Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Federally nonrecognized transfer of assets in reorganization exempt
Topic
Taxability of Persons and Transactions
Date Issued
08-27-1997
August 27, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This is in response to your letter of January 10, 1997, which references your earlier letter seeking correction of a sales and use tax assessments issued to ******** for the period September 1993 to March 1996 and a second sales and use tax assessment issued to ********** for the same period. I apologize for the delay in responding to your appeal.
FACTS
****************** is a large aircraft manufacturing and technology concern with a number of facilities in the Commonwealth. ********** is a division of***** which is engaged in the business of contracting with the federal government to provide computer services and facilities management. Most of the equipment and other fixed assets utilized by ******and its various divisions are leased from ************* is a wholly owned subsidiary of ***** and is registered with the department to collect sales tax on its equipment leases.
In 1993, **** was providing computer services to the federal government through its**** division and through**********another wholly owned subsidiary of*****. At this time, it was decided that all of ******* work should be focused on ****. In accordance with this plan, all of ***** contract work with federal government and its personnel responsible for servicing these contracts, were transferred to ****. ***** was subsequently renamed .
At the time of the reorganization of the *****division and the reallocation of government contract work to ***** , ****** transferred the assets it had been leasing to******for the government contracting work to******. in turn transferred the assets to****** in an exchange qualifying as a reorganization under § 351 of the Internal Revenue Code. Both of these transfers occurred within the Commonwealth.
DETERMINATION
Assessment Issued to
This assessment was issued upon the transfer of assets held by **** to*****in exchange for shares of stock. Code of Virginia § 58.1-603 imposes sales tax upon every person engaged in the business of selling at retail or distributing tangible personal property in Virginia. Sales of tangible personal property are presumed taxable until proven otherwise. You have asserted that this transfer should be an exempt sale pursuant to Code of Virginia § 58.1-609.10(2), which provides a sales and use tax exemption for "an occasional sale as defined in § 58.1-602."
Code of Virginia § 58.1-602 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 exemption.
I find that the facts as presented do not support your contention that the transfer from *****to***** constituted the transfer of the assets of an entire business. After**** transferred the equipment and other assets to******, it continued in business. The transfer of part of the assets formerly utilized by the division, constituted a relatively small portion of the total assets held or controlled by *******.
Despite the foregoing, however, l do find that the transfer subject to this assessment was part of a reorganization under §351 of the Internal Revenue Code.
The department has previously determined that transfer of assets in exchange for stock which qualifies for nonrecognition of income under § 351 does qualify as a "reorganization " for purposes of the occasional sale exemption. Therefore, the assessment of sales and use tax issued to****** referenced above will be removed.
Assessment Issued to
There is no exemption which would prohibit the imposition of sales tax for this transaction and I find the audit was properly assessed. I note from your letter of December 9, 1996, that you are willing to abandon your protest of this assessment upon a finding that the assessment issued to****should be removed. Since the assessment issued to****** will be removed, a bill for the********assessment will be issued to you immediately. 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/12079D
Rulings of the Tax Commissioner