91-290 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Liquidating division; Separate and distinct

Topic

Exemptions

Date Issued

11-18-1991

November 18, 1991

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

Dear*****************

This is in reply to your letter in which you make application for correction of the sales and use tax assessments issued to your client, ************** (the Taxpayer), as the result of the department's audit.

FACTS

The Taxpayer was formerly engaged in the paving business, within which it conducted mining and mineral processing and asphalt manufacturing operations. The Taxpayer liquidated its mining and manufacturing businesses by selling its quarries, pugmill and asphalt plants while maintaining its grading and bridge construction business.

The Taxpayer operated as two divisions, with separate internal accounts for each. The quarry and asphalt plant/paving operations constituted the "Paving Division," while its grading and bridge construction operations constituted its "Highway Division." In fact, when one division provided goods and services to the other division, charges were made as if the other division was a separate nonaffiliated entity.

You contest the imposition of sales tax on the Taxpayer's sale of its quarries, pugmill and asphalt plants, contending that such a sale qualifies for exemption from the tax as an "occasional sale."

DETERMINATION

Va. Code §58.1-608(10)(b) exempts from the sales tax "occasional sales" as defined under Va. Code §58.1-602. This section provides:

- "Occasional sale" 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 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. (Emphasis added.)

As can be seen from the above, in order to qualify as an occasional sale, the transaction must include the sale of "all or substantially all the assets of any business." In the case at hand, the Taxpayer sold a division of the corporation while maintaining and continuing operations of its other division. 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 separately 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.

The final determination must be based on an analysis of all the criteria set forth above. A representative from the department will contact you as soon as practicable in order to determine if the occasional sale exemption is applicable to the sale of your mining and manufacturing divisions.

It is also noted that the Taxpayer feels the majority of the assets sold were those used in their mining and mineral processing operation and therefore should be exempt under Va. Code §58.1-608(3)(b). However, the exemption allowed under Va. Code §58.1-608(3)(b) would have no relationship to the sale of tangible personal property in question unless the purchaser of the assets has furnished the taxpayer with a valid certificate of exemption. Under Virginia Regulation (VR) 630-10-27(E), the mining or processing exemptions will apply only if the purchaser will produce goods primarily (more than 50%) for sale or resale (as opposed to its own use in real estate construction or paving contracts).

The Taxpayer also asserts that the sale of the mining and paving operations represents the sale of real property, not tangible personal property, and therefore would not be subject to the tax. The additional tax assessed by the department only represented tax on the value of the tangible personal property, not the value of the real estate. This is entirely consistent with the department's position in Commonwealth v. Wellmore Coal, 228 Va. 149 320 S.E.2d 509 (1984), in which the Virginia Supreme Court differentiated between a coal tipple structure and the machinery and equipment located therein. Further, the machinery and equipment in this case would not be assessed as real estate for local property tax purposes.

Sincerely.

W. H. Forst
Tax Commissioner

Enclosure
TPD/2639

Rulings of the Tax Commissioner