Tax Type
Retail Sales and Use Tax
Description
Determination of Exemption
Topic
Exemptions
Date Issued
05-19-1999
May 19, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear****
This is in response to your letter on behalf of an unidentified client (the "Taxpayer') regarding the application of retail sales and use tax to the sale of a business division. I regret the delay in responding to your ruling request.
FACTS
The Taxpayer operated a business which included a retail hardware store (the "Hardware Division') and a propane distribution operation (the "Propane Division.') All of the assets of the Propane Division were sold at one time to a single buyer. The sale included inventory, furniture and fixtures, office equipment, propane tanks and cylinders, vehicles, and intangible assets. You maintain that the assets of the Propane Division constituted about 75% of the Taxpayer's business. Subsequent to the sale, the Taxpayer remained in business with the Hardware Division and has no current plans to sell the Hardware Division.
You note that the assets of the two divisions were not used interchangeably. You also note that employees were active exclusively in either the Hardware Division or the Propane Division, with the exception of a bookkeeper who performed accounting duties for both units. The Taxpayer did not keep separate accounting records or bank accounts for the two divisions.
The housing of the Propane Division included a pipe shop, cylinder building, and a frame shed warehouse. The Propane Division housed its office and showroom in a building which it shared with the Hardware Division. Subsequent to the sale, a wall was constructed to separate the Hardware Division from the former Propane Division.
You request a ruling on the application of the occasional sale exemption to the Taxpayer's sale of the Propane Division. Specifically, you ask if the sale of 75% of the Taxpayer's assets represents the sale of substantially all of its assets. Alternatively, you ask if the sale of the Propane Division is the sale of a separate and distinct activity of a multifaceted business.
RULING
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.
I am not convinced that the sale of the Propane Division is the sale of all or substantially all of the Taxpayer's assets. First, no evidence is presented with respect to the assets sold and the assets retained. Further, I find no indication in prior determinations that 75% of the assets of a business constitutes all or substantially all of the assets as mandated in the statute.
I also note that the situation in your case is significantly different from that set out in Public Document 96-147 (6/19/96) to which you refer. The Seller in that case retained only minimal assets after selling the bulk of his business. In this case, the Taxpayer remains in business with an entire operating division (the Hardware Division), including real property, furniture and fixtures, and inventory.
It is next necessary to look at the sale of the Propane Division to determine if that division is a business for purposes of the occasional sale exemption. In this regard, the Tax Commissioner has previously determined that the sale of all or substantially all of the assets of a business division may qualify as an exempt occasional sale. Under this scenario, the business division must be engaged in totally separate and distinct activities based on such considerations as separate books which are separately maintained, separate bank accounts, separation of fixed assets, separate housing, separation of employees, and the flow of economic advantage from one division of the organization to another. The Tax Commissioner found in Public Document 85-149 (7/11/85) that the sale of a business division qualified for the occasional sale exemption when the division which was sold was "entirely separate and distinct' from another.
Based on the information before me, the Taxpayer's Propane Division is not entirely separate and distinct. Both of the Taxpayer's divisions shared accounting records and a bank account, and both divisions (at least in part) shared a physical location.
Accordingly, tangible personal property sold by the Taxpayer in connection with the sales of its Propane Division is subject to the tax. However, the sales tax will not apply to the sale of intangible assets, real property, motor vehicles registered with the Department of Motor Vehicles, and tangible personal property sold under the resale exemption.
If you have any questions regarding this letter, please contact ***** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/178921
Rulings of the Tax Commissioner