Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Transfer of assets in reorganization.
Topic
Taxability of Persons and Transactions
Date Issued
04-23-1998
April 23, 1998
Dear**:
This is in response to your recent letter regarding the application of the occasional sale exemption to a series of transactions involving ***** (the "Parent').
FACTS
The Parent and certain subsidiary corporations are contemplating a corporate reorganization. An emerging subsidiary will be created in Virginia through a series of transactions, as follows:
First, an existing Virginia subsidiary will distribute some of its tangible assets (furniture, fixtures and equipment) to the Parent. You indicate that this distribution will be made for no consideration. Second, the Parent will then transfer these same assets to the emerging subsidiary in a tax-free reorganization pursuant to Sec. 351 of the Internal Revenue Code. In this transaction, the Parent will receive 100% of the first issue of the emerging corporation's stock.
You indicate that these transactions involve only assets which are currently in Virginia and would involve no additional assets coming into Virginia. You further indicate that all sales or use tax has been paid on the assets associated with these transactions and that all inventory transferred under these transactions will be accompanied by valid resale certificates of exemption.
RULING
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:
However, I am concerned about the initial transaction. I note that the existing subsidiary is comprised of retail locations throughout Virginia, all of which are registered with the department to collect and remit sales tax. The furniture, fixtures, and equipment distributed to the Parent are items of tangible personal property used by the existing subsidiary in its registerable activity. Further, it does not appear that all or substantially all of the existing subsidiary's assets will be transferred. For these reasons, I am not convinced that the initial transaction represents an exempt occasional sale.
A "sale' is defined in Code of Virginia Sec. 58.1-602 to be "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property . . . for a consideration . . .' If, as you contend, the existing subsidiary transfers tangible personal property to the Parent for no consideration, the transaction will not be subject to sales or use taxation (because the transaction does not meet the statutory definition of a "sale'). Conversely, if any consideration is at issue, the department would want to further review the facts before making a final determination on this transaction.
For your information, I have enclosed Public Documents 97-332 (8/27/97) and 97-453 (11/14/97) which address corporate reorganizations and which may be analogous to your case.
I trust that this information is helpful. Please contact in the department's Office of Tax Policy at ***** if you have any questions regarding this letter.
Dear**:
This is in response to your recent letter regarding the application of the occasional sale exemption to a series of transactions involving ***** (the "Parent').
FACTS
The Parent and certain subsidiary corporations are contemplating a corporate reorganization. An emerging subsidiary will be created in Virginia through a series of transactions, as follows:
First, an existing Virginia subsidiary will distribute some of its tangible assets (furniture, fixtures and equipment) to the Parent. You indicate that this distribution will be made for no consideration. Second, the Parent will then transfer these same assets to the emerging subsidiary in a tax-free reorganization pursuant to Sec. 351 of the Internal Revenue Code. In this transaction, the Parent will receive 100% of the first issue of the emerging corporation's stock.
You indicate that these transactions involve only assets which are currently in Virginia and would involve no additional assets coming into Virginia. You further indicate that all sales or use tax has been paid on the assets associated with these transactions and that all inventory transferred under these transactions will be accompanied by valid resale certificates of exemption.
RULING
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:
-
- 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.)
- 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.)
However, I am concerned about the initial transaction. I note that the existing subsidiary is comprised of retail locations throughout Virginia, all of which are registered with the department to collect and remit sales tax. The furniture, fixtures, and equipment distributed to the Parent are items of tangible personal property used by the existing subsidiary in its registerable activity. Further, it does not appear that all or substantially all of the existing subsidiary's assets will be transferred. For these reasons, I am not convinced that the initial transaction represents an exempt occasional sale.
A "sale' is defined in Code of Virginia Sec. 58.1-602 to be "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property . . . for a consideration . . .' If, as you contend, the existing subsidiary transfers tangible personal property to the Parent for no consideration, the transaction will not be subject to sales or use taxation (because the transaction does not meet the statutory definition of a "sale'). Conversely, if any consideration is at issue, the department would want to further review the facts before making a final determination on this transaction.
For your information, I have enclosed Public Documents 97-332 (8/27/97) and 97-453 (11/14/97) which address corporate reorganizations and which may be analogous to your case.
I trust that this information is helpful. Please contact in the department's Office of Tax Policy at ***** if you have any questions regarding this letter.
Rulings of the Tax Commissioner