Tax Type
Retail Sales and Use Tax
Description
Furniture & fixtures associated with the purchase of Information Services Division
Topic
Allocation and Apportionment
Exemptions
Date Issued
08-20-2004
August 20, 2004
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 retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period February 1999 through July 1999. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides information technology services and products. The only contested issue in this case is the assessment of tax on furniture and fixtures associated with the purchase of the Information Services Division (the "Division") from ***** (the "Seller"). You contend that the Seller sold all or substantially all the assets of a business pursuant to an exempt occasional sale.
DETERMINATION
Virginia Code § 58.1-609.10(2) provides an exemption from the retail sales and use tax for an occasional sale. The term "occasional sale" is defined in Va. Code § 58.1-602 to mean:
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- A sale of tangible personal property not held or used by the 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 ....
That same section defines the term "business" to include "any activity engaged in by any person ... with the object of gain, benefit or advantage, either directly or indirectly."
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, separation of employees, and the flow of economic advantage from one division of the organization to another.
The Division in this case operated an activity separate and distinct from the Seller's primary business. The Division maintained separate assets that were separately housed, separate employees, separate marketing and advertising activities, and a separate customer base. The Division made about 95 percent of its sales to unrelated third-party customers. The remaining sales were to the Seller, but these sales were made at arm's length and at the same prices charged to third-party customers. The Division did not maintain its own separate bank account. It did segregate its checking transactions, however, by using a different check style, a separate signature authorization list, and separate deposit serial numbers.
In Public Document 99-69 (4/16/99), the Tax Commissioner determined that the sale of an unincorporated division was the exempt occasional sale of all or substantially all the assets of a business. I agree that the facts in the instant case are analogous to that prior determination. Accordingly, the contested transaction will be removed from the audit assessment. This action will reduce the outstanding assessment to zero.
The Code of Virginia sections and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's website, located at www.tax.state.va.us. If you have any questions about this determination, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
Kenneth W. Thorson
Tax Commissioner
- Sincerely,
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AR/26197i
Rulings of the Tax Commissioner