Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Sale of grocery store chain
Topic
Taxability of Persons and Transactions
Date Issued
05-03-1996
May 3, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear********
This will reply to your letter of November 27, 1995 in which you seek correction of sales and use tax assessments issued to*******(the "Taxpayers"). The Taxpayers were audited for the periods May 1991 through September 1992 and May 1991 through June 1994, respectively.
FACTS
The Taxpayers are related corporations each of which operates a chain of retail grocery stores in Virginia. The only issue in this case is the application of the occasional sale exemption to the Taxpayers' eventual liquidation through a plan of reorganization.
The Taxpayers determined to cease operations and to sell their retail stores. For reasons specific to the industry, such as the preservation of ABC and food stamp licenses, the stores were sold through a plan of reorganization. Through this plan of reorganization, buyers for a single store, or for a group of stores, were identified. The Taxpayers then transferred the assets of the single store, or the group of stores, into wholly-owned subsidiary corporations. These transfers were tax free transactions qualifying under Section 351 of the Internal Revenue Code (I.R.C.).
Subsequent to the creation of the subsidiary, all the stock of the subsidiary was sold to the buyer. Through this process, the Taxpayers created and sold a number of subsidiary corporations, primarily from February through September 1992, until all the stores were sold.
The Taxpayers were assessed tax on the book value of the assets transferred to the subsidiary corporations. You maintain that these transactions are exempt occasional sales.
DETERMINATION
Code of Virginia § 58.1-609.10(2) provides an exemption from the tax for an occasional sale as defined in § 58.1-602. That section defines an "occasional sale" as:
-
- 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 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. (Emphasis added)
The department has previously determined that the sale of all or substantially all the assets of a business to one purchaser in one transaction may constitute an exempt occasional sale. Conversely, the department has also previously determined that the sale of a business requiring several transactions over an extended period of time to many different purchasers did not qualify as an exempt occasional sale. Rather, it was determined in these cases that the sales were sufficient in number, scope and character requiring the holding of a certificate of registration.
In the instant case, the Taxpayers sold all or substantially all the assets of their businesses through a series of transfers, each of which qualified for nonrecognition of income under I.R.C. Section 351 as the tax-exempt reorganization of assets for stock in the commencing subsidiaries. Each transfer of the Taxpayers' assets to its subsidiaries was part of a qualifying "reorganization" for purposes of the occasional sale exemption. Accordingly, the protested transactions will be removed from the assessment.
If you have additional questions regarding this issue, you may contact **** in my Office of Tax Policy at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10645I
Rulings of the Tax Commissioner