Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Muffler shop
Topic
Taxability of Persons and Transactions
Date Issued
03-07-1994
March 7, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This is in response to your correspondence in which you seek correction of a sales and use tax assessment issued to*****************("the Taxpayer").
FACTS
The Taxpayer, which operates as an auto repair shop, was audited for the period January 1991 through June 1992. The only transaction held liable for assessment was the Taxpayer's purchase of tangible personal property from ******* ("the Seller").
Prior to the sale, the Seller operated two retail muffler shops in Virginia. All of the assets of one location were sold to the Taxpayer, and the Seller remained in business with its remaining location.
You maintain that the occasional sale exemption applies to this case because the contested transaction represents the exempt sale of all or substantially all the assets of a business. You further maintain that the public policy issues surrounding the exemption support your position.
DETERMINATION
Virginia Regulation (VR) 630-10-75 defines an occasional sale to be a sale of 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 ... or the sale or exchange of all or substantially all the assets of any business...."
In regard to the public policy issues you raised, it is the department's position that the occasional sale exemption is founded primarily of the premise that persons not regularly engaged in making retail sales should not be required to register and collect the tax on occasional or isolated sales.
The sale of all or substantially all the assets of any business may also qualify as an exempt occasional sale since such sales occur infrequently and without regularity. However, VR 630-10-75(B) provides that "a registered dealer is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells.
In the instant case the Seller, a registered dealer, sold property of a different class than normally sold. That property, however, was used by the Seller in the activity for which he was required to hold a certificate of registration. Accordingly, and because the Seller was in the business of selling tangible personal property, the assessment in this case does not violate the intent of the exemption.
Nor can I agree that the transaction in this case represents the sale of all the assets of a business. I have enclosed prior rulings which reflect the department's long-standing policy on this issue. Based on those determinations, the sale of one location by a seller who continues to engage in the same type of sales from other locations is not an occasional sale.
Also, the situation in the instant case can immediately be distinguished from that in Public Document 91-290 (11/18/91) on which you rely. In that case the department sought to determine if the taxpayer had disposed of a separate and distinct activity of a multifaceted business operation. Furthermore, the department's final determination in that case denied the occasional sale exemption. As set out in Public Document 92-270 (12/30/92), it was found that none of the divisions functioned independently of each other, but rather shared various accounting, administration and financial management operations.
In the instant case the Seller did not operate separate and distinct activities of a multifaceted business. Moreover, that each location maintained some individual records is not indicative that those locations operated independently of each other.
You also contend that had each of the Seller's two locations been organized into separate corporations the exemption would apply. For its own benefit, however, the Seller chose to organize as a single taxable entity. Although that could have been the case, it is not dispositive of the issue as the Seller clearly did not meet the statutory burden of disposing of substantially all of the assets of its business. The Virginia courts have consistently held that statutory exemptions must be strictly construed, and any doubts resolved in favor of the taxing authority. See Commonwealth v. Community Motor Bus, 214 Va. 155, 189 S.E.2d 619 (1973).
Accordingly, I find that the assessment is correct. A payment copy of the assessment, with interest accrued to date, will be mailed to the Taxpayer shortly and must be paid within 30 days to prevent the accrual of additional interest
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7146I
Rulings of the Tax Commissioner