Tax Type
Retail Sales and Use Tax
Description
Successor liability; Sale of a business
Topic
Collection of Delinquent Tax
Date Issued
06-26-1985
June 26, 1985
RE: §58.1-1821 Application/Sales and Use Tax
Dear ****
This will refer to your recent telephone conversations and correspondence with Assistant Attorney General ***** in which you protest the assignment of delinquent sales and use tax to ***** as successor in liability to ***** Assistant Attorney General ***** has forwarded your May 10, 1985, letter to the department, requesting that it be treated as an application for correction under Section 58.1-1821 of the Code of Virginia.
FACTS
By the terms of an asset purchase agreement, ***** ("Buyer") acquired the business assets of ***** ("Seller"). Included in the sale of the business were all machinery, furniture, fixtures, office machines and equipment, inventory of stock and trade, and miscellaneous supplies. In addition, the food inventory of the seller was transferred to the buyer at no cost at the time of sale. The buyer was entitled under the asset purchase agreement to request, if feasible, that the seller assign and transfer any licenses, permits, contracts, and leases in connection with the operation of the business except for the lease of the business location. The asset purchase agreement provided that the buyer would negotiate her own lease of the premises, and that if such a lease could not be negotiated the sale contract could be voided.
At the transfer of the business to the buyer, the seller left unsatisfied sales and use tax liabilities to the department. As the seller did not remit payment for such liability within fifteen days of the sale, the department proceeded under the provisions of Section 58.1-629 of the Code of Virginia to collect the outstanding liability from the buyer. The buyer contests such action, contending that the provision of the asset purchase agreement requiring her to obtain a new lease on the business premises was indicative that she was not a successor to the business conducted by the seller for the purposes of Virginia Code Section 58.1-629. In addition, the buyer contends that she is not a "dealer" with respect to the tangible personal property purchased as she is engaged in the operation of a restaurant.
DETERMINATION
Section 58.1-629 of the Code of Virginia provides:
If any dealer liable for any tax, penalty, or interest levied hereunder sells out his business or stock of goods or quits the business, he shall make a final return and payment within fifteen days after the date of selling or quitting the business. His successors or assigns, if any, shall withhold sufficient of the purchase money to cover the amount of such taxes, penalties, and interest due and unpaid until such former owner produces a receipt from the Tax Commissioner showing that they have been paid or a certificate stating that no taxes, penalties, or interest is due. If the purchaser of a business or stock of goods fails to withhold the purchase money as above provided, he shall be personally liable for the payment of the taxes, penalties, and interest due and unpaid on account of the operation of the business by any former owner. Nothing herein shall be deemed to qualify or limit the exemption as to such a sale as is covered by paragraph 15 of § 58.1-608.
In the instant case, the seller obviously sold his business and stock of goods to the buyer, at the same time leaving an unpaid sales and use tax liability. As the evidence does not suggest that the buyer retained sufficient of the purchase money to cover the seller's tax liability, I must conclude that it is proper under the above statute to proceed against the buyer for the collection of such liability.
In making such a determination, I am cognizant of the asset purchase agreement provision requiring the buyer to obtain a new lease on the business premises and permitting her to revoke the agreement if such a lease could not be negotiated. As a new lease agreement apparently was negotiated, I find this provision to have little bearing on this case. Had a new lease not been negotiated and the sale voided, certainly the buyer in this case would not be the successor in liability. However, as the buyer purchased the business assets of the seller, she is liable for the remaining liability of the seller; it must be remembered that Virginia Code Section 58.1-629 only requires the sale of a business or the sale of the stock of goods to impose successor liability.
The buyer is correct in that she is not engaged in selling restaurant equipment. Thus, the one time sale of restaurant equipment would generally not be taxable to a restaurant operator under the provisions of Virginia Code Section 58.1-608.15 relating to occasional sales. However, the department does not seek here to tax the purchase of the tangible personal by the buyer, but to collect delinquent taxes owed by the seller at the time the business was sold.
I regret that the buyer will be subjected to the payment of tax liabilities incurred by her predecessor; however, I must conclude that such procedure is proper under the law. I am willing, however, to forego collection of the outstanding liability for a period of sixty days in order to permit the buyer to seek payment of the liability by the seller, as would seem to be required under the terms of their asset purchase agreement.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner