Tax Type
Retail Sales and Use Tax
Description
Occasional sales; Business location assets
Topic
Taxability of Persons and Transactions
Date Issued
06-03-1997
June 3, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in response to your letter of February 23, 1997, in which you seek correction of a sales and use tax assessment issued to ******** (the "Taxpayer") for the period July 1995 through October 1996.
FACTS
The Taxpayer operates as an auto body and paint shop. At the start of its business, it purchased certain assets from the location's former occupant (the "Seller"). The Seller operated two auto paint and body shops at the time of the sale. Subsequent to the sale, the Seller continued in operation at its second location.
You maintain that the sale of the assets to the Taxpayer is an exempt occasional sale in that the Taxpayer acquired all or substantially all of the assets of the Seller's business. In making this claim you maintain that each of the Seller's locations should be considered on its own. Alternatively, you suggest that the Seller's contraction of operations from multiple locations to a single site represents an exempt liquidation or reorganization.
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:
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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 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 .)
All or Substantially All the Assets
You contend that the sale of a single business location constitutes the sale of a "business" within the meaning of the statute and the regulations. Had the Seller operated only one location, your conclusion would be correct. The Seller, however, was in the business of operating a chain of auto paint and body shops. As such, the sale of a single location does not constitute the sale of all or substantially all of the Seller's assets.
I have reached this same conclusion in numerous rulings and determinations involving similar situations. A representative sample of these are enclosed. Based upon this substantial precedent, the Seller in this case did not sell all or substantially all of its assets.
The Reorganization or Liquidation of Any Business
The department has previously addressed the occasional sale exemption as it applies to business reorganizations and liquidations. The enclosed Public Documents 87-25 (2/13/87) and 87-53 (2/27/87), for example, address business liquidations. That latter ruling, along with Public Document 95-79 (4/12/95), describe transactions that qualified for nonrecognition of income under Internal Revenue Code (I.R.C.) § 351. Further, in Public Document 96-230 (9/17/96), the department determined that the transfer of assets through a qualified stock purchase election pursuant to l.R.C. § 338(h)(10) was exempt from sales and use taxation.
As you indicate, the Code of Virginia does not define the terms "liquidation" or "reorganization" for purposes of the occasional sale exemption. Based on the department's longstanding and consistent position, however, the sale of assets in this case was not made pursuant to a reorganization or a plan of liquidation as contemplated in the statute. Rather, it appears that the Seller merely sold some of its assets and continued in business with its remaining assets.
Based on the information currently before me, the Taxpayer's nontaxed purchase of assets appears to be correctly assessed. Accordingly, a revised assessment, with interest accrued to date, will be issued to the Taxpayer. No additional interest will accrue provided the assessment is paid within 30 days.
If you have any questions regarding this letter, please contact **** in my Office of Tax Policy at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12266I
Rulings of the Tax Commissioner