Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Transfer of equipment in exchange for stock
Topic
Taxability of Persons and Transactions
Date Issued
07-12-1993
July 12, 1993
Re: Request for Ruling: Sales and Use Taxation
Dear***********
This will reply to your letter of July 15, 1992 in which you requested a ruling concerning the applicability of the sales and use tax to a transaction involving the contribution of equipment to a corporation in exchange for shares of stock in such corporation.
FACTS
********* (the "Parent") formed a subsidiary,***********(the "Subsidiary"), which is wholly owed by the Parent. The Parent is contemplating contributing a crane and barge (collectively referred to herein as the "equipment") to the Subsidiary in exchange for all of the outstanding shares of the Subsidiary's stock. The transaction would be a nontaxable contribution of capital for federal tax purposes. The Parent does not use the equipment in an activity that requires it to register and hold a certificate of registration.
The Parent has asked the department to determine whether the exchange would be a sale within the meaning of the Virginia Code and thus subject to sales tax.
RULING
Va. Code §58.1-602 includes in the definition of "sale", upon which the Virginia Sales and Use Tax is imposed, the transfer of title or possession of tangible personal property. A contribution of equipment to a corporation in exchange for shares is a sale for Virginia tax purposes since title and possession of the equipment is transferred from the transferor to the corporation.
However, pursuant to Va. Code §58.1-608(A)(10)(b) occasional sales are not subject to taxation. Va. Code §58.1-602 defines "occasional sales" to include the transfer of property, not used in an activity that requires the transferor to register and hold a certificate of registration.
The Parent's proposed contribution of the to the Subsidiary would be a sale within the meaning of the Code. However, since the Parent does not use the equipment in an activity for which it is required to register and hold a certificate of registration and since the Parent does not expect to make three or more sales, including the contribution of the equipment, during the calendar year in which it will contribute the equipment, the transfer of title and possession of the equipment from the Parent to the Subsidiary would be considered an occasional sale.
Therefore, based upon the facts presented, the Parent's contribution of the equipment to the Subsidiary in exchange for the Subsidiary's outstanding shares of stock would not be subject to taxation.
If you need any further clarification of the determination made herein, please do not hesitate to contact my staff.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6301O
Rulings of the Tax Commissioner