Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Sales of substantially all assets
Topic
Taxability of Persons and Transactions
Date Issued
03-05-1993
March 5. 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will reply to your letter of July 8, 1992 in which you seek correction of sales and use tax assessments for ****************(the "Taxpayer").
FACTS
The Taxpayer owns and operates three restaurants, all of which were purchased in March 1989 from two companies under a single purchase agreement. Pursuant to the department's audit, the Taxpayer was held liable for the tax on its purchase of the fixtures, equipment and other assets since it neither paid the sales tax at the time of purchase nor remitted the use tax directly to the department. The Taxpayer contends that the sale of the restaurants was an "occasional sale" and therefore exempt from the tax.
DETERMINATION
Va. Code §58.1-608(A)(10)(b) exempts occasional sales from the retail sales and use tax. The term "occasional sale" is defined in Va. Code § 58.1-602 as:
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- a sale of tangible personal property not held or used by the 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, provided that such sale or exchange is not one of a series of sales or exchanges sufficient in number, scope, and character as to constitute an activity requiring the holding of a certificate of registration.
*********** ("Corporation #1") was the owner of three restaurants; the Taxpayer purchased two of the restaurants. You contend that the sale of the two restaurants by Corporation #1 falls within the occasional sales exemption because Corporation #1 had a plan of reorganization in place whereby the ownership of its one remaining restaurant was to have been transferred to another corporation. Therefore, Corporation #1 sold all of its assets and the Taxpayer is not liable for the tax on its Purchases.
Had the reorganization been completed at the time of purchase, and Corporation #1 sold the only two restaurants it owned, the sale might have qualified for the occasional sales exemption. However, at the time of purchase by the Taxpayer, the reorganization was far from complete. Corporation #1 retained ownership and all rights pertaining to the remaining restaurant. Corporation #1 continued to operate the restaurant subject to the department's sales tax registration and reporting requirements. The department's records and the facts presented indicate that while the purchase of the two restaurants occurred in April, 1989, Corporation #1 did not relinquish its ownership of the remaining restaurant pursuant to the plan of reorganization until October 1990. Therefore, I cannot agree that Corporation #1 sold all or substantially all of its assets at the time of sale but continued to engage in the restaurant business. Accordingly, the occasional sale exemption does not apply, and the auditor's assessment is correct.
************* (Corporation #2) sold one restaurant to the Taxpayer and continued to operate three restaurants after the date of sale. You contend that the sale of the restaurant eliminated Corporation #2's business activity in a particular metropolitan area and constitutes the sale of a "business" within the meaning of the statute and Virginia Regulation (VR) 630-10-75.
Corporation #2 was engaged in the business of operating a number of restaurants and continues to operate three restaurants in Virginia; as such, the sale of a single restaurant does not constitute the sale of all or substantially all of the corporation's assets. I have reached this same conclusion in numerous rulings and determinations involving similar situations. See P.D. 88-55 (4/4/88), P.D. 89-307 (11/7/89), and P.D. 92-5 (3/13/92) (copies enclosed). The fact that the selling company no longer engages in the same business activity in a particular area of the Commonwealth does not alter the conclusion.
Accordingly, based upon the facts of the current case and past precedent in similar cases, I see no basis for granting the Taxpayer relief from the tax and interest assessed. The assessment as made is correct and is now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6307F
Rulings of the Tax Commissioner