Tax Type
Retail Sales and Use Tax
Description
Penalties and Interest; Property assessed
Topic
Collection of Delinquent Tax
Date Issued
07-29-1997
July 29, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in response to your letter in which you seek correction of a sales and use tax assessment issued to********** (the "Taxpayer") for the period August 1993 through June 1996.
FACTS
The Taxpayer operated two Virginia hotels during the audit period. One of the hotels was sold in June 1996, and the Taxpayer remained in business with the remaining hotel. At issue in this case is the application of the occasional sale exemption to the sale of the hotel.
You maintain that the sale of the hotel in this case qualifies as an exempt occasional sale pursuant to prior determinations issued by the Tax Commissioner in Public Documents 91-290 (11/18/91) and 92-186 (9/14/92). In those cases, the department indicated that the sale of a separate and distinct division of a business may qualify as the exempt sale of all or substantially all the assets of a business.
In addition to the tax assessed on the sale of the hotel, the Taxpayer requests that the penalty and interest assessed on purchases from out-of-state vendors also be waived.
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.
The situation in the instant case can immediately be distinguished from that in Public Documents 91-290 and 92-186 on which you rely. In those cases the department sought to determine if the taxpayers had disposed of separate and distinct activities of multifaceted business operations. This distinction is set out, for example, in Public Document 85-149 (7/11/85) in which the taxpayer operated a clothing division and a food division. The department upheld the occasional sale exemption because these two divisions represented separate and distinct activities of a multifaceted business. This same conclusion was reached in Public Document 94-48 (3/10/94).
In your case, however, the Taxpayer operated two hotels, but did not operate separate activities of a multifaceted business operation. The issue here is whether the sale of a single business location constitutes the sale of a "business" within the meaning of the statute and the regulations. Had the Taxpayer operated only one location, the occasional sale exemption would likely apply. The Taxpayer, however, was in the business of operating a chain of hotels. As such, the sale of a single location does not constitute the sale of all or substantially all of the Taxpayer's assets.
I have reached this same conclusion in numerous rulings and determinations involving similar situations. The enclosed Public Documents 92-5 (3/13/92), 93-119 (4/30/93), and 95-172 (6/26/95) are examples which appear to be especially analogous to your case. Based upon this substantial precedent, the Taxpayer did not sell all or substantially all of its assets, and the assessment of this transaction is correct.
Nor can I find any grounds to remove the assessed interest and penalty associated with assessed purchases from out-of-state vendors. Penalties and interest on audit assessments are addressed in Title 23 of the Virginia Administrative Code, Section 10-210-2032. As noted therein, the application of interest is mandatory.
Penalty is generally not assessed on first audits. Penalty is assessed on purchases if the compliance ratio is below 60 percent for second audits and below 85 percent for third and subsequent audits. I understand that the current audit is the third audit of the Taxpayer. While the compliance ratio on sales made by the two hotels was sufficiently high to avoid penalty charges, the compliance ratio for purchases was less than 1 percent. Accordingly, the penalty charges were properly assessed.
Based on the above determinations, the assessments are correct as assessed. Updated bills, with interest accrued to date, will be issued to the Taxpayer as soon as practicable. In the meantime, please call **** in my Office of Tax Policy at ***** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12376I
Rulings of the Tax Commissioner