Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Sales of hotels in a series.
Topic
Taxability of Persons and Transactions
Date Issued
01-20-1998
January 20, 1998
Dear********:
This is in response to your letter of November 20, 1997, and prior correspondence in which you seek correction of a sales and use tax assessment issued to ***** (the ``Taxpayer'). The period for which the assessment was issued is January 1996 through February 1997. I note that the assessment of uncontested issues has been paid.
FACTS
The Taxpayer is a Virginia hotel which began its operation by purchasing the assets of an existing hotel - land, buildings, and tangible property from the Seller. The Seller is a limited partnership which was formed primarily by a major credit corporation and a major investment firm. The Seller was formed to liquidate properties which were acquired by its partners through foreclosure and bankruptcy proceedings.
The properties owned by the Seller included eight Virginia hotels. The Seller held certificates of registration for these hotels. In the instant case, the hotel was run by a management company hired by the Seller. The hotels were operated for periods ranging from 5 months to 18 months prior to each being sold. The Seller eventually sold all its Virginia hotels. The sales were made to eight separate buyers in eight separate transactions beginning in August 1995 and culminating in February 1996.
At issue in this case is the application of the occasional sale exemption to the Taxpayer's purchase of tangible personal property associated with its purchase of a hotel from the Seller.
DETERMINATION
Code of Virginia Sec. 58.1-609.10(2) provides an exemption from the tax for an occasional sale as defined in Sec. 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.
- 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.
Also, the sale of one hotel to the Taxpayer was one of a series of sales of hotels. These multiple sales by themselves are sufficient in ``number, scope and character' to require the holding of a certificate of registration. In this regard, the department has issued a number of prior rulings which address the application of the occasional sale exemption to sales of business entities. Public Documents 87-56 (2/27/87) and 97-199 (4/25/97) appear to be especially analogous to the instant case. As these determinations show, the sale of business locations requiring several transactions over an extended period of time to different purchasers does not qualify as an exempt occasional sale.
In Public Document 96-5 (2/27/96), the department determined that a fundamental characteristic of an occasional sale is that it lacks continuity and regularity. This is clearly not the case in the instant transaction. Here, the sale of assets is the very nature of the Seller's activities and is an integral part of the Seller's business. Also see Public Document 93-164 (7/23/93) which discusses in part the application of the occasional sale exemption to a partnership formed to sell a limited amount of tangible personal property.
You contend that the occasional sale exemption is satisfied when the assets of a particular line of business are disposed of. This is certainly true in some cases as addressed in Public Document 95-127 (5/19/97) on which you rely. Also see Public Document 89-93 (3/9/93). In these cases, the taxpayers disposed of one separate and distinct activity of a multifaceted business and did so in a single transaction to one buyer. I do not find that each of the Seller's hotels in the instant case is a separate and distinct activity. The department addressed this question in Public Documents 95-172 (6/26/95), 92-5 (3/13/92) and 97-99 (2/24/97) regarding the occasional sale exemption as it applies to the sale of hotel properties. The department consistently determined in these cases that the sellers' businesses were the sale of accommodations through a chain of hotels. The sale of individual locations was not the sale of independent, discrete entities. Accordingly, the sale of one location was not the sale of all or substantially all the assets of a business.
Nor do I agree that the instant transaction qualifies as an occasional sale under the regulations directed to auctioneers, agents, and factors as set out in Title 23 of the Virginia Administrative Code 10-210-140. Even if I accepted your suggestion that the Seller was acting as an agent for its partners, which I do not, the sales of the hotel properties did not occur in three days or less as mandated in the regulation.
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be sent to the Taxpayer as soon as practicable. No additional interest will accrue provided the assessment is paid within 30 days.
Please call ***** in the department's office of Tax Policy at ***** if you have any questions concerning this letter.
Rulings of the Tax Commissioner