07-72 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Subsidiaries in Virginia are registered separately for retail sales and use tax

Topic

Corporate Distributions and Adjustments

Persons Subject to Tax

Property Subject to Tax

Date Issued

05-18-2007

May 18, 2007

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

Dear *****:

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 for the period December 2001 through July 2004. I apologize for the delay in responding to your appeal.

FACTS

In February 2004, the ***** (the "Hotel") was sold to a third party. As the result of the audit conducted by the Department, the Taxpayer was assessed tax on items of tangible personal property sold in conjunction with the sale of the Hotel. The Taxpayer contends that it did not own the Hotel at the time it was sold and requests abatement of the tax assessed on the tangible personal property sold. The Taxpayer maintains that the Hotel was owned and sold by the ***** (the "Corporation"), and the sale of the Hotel by the Corporation represents an exempt occasional sale. The Taxpayer maintains that the Purchase Agreement and the HUD Settlement Statement provided clearly show that at the time of the sale the Corporation was the owner of the Hotel.

DETERMINATION

Public Document (P.D.) 98-157 (10/20/98) addresses the Virginia retail sales and use tax as it relates to a Qualified Subchapter S Subsidiary (QSSS). In this ruling, the Tax Commissioner states that for sales and use tax purposes, a QSSS remains a separate legal entity, without regard to its registration for federal and state income tax purposes. Pursuant to P.D. 98-157, each QSSS owned by a particular taxpayer would be required to register for the retail sales and use tax with the Department. The QSSS election by a taxpayer is only applicable for federal and state income tax registration purposes.

In this case, the Taxpayer acquired the Corporation in June 1999 through an Agreement and Plan of Share Exchange (the "Agreement"). During that same time period, the Taxpayer acquired 13 other similar entities in the same fashion. The Agreement provides that once the share exchange became effective, the Corporation became a wholly owned subsidiary of the Taxpayer. The Property Listing filed with the Taxpayer's 2000 federal income tax return indicates that the 14 entities acquired in June 1999 were 100 percent owned by the Taxpayer. These are separate legal entities for sales tax purposes despite the QSSS election made for federal and state income tax purposes.

Based on the Purchase Agreement and the HUD Settlement Statement provided, the Hotel was owned by the Corporation at the time of the sale. As such, the Taxpayer should not have been assessed tax on the sale of the tangible personal property sold in connection with the sale of the Hotel. Furthermore, the Corporation owned the Hotel for the entire audit period. Accordingly, the Taxpayer should not have been assessed for any transactions held taxable in the audit.

Additionally, pursuant to P.D. 98-157, the Hotel should not have been registered to the Taxpayer for Virginia retail sales and use tax purposes. The Corporation and each subsidiary of the Taxpayer doing business in Virginia should be separately registered for the retail sales and use tax from the owner of the subsidiary. The Taxpayer's federal elections made with regard to the QSSS property have no bearing on the Taxpayer's Virginia retail sales and use tax registration or the registration of its subsidiaries.

With regard to the occasional sale exemption, the Taxpayer has not provided any documentation to support its contention that the Corporation owned only one hotel at the time of the sale. Without such documentation, I am unable to determine whether the occasional sale exemption is available to the Corporation with regard to the contested transaction.

Based on this determination, the assessment issued to the Taxpayer for the aforementioned audit will be abated in full. The Taxpayer should ensure that all of its subsidiaries doing business in Virginia are separately registered for the retail sales and use tax.

The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/55943P

Rulings of the Tax Commissioner