal property purchased from the Parent as part of a transition services agreement qualifies as an exempt occasional sale because it represents the reorganization of a business. Accordingly, the transactions at issue are exempt from the retail sales and use tax, and the contested assessment amount will be abated.
The Code of Virginia sections, regulations and public document cited, along with other reference documents, are available on-line in the Department's Tax Policy Library, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/46302P
Rulings of the Tax Commissioner