Tax Type
Retail Sales and Use Tax
Description
Sale of division; Criteria for occasional sale exemption
Topic
Exemptions
Property Subject to Tax
Date Issued
12-30-1992
December 30, 1992
Re: §58.1-1821 Application: Sales and Use Tax
Dear ****
This will reply to your letter of September 11, 1992 in which you, on behalf of your client, **** (the Taxpayer), request reconsideration of my determination dated November 18, 1991.
Based upon the department's review, I do not find any basis for deeming the transaction at issue an exempt occasional sale. In reaching this determination, I have reviewed in their totality the criteria set out in my November 18, 1991 letter and the facts presented by the Taxpayer.
Based upon the department's analysis, the Taxpayer's business operations appear to be little different than any other vertically integrated business. While the Taxpayer operated various divisions, the divisions were part of a larger whole, with each division inextricably linked to the other through a flow of goods and services -- the Quarry Division provided crushed stone to other divisions, including the Paving Division, which produced asphalt for use by the Taxpayer's Highway and Bridge Divisions.
Although inside the corporation and among some customers, the four divisions may have been "regarded" as separate and distinct entities, insufficient evidence has been presented to deem the divisions "discrete" business enterprises effectively functioning independently of each other. This is demonstrated by the centralized management that the four divisions shared, as well as centralized accounting, administration, and financial management functions.
Under well established Virginia case law, exemptions from taxation are to be construed strictly against the taxpayer. As the Taxpayer has not met the burden of demonstrating that the transaction represented the sale of a discrete business enterprise, the department's assessment must stand.
It is suggested in your letter that should the department rule unfavorably towards the Taxpayer with regard to the occasional sale exemption, that a portion of the audit be adjusted to remove any real property assessed as tangible personal property. As set forth in the November 18, 1991 determination, the additional tax assessed by the department only represented tax on the value of the tangible personal property. This is 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. Also, as previously stated, the machinery and equipment in question would not be assessed as real estate for local tax purposes.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6425K
Rulings of the Tax Commissioner