93-138 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Occasional Sale

Topic

Exemptions

Property Subject to Tax

Date Issued

06-04-1993

June 4, 1993

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

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

This will reply to your letter of February 18, 1993 seeking correction of an estimated sales and use tax assessment issued to ******* (the Taxpayer) for the period November 1986 through September 1992.

FACTS

The Taxpayer, a wholly owned subsidiary of************* (the Parent), was created in January 1989 upon the transfer of assets to the Taxpayer from a division of the Parent's corporation. Shortly thereafter, these assets, including a transformer manufacturing plant located in Virginia, contributed to a partnership formed by the Taxpayer and a second unrelated corporation.

You contest the imposition of sales and use tax on the Taxpayer's acquisition of assets, contending that the transaction qualifies for exemption as an occasional sale.

DETERMINATION

Va. Code §58.1-608(A)(10)(b) exempts from the tax an "occasional sale" which is defined in Va. Code §58.1-602 to mean:

- 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)

In the case at hand, you allege that the Taxpayer acquired all the assets of a division of the Parent's corporation. As noted in the enclosed Public Document 85-149 (7/11/85), 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.

This does not mean, however, that the sale of any division qualifies as an occasional sale. To the contrary, it must first be determined that the division is a "discrete" enterprise in effect functioning independently of other divisions (see P.D. 91-290 and P.D. 92-270). In order to reach a determination, the department must examine factors such as:

- The degree of centralized management and control, including accounting/bookkeeping, administration, and financial management.
  
  Use of employees, e.g., are employees active in only one division?
  
  Use of fixed assets, e.g., are fixed assets used interchangeably among divisions?

In order for the occasional sale exemption to apply in the instant case, it must be shown that (i) all or substantially all the division's assets were transferred to the Taxpayer, and (ii) that the division operated as a separate and distinct business based on an analysis of all of the criteria set forth above. Therefore, a representative of the department will contact you as soon as practicable in order to determine if the occasional sale exemption is applicable. Furthermore, if it is found that the occasional sale exemption does not apply, the Taxpayer will be required to show the cost price of any tangible personal property included in the transaction before the estimated assessment can be revised.

The Taxpayer also asserts that the contested transaction was erroneously assessed outside of the statute of limitations. However, Va. Code §58.1-634 authorizes the department to make an assessment of sales and use taxes within six years from the date on which such taxes became due and payable if any taxpayer was required to file a return but failed to do so. Because the Taxpayer did not file any sales and use tax returns for the period in which the contested transaction occurred, a six year statute of limitations is valid, and the assessment cannot be revised on these grounds.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/6836I

Rulings of the Tax Commissioner