April 20, 2016
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer") requesting a ruling regarding the application of the Virginia retail sales and use tax to the purchase of tangible personal property related to the purchase of a division from another company. I apologize for the delay in responding to your request.
FACTS
The Taxpayer is a heavy civil contractor specializing in transportation infrastructure. In 2012, the Taxpayer expanded its business to include geotechnical design and construction services by entering into an agreement to purchase the ***** (the "Division") from ***** (the "Seller"). In conjunction with the purchase of the Division, the Taxpayer also purchased certain items of tangible personal property from the Seller. At the time of the purchase, the Taxpayer states that it was uncertain of the sales tax implications for this transaction. Therefore, the Taxpayer remitted Virginia use tax on the acquisition price of the tangible personal property with its April 2012 quarterly return.
After a review of the transaction by the Taxpayer's certified public accountant, the Taxpayer requests guidance on whether the occasional sale exemption applies to the transaction at issue.
RULING
Occasional Sale - Generally
Virginia Code § 58.1-609.10 2 states that the retail sales and use tax does not apply to "An occasional sale, as defined in § 58.1-602."
Virginia Code § 58.1-602 defines 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.
Title 23 of the Virginia Administrative Code 10-210-1080 B states that the term occasional sale means:
1. A sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales; or
2. 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. The words "not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration" mean that a registered dealer is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells; or
3. The sale or exchange of all or substantially all the assets of any business; or
4. The reorganization or liquidation of any business.
I will address the sale of the Division in light of these authorities.
Certificate of Registration
The Taxpayer maintains that the Seller holds a Virginia sales tax registration. The Taxpayer states that the registration did not apply to the business operations of the Division at issue. The Taxpayer asserts that the occasional sale exemption applies in this instance because the activities of the Division did not require the Seller to maintain a Virginia sales tax registration.
In Public Document (P.D.) 96-181 (7/24/96), the taxpayer operated as a heavy construction contractor. The taxpayer contested the assessment of tax on its purchases of certain fixed assets, and maintained that the occasional sale exemption applied to the purchases. In one instance, the taxpayer purchased equipment from a Virginia construction company. Based upon the information presented, it was determined that the seller was not regularly engaged in making sales. It was held that the infrequent sales of equipment, such as the protested sale made to the taxpayer, were not sufficient in number, scope and character to require the seller to hold a certificate of registration with the Department. The transaction was deemed an occasional sale and removed from the audit.
In this instance, based upon the type of business the Seller is engaged in, it is likely that the Seller did not make sales sufficient in number, scope and character to require the seller to hold a certificate of registration during the timeframe at issue. The information presented, however, is insufficient to make that determination and to determine whether the occasional sale exemption applies.
Sale or Exchange of Substantially All Assets
The Taxpayer represents that the Seller sold all of the assets of an entire division in the transaction at issue. The Taxpayer states that the Seller continues to remain in existence. Based upon these factors, the Taxpayer maintains that the occasional sale exemption applies.
Based upon the information presented, it seems clear that the Seller did not sell to the Taxpayer all or substantially all of the assets of its business as required in the aforementioned authorities. The Taxpayer states that the Seller's business continues although this segment of the business was sold to the Taxpayer. Accordingly, the occasional sale exemption would not apply based upon this portion of the definition.
A prior determination by the Tax Commissioner is instructive regarding the sale of a division. P.D. 91-290 (11/18/91) provides that the Department has previously determined that the disposition of one separate and distinct activity of a multifaceted business can qualify as a sale of all or substantially all the assets of a business. See P.D. 85-149, (7/11/85). However, in making the determination that the businesses are separate and distinct, the Department looks to certain criteria to determine if the sale of a division of a corporation qualifies as the sale of all or substantially all of the assets of the business. Such criteria are set forth below:
- Each division must have a completely separate set of books which are eparately maintained.
- Separate bank accounts must be maintained.
- Employees must be active in only one division.
- Divisions must be separately housed.
- Each division must have its own fixed assets which are not used interchangeably.
In order to determine if the Division sold to the Taxpayer is separate and distinct, an analysis of the criteria must be completed by the Department. The information that has been provided is insufficient to make the necessary analysis.
Reorganization or Liquidation
The Taxpayer states that it assumed all of the Seller's assets and has established the business activity as one of its divisions. Based upon this, the Taxpayer contends that this qualifies as the reorganization or liquidation of the Seller's business and that the occasional sale exemption applies.
In prior rulings of the Tax Commissioner, reorganizations were found to have taken place in instances where stock in the company was exchanged for assets.[1] In this instance, there is no indication that a stock-for-assets transfer took place in connection with the sale of the Division. The information provided by the Taxpayer is insufficient to make a determination that a reorganization has taken place with respect to the Seller's business.
The Taxpayer states that the Seller continues to operate its business following the sale of this Division of the business. Accordingly, I find that a liquidation of the Seller's business has not taken place, as considered in the aforementioned authorities.
CONCLUSION
Based upon the information provided, and considering the cited authorities, it seems possible that the occasional sale exemption may apply to the purchases at issue. However, the documentation is not sufficient for the Department to reach that conclusion at this time. The Taxpayer has been given the opportunity to provide documentation for review so that a determination could be made as to whether the occasional sale exemption applies. To date, the Taxpayer has not provided the requested documentation. Accordingly, I am unable to make a determination regarding the application of the occasional sale exemption to the transactions at issue.
This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5451117507.P