Tax Type
Retail Sales and Use Tax
Description
Occasional Sales, Including Mergers; Sale of Restaurants
Topic
Taxability of Persons and Transactions
Date Issued
12-29-1992
December 29, 1992
Re: §58.1-1821 Application: Sales and Use Tax
Dear********************
This will reply to your letter of August 3, 1992 in which you seek correction of a sales tax assessment for ************* (the "Corporation").
FACTS
The Corporation is a multinational franchisor of a fast food restaurant chain. The Corporation also owns and operates several fast food restaurants in Virginia, some of which were sold to franchises
During calendar year 1989, the Corporation sold five restaurants to a franchisee in one transaction. During calendar year 1990, the Corporation sold a total of five additional restaurants to two other franchisees in two separate transactions. The Corporation has continued to own and operate additional restaurants in Virginia after the 1989 and 1990 sales.
The Corporation failed to collect and remit sales tax on the sale of the restaurants. The department has assessed the Corporation for the taxes due on the sales. The Corporation protests the imposition of the sales tax claiming that the transactions are occasional sales and, therefore, exempt for taxation.
DETERMINATION
Pursuant to Va. Code §58.1-608(10)(b) occasional sales are exempt from sales taxation. As defined in Va. Code §58.1-602, an occasional sale is the sale of tangible personal property that is not held or used by a seller in the ordinary course of an activity which requires the seller to register to collect sales and use tax. An occasional sale also includes the sale of all or substantially all of the assets of a business which is not within a series of sales sufficient in number to be considered an activity requiring the seller to hold a certificate of registration.
Contrary to the Corporation's assertions, the occasional sale provision is not a remedial statute; it is an exemption from the tax, which under well established Virginia case law must be strictly construed in favor of the taxing authority. See, Commonwealth of Virginia v. Community Motor Bus, 214 Va. 155 (1973).
Also contrary to the Corporation's assertions, the transactions in this case are clearly contemplated in Virginia Regulation (VR) 63010-75, which interprets the statutory occasional sale exemption. Subsection (B)(2) of the regulation makes clear that a sale is not exempt solely because the article sold may be of a different class from the merchandise he/she regularly sells." Further, example 2 in the regulation is directly on point with the current transactions in describing as taxable a sale of assets used in a registerable business activity.
Even accepting for sake of argument the Corporation's assertion that the four tests set out in subsection B of VR 630-10-75 must be read in the disjunctive (a proposition I have rejected in previous public documents), based on the facts of the transactions, the Corporation does not meet any of the tests. (1) Due to its daily retail activities, it clearly conducts sales on more than three occasions per year; (2) the assets involved in the transactions were clearly used in the course of the Corporation's registerable business activity; (3) the transactions represented only a portion of the Corporation's Virginia assets; and (4) the transactions did not represent the complete reorganization or liquidation of the Corporation's business activity within Virginia.
Arguments similar to those made by the Corporation in virtually identical fact situations have been rejected in numerous public documents, P.D. 92-5 (March 13, 1992), P.D. 89-307 (November 7, 1989), P.D. 88-55 (April 4, 1988), P.D. 87-56 (February 27, 1987), and P.D. 85-35 28, 1985, copies enclosed).
Based upon this substantial precedent, I see no basis for granting relief from the assessments. As the facts surrounding the transactions are clear, as is the department's policy with respect to such transactions, a hearing on the issue would appear of limited value. However, if you still desire a hearing, the Corporation may contact our Tax Policy staff at******* within ten days from the receipt of this letter. If we do not hear from the Corporation during this period, a revised notice of assessment, reflecting the Corporation's previous payment and accrued interest on the tax that remained unpaid will be issued and collection action will be recommenced.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6337O
Rulings of the Tax Commissioner