Document Number
90-137
Tax Type
Recordation Tax
Retail Sales and Use Tax
Description
Occasional sale
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
08-29-1990
August 29, 1990



Re: Request for Ruling/ Sales and Use & Transfer Taxes


Dear ****

This will reply to your letter of February 5, 1990, on behalf of the ***** (Taxpayer), requesting a ruling on the application of the sales and use, grantor's and recordation taxes to transfers of real and tangible personal property between subsidiaries.
FACTS

***** ("X") and ***** ("Y") are wholly owned subsidiaries of the Taxpayer. ***** ("Z") is a wholly owned subsidiary of Y. X provides executive, treasury, legal, accounting, finance and other services to its affiliated operating companies. Y, which has no employees or operations, serves as a holding company for non-regulated companies that are a part of the Taxpayer's group and provides financing for these subsidiaries. Z designs, installs and maintains telecommunications and information systems and provides engineering services for such systems to government entities. Neither X nor Y is registered as a dealer to make retail sales.

The Taxpayer is building major office facilities for its use in Virginia. The initial development work was done through X; however, all future development will be done through Y. While X currently owns the real and personal property, the Taxpayer wants the real assets to be owned by Y and the furniture, office equipment and other tangible personal property to be owned by Z. In connection with its wish to title the assets of this new development in its subsidiaries, the Taxpayer poses two ways of structuring the transfer of the assets and seeks a ruling on the application of sales and use, grantor's and recordation taxes to each alternative.
RULING

ALTERNATIVE #l

X will transfer its land and buildings to Y and will transfer the furniture, fixtures and equipment to Z. All transfers will be at X's cost, net of depreciation. The application of the various taxes to these transfers will be set forth below.
    • Sales and Use Tax
The tangible personal property being transferred by X is not held or used by it in the course of an activity for which it is required to hold a certificate of registration. Therefore, assuming that the transfer is not conducted over more than three separate occasions, I find that it is exempt from the sales and use tax as an "occasional sale" under Va. Code §58.1-608(10)(b) and Virginia Regulation (VR) 630-10-75.
    • Grantor's Tax
VR 630-10-802E(3) provides that a deed from an agent to his principal conveying real estate purchased for and with funds of the principal is not taxable under Va. Code §58.1-802. Assuming that there is an agency agreement between X (agent) and Y (principal), the transfer in question will not qualify as a nontaxable transaction as the real estate was not purchased with funds of the principal. Rather, X purchased the property with its own funds and is being reimbursed by Y. Moreover, Y did not exist at the time X purchased the property. Additionally, the transaction appears to be a sale or exchange for consideration as Y reimburses X for costs and taxes. Based on the facts presented, the grantor's tax would apply to the transfer in this instance.
    • Recordation Tax
The recordation tax will be due if a deed conveying the real estate from X to Y is recorded, while no recordation or grantor's taxes will be due if the deed is not recorded.

ALTERNATIVE #2

X will transfer the land and buildings to a new subsidiary ("Subsidiary A") created solely for the purpose of holding title to these assets. A deed for this transfer will be recorded. At the same time, X will transfer the furniture, fixtures and equipment acquired for the development to a second subsidiary ("Subsidiary B") also created solely for the purpose of holding title to these assets. The transfers will qualify for nonrecognition of gain or loss under IRC §351. X will then distribute the stock in Subsidiaries A and B to the Taxpayer which will thereafter contribute the stock to Y. Y will retain the stock of Subsidiary A (real estate) and contribute the stock of Subsidiary B (tangible personal property) to Z.

Under this alternative, the various taxes would apply as follows:
    • Sales and Use Tax
Like the transaction noted in Alternative #1 above, the transaction at issue here involves the transfer by X of tangible personal property which is not held or used by X in the course of an activity for which it is required to hold a certificate of registration. Therefore, assuming that the transfer is not conducted over more than three separate occasions, this transfer would also be exempt from the sales and use tax as an "occasional sale" under Va. Code §58.1-608(10)(b) and Virginia Regulation (VR) 630-10-75.
    • Recordation and Grantor's Taxes
The conveyance of the real property to Subsidiary A upon its organization is exempt from the recordation and the grantor's taxes in this instance, provided that all of the provisions of VR 630-14-811(C) are satisfied.
    • Sale of Stock
Assuming that there is no gain or loss recognized for income tax purposes, the transfers of stock by X in Subsidiaries A and B to the Taxpayer, from the Taxpayer to X, and from Y to Z are not subject to any sales and use, recordation, grantor's or other tax in Virginia.

Finally, this ruling would apply in the same manner should the Taxpayer elect to transfer the tangible personal property as noted in Alternative #1 and the real property as reflected in Alternative #2.

I trust this will answer the questions posed in your letter; however, please contact the department if you have additional questions or if we may be of any further assistance.

Sincerely,


W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46