Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Transactions not occasional
Topic
Taxability of Persons and Transactions
Date Issued
05-15-1995
May 15, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This is in response to your letter of January 10, 1995 in which you seek correction of a sales and use tax assessment issued to ***************(the Taxpayer)for the period January 1988 through June 1991.
FACTS
The Taxpayer recycles and processes waste paper, and as such is deemed to be an industrial manufacturer for purposes of the sales and use tax. The only issue under protest is an untaxed sale made in January 1988 to*********(the Buyer) in the amount of $130,000.
In regard to this transaction, you maintain that in December 1989 the Taxpayer sold a segment of its business, at which time the Buyer agreed to make monthly payments of $1,000 with an option to buy at a later date. You further maintain that in January 1991 the Buyer exercised the purchase option for $130,000 which included equipment valued at $30,000 and nontangible assets (i.e., goodwill) valued at $100,000. Therefore, you maintain that the assessment related to this transaction is overstated.
In addition, you question the effective date of the sale and also suggest that the sale is an exempt occasional sale since the Taxpayer is not in the business of selling fixed assets.
DETERMINATION
It appears that the contested transaction originates from a ten-year Lease Agreement between the Taxpayer and Buyer dated December 1, 1986 in which the Taxpayer leased tangible personal property to the Buyer. Under the terms of the Agreement, the Buyer posted a $130,000 security deposit and made monthly payments of $1,000. Also, the Agreement gave the Taxpayer the right to require the Buyer to purchase the leased property between January 1988 and March 1988 for $130,000.
Based on the Taxpayer's billing files, property was sold to the Buyer in January 1988 for $130,000. This transaction conforms to the provisions of the Lease Agreement in both timing and amount, and the effective date of the sale is January 1988.
Furthermore, it appears that the contested transaction (and the Taxpayer has provided no evidence to the contrary) was a sale of tangible personal property and did not include any intangible assets. That the Taxpayer may have sold intangible assets to the Buyer at a later date does not alter the January 1988 sale of tangible personal property.
In regard to the occasional sale exemption, Code of Virginia §58.1-602 defines such a sale to mean:
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- 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 ... of all or substantially all the assets of any business and the reorganization or liquidation of any business, Provided such sale ... is not one of a series of sales ... sufficient in number. scope and character to constitute an activity requiring the holding of a certificate of registration. (Emphasis added)
It is clear that the contested transaction was one of a number of sales "sufficient in number, scope and character" to require the holding of a certificate of registration. For example, immediately prior to the sale, and for a period of 13 months (December 1986 through December 1987), the Taxpayer made a taxable lease of equipment to the Buyer. This lease activity by itself required the Taxpayer to register with the department for a certificate of registration. Further, based on your correspondence, the Taxpayer in 1989 agreed to sell a segment of its business, including tangible personal property. Also, I understand that in June 1991 the Taxpayer entered into an agreement to lease other tangible personal property to a related company for a period of 60 months. Therefore, since the Taxpayer made multiple sales and lease transactions, the January 1988 sale to the Buyer does not meet the requirements of an occasional sale.
Accordingly, the assessment is correct as assessed. A revised notice of assessment, with interest accrued to date, will shortly be issued to the Taxpayer. Should you have additional questions regarding this letter, please contact********in my Office of Tax Policy at**************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/9237I
Rulings of the Tax Commissioner