Tax Type
Retail Sales and Use Tax
Description
Transfer of assets to subsidiary; Occasional sale
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
06-24-1994
June 24, 1994
Re: Request for Ruling: Retail Sales and use Tax
Dear****************
This will reply to your letter of June 13, 1994 in which you request a ruling on behalf of your client,********************** (the "Taxpayer"), regarding the application of the sales and use tax to a transaction involving the transfer of assets to a subsidiary.
FACTS
The Taxpayer will transfer substantially all of the operating assets of its compressor manufacturing division (the "division") to a subsidiary. The transfer of assets will qualify for non-recognition treatment under 351 of the Internal Revenue Code. Two operating assets (work-in-progress and tooling) will be contributed to newly formed corporations as part of this corporate reorganization. The Taxpayer will retain the division's accounts receivable, which could comprise as much as 50% of the total assets of the division.
The division is independently managed, maintains its own system of accounting and bookkeeping, maintains separate bank accounts and does not share its physical facilities or employees with any other division of the Taxpayer. The division does sell its products to the Taxpayer or other operating units of the Taxpayer, but only on an arm's-length basis.
You ask if this transaction is exempt from Virginia sales and use tax as an occasional sale under Va. Code §58.1-609.10(2).
RULING
The transfer of assets constitutes a "sale" as defined in Va. Code §58.1-602. However, pursuant to Va. Code 158.1-609.10(2), occasional sales are not subject to taxation. Va. Code §58.1-602 defines "occasional sales" to include:
-
- 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."
Based on the information provided in your letter, the transfer of the assets of the division is a reorganization of a business and, therefore, is an exempt occasional sale.
Please contact the department if you need additional information regarding this issue.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8127F
Rulings of the Tax Commissioner