Tax Type
Retail Sales and Use Tax
Description
Motel foreclosure sale; Lease of furnishings
Topic
Exemptions
Property Subject to Tax
Date Issued
12-28-1992
December 28, 1992
Re: §58.1-1821 Application: Sales and Use Tax
Dear***************
This will reply to your letter of April 29, 1991 in which you seek correction of a sales and use tax assessment for your client,************* (the Taxpayer").
FACTS
The Taxpayer purchased a motel in a foreclosure sale. The possession of the motel's contents were transferred to the Taxpayer along with the real property. The ownership of the contents was not, however, conveyed to the Taxpayer. The former owner of the motel leased the contents from a third party lessor. After the purchase of the motel, the Taxpayer continued to lease the contents from the lessor.
The auditor assessed the Taxpayer with sales tax upon the entire purchase price of the motel. The Taxpayer requests that the assessment be corrected since the Taxpayer did not purchase any tangible personal property in the foreclosure sale.
DETERMINATION
Va. Code §58.1-603 imposes a sales tax upon the sale or lease of tangible personal property within the Commonwealth; however, "occasional sales" as defined in Va.Code §58.1-602 are exempt from the tax. The purchase of an entire business in a foreclosure sale generally will constitute an exempt occasional sale. In addition, the Taxpayer contends that all of the tangible personal property of the hotel acquired in the foreclosure sale was leased from a third party and therefore was not part of the consideration paid for the business.
The audit will be revised to remove the consideration that passed in the foreclosure sale. However, the Taxpayer's leasing of the tangible personal property from the lessor is subject to the sales tax. Therefore, the department will reexamine these transactions to ensure that the proper tax has been paid on the lease payments.
An auditor from our***********District Office will contact the Taxpayer to schedule a convenient time to perform the reexamination.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5193O
Rulings of the Tax Commissioner