Tax Type
Retail Sales and Use Tax
Description
Processing as an incidental part of business
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
02-28-1985
February 28, 1985
Re: §58-1118 Application: Sales & Use Tax
Dear ****
This refers to your October 25, 1984 application for-correction of Sales and Use tax assessed in the audit of the ***** for the period January 1, 1981 through December 31, 1983.
FACTS
Following audit of the *****, and the assessment of tax on June 25, 1984 in the amount of $***** plus interest, Taxpayer contested the following audit findings:
1) Advertising/ Printing - Taxpayer claims that all of the tabloids, circulars and advertising inserts were purchased from Maryland printers, and shipped by a mass mailing agency in Maryland directly to Virginia residents. Taxpayer argues that since they paid tax to the State of Maryland for such printing and mailing services they should not be assessed tax by Virginia.
2) Sale of Tangible Personal Property - Taxpayer has closed the majority of their Virginia stores, selling most of the tangible personal property at these locations. Taxpayer argues that since it was not required to hold a certificate of registration for the sale of this tangible personal property, the sale of such property should qualify for the "occasional sale" exemption to taxation under the Virginia Sales and Use Tax laws.
3) Fixed Assets - Meat packing equipment - Taxpayer claims an exemption on the purchase of meat slicing and packing equipment used in its retail stores. Taxpayer argues that all of such equipment was used to convert the meat to a different form for subsequent sale or resale, thereby qualifying for the industrial processing exemption provided is Section 630-10-63 of the Virginia Sales & Use Tax regulations.
DETERMINATION
1) § 58.1-604 of the Code of Virginia imposes a "tax upon the use or consumption of tangible personal property." § 558.1-602(20) in turn defines the term "use" to mean "the exercise of any right or power over tangible personal property incident to the ownership thereof." We find in the present case that contracted with printers in the State of Maryland to produce advertising tabloids, circulars, and inserts which were then mass, mailed directly from Maryland to Virginia residents. Insofar as the direct mailing of advertising inserts or circulars are concerned to residents of Virginia, from outside Virginia, Taxpayer never exercised any right or power over such materials as would bring such transactions within the provisions of the Virginia Sales and Use tax. Therefore, with respect to such direct mail items only, no tax should have been assessed, and the audit shall be adjusted accordingly.
2) Section 58.1-608(15} of the Code of Virginia exempts from the sales and use tax as "occasional sale," which means 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."
3) Section 630-10-63 of the Virginia Sales and Use Tax Regulations, states that the retail sales and use tax does not apply to the sale of tangible personal property when used or consumed by an industrial manufacturer or processor of products for sale or resale." For a business to claim the exemption it must first "be manufacturing or processing products for sale or resale, and secondly, such production must be industrial in nature." The regulations state further that, "establishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in non-industrial activities. Furthermore, section 5411 of the Standard Industrial Classification Manual, classifies supermarkets and grocery stores as non-industrial.
Therefore, I find no basis for the tax relief requested by taxpayer on this issue.
However, with reference to the determination rendered in item 2 above, if Taxpayer is able to produce a detailed itemization within 30 days of this letter, segregating the value of all tangible personal property from the value of all real property transferred, I will consider adjustment of the assessment on this issue. If yon would like a hearing on this issue please contact us within 30 days of this letter.
Sincerely,
W. H. Forst
State Tax Commissioner
Re: §58-1118 Application: Sales & Use Tax
Dear ****
This refers to your October 25, 1984 application for-correction of Sales and Use tax assessed in the audit of the ***** for the period January 1, 1981 through December 31, 1983.
FACTS
Following audit of the *****, and the assessment of tax on June 25, 1984 in the amount of $***** plus interest, Taxpayer contested the following audit findings:
1) Advertising/ Printing - Taxpayer claims that all of the tabloids, circulars and advertising inserts were purchased from Maryland printers, and shipped by a mass mailing agency in Maryland directly to Virginia residents. Taxpayer argues that since they paid tax to the State of Maryland for such printing and mailing services they should not be assessed tax by Virginia.
2) Sale of Tangible Personal Property - Taxpayer has closed the majority of their Virginia stores, selling most of the tangible personal property at these locations. Taxpayer argues that since it was not required to hold a certificate of registration for the sale of this tangible personal property, the sale of such property should qualify for the "occasional sale" exemption to taxation under the Virginia Sales and Use Tax laws.
3) Fixed Assets - Meat packing equipment - Taxpayer claims an exemption on the purchase of meat slicing and packing equipment used in its retail stores. Taxpayer argues that all of such equipment was used to convert the meat to a different form for subsequent sale or resale, thereby qualifying for the industrial processing exemption provided is Section 630-10-63 of the Virginia Sales & Use Tax regulations.
DETERMINATION
1) § 58.1-604 of the Code of Virginia imposes a "tax upon the use or consumption of tangible personal property." § 558.1-602(20) in turn defines the term "use" to mean "the exercise of any right or power over tangible personal property incident to the ownership thereof." We find in the present case that contracted with printers in the State of Maryland to produce advertising tabloids, circulars, and inserts which were then mass, mailed directly from Maryland to Virginia residents. Insofar as the direct mailing of advertising inserts or circulars are concerned to residents of Virginia, from outside Virginia, Taxpayer never exercised any right or power over such materials as would bring such transactions within the provisions of the Virginia Sales and Use tax. Therefore, with respect to such direct mail items only, no tax should have been assessed, and the audit shall be adjusted accordingly.
2) Section 58.1-608(15} of the Code of Virginia exempts from the sales and use tax as "occasional sale," which means 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."
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- We find in the present case, that between September, 1982 and March 1983, taxpayer closed more than half of its stores in Virginia, and sold most of the tangible personal property in these stores. Such tangible personal property was necessarily an integral part of taxpayers business, namely the sale of retail foods products.
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- Therefore, such sale would not qualify for the occasional sale exemption as the 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.
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- Nor would such sale qualify for the occasional sale exemption as a reorganization of a business. § 58.1-608(15) provides an exemption from sales and use taxation for "occasional sales," which include 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." The mere fact that the sales may have been made outside of the ordinary course of business, does not per se, make them occasional sales within the meaning of the statute. What is contemplated by the statute is an isolated sale of all or substantially all the assets of a corporation in a single transaction to a single transferee.
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- Pursuant to Maryland sales and use tax law governing casual and isolated sales, similar to Virginia law, the Maryland Supreme Court in ACF Industries, Inc. v. Comptroller of the Treasury, 257 Md 513, 263 A2d 574 (1970) held that "The sale of as entire business operation, including integrated plants and personal property, by a company which had been involved in such transactions five times in the preceding 13 years, was a taxable transaction since the sale did not qualify as a casual and isolated sale by a vendor who was not regularly engaged in the business of selling tangible personal property." The court concluded that "such sales were to be expected in a corporation that undertook to diversify."
3) Section 630-10-63 of the Virginia Sales and Use Tax Regulations, states that the retail sales and use tax does not apply to the sale of tangible personal property when used or consumed by an industrial manufacturer or processor of products for sale or resale." For a business to claim the exemption it must first "be manufacturing or processing products for sale or resale, and secondly, such production must be industrial in nature." The regulations state further that, "establishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in non-industrial activities. Furthermore, section 5411 of the Standard Industrial Classification Manual, classifies supermarkets and grocery stores as non-industrial.
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- Accordingly, the purchase of meat packing and slicing equipment, incidental to taxpayers retail sales business does not qualify for tax exemption as the use or consumption by as "industrial manufacturer or processor."
Therefore, I find no basis for the tax relief requested by taxpayer on this issue.
However, with reference to the determination rendered in item 2 above, if Taxpayer is able to produce a detailed itemization within 30 days of this letter, segregating the value of all tangible personal property from the value of all real property transferred, I will consider adjustment of the assessment on this issue. If yon would like a hearing on this issue please contact us within 30 days of this letter.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner