99-53 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Occasional sales; Sales of hotels

Topic

Taxability of Persons and Transactions

Date Issued

04-07-1999

April 7, 1999

Re: § 58.1-1824 Application: Retail Sales and Use Tax

Dear ******************

This concerns the protective claim for refund of retail sales and use taxes which you filed December 17, 1997, on behalf of * * * * * (the "Taxpayer'). In a determination dated November 12, 1997, the department denied your application for correction and held that the contested transaction was not an exempt occasional sale. By letter dated January 12, 1998, and under the authority granted the Tax Commissioner by Code of Virginia § 58.1-1824, I agreed to hold your protective claim for refund pending the outcome and review of Steuart Petroleum Company v. Virginia Department of Taxation.

Facts - Steuart Petroleum

Steuart Petroleum ("Steuart'') owned and operated 24 service stations/convenience stores located throughout Virginia. Under a plan of liquidation approved by Steuart's board of directors, Steuart sold all of these locations to five separate buyers over a nine-month period. Steuart testified that it tried to find one buyer for all of the Virginia locations but was unable to do so. Accordingly, the locations were sold in five geographical blocks to the five buyers. The items sold consisted primarily of store fixtures which Steuart used in the operation of its service station/convenience store business.
The court found for Steuart and held that Steuart's sales of the 24 Virginia service stations/convenience stores constituted the tax exempt liquidation of a business under the occasional sale exemption. Further, the Virginia Supreme Court denied the department's petition for appeal. A copy of the circuit court's decision is enclosed.

Facts - The Taxpayer

In this case, the contested items consist of furniture and fixtures associated with a hotel purchased by the Taxpayer. The hotel purchased by the Taxpayer was one of eight Virginia hotels sold by * * * * * (the "Seller'). The eight hotels were sold to eight separate buyers (including the sale of one of the hotels to the Taxpayer) over a seven - month period. You provide the following information concerning the Seller:

- The hotel purchased by the Taxpayer was previously one of a group of hotels owned by the * * * **, a hotel/motel operator (the "Operator'). The debt secured by the Operator's hotels was held by * * * * * (the "Creditor').
  
  The Operator filed for bankruptcy. At the same time, the Creditor was seeking to divest itself of the assets and liabilities associated with its financing operations, including the debt securing the Operator's hotel properties.
  
  Other parties were involved in the formation of the Seller, specifically, an investment banking firm (which was the controlling member of the Seller), and a minority interest which served as the Seller's attorney-in-fact.
  
  The Seller has not acquired any properties unrelated to the Creditor.

You indicate that the Seller was formed solely to effect the liquidation of the various properties it acquired from the Creditor and that the sales of the hotel properties are exempt occasional sales. Accordingly, you maintain that the tangible personal property purchased by the Taxpayer in association with its purchase of one of the hotels is not taxable.

It is evident that the Seller disposed of its Virginia hotel properties through a relatively small number of transactions over a relatively short period of time. Indeed, if the hotels were sold by the Operator, it is likely the sales would be exempt occasional sales under the guidelines the court set out in Steuart Petroleum. This assumes, of course, that the eight hotels constituted all or substantially all of the Operator's Virginia assets.

I acknowledge similarities in the two cases. Still, there are distinctions between the Taxpayer's transaction and the transaction at issue in Steuart Petroleum. My first concern is that I am not fully aware of all the facts surrounding the Seller's activities. For example, I do not know if the Seller held or continues to hold property other than the eight Virginia hotels or if the sale of the hotels constituted the sale of all or substantially all the assets of the Seller's business.

These factual considerations aside, I am most concerned about the very nature of the Seller's efforts in selling the hotel properties. It is clear the Seller was formed to sell these (and possibly other) properties. As such, the Seller acquired property with the stated purpose of selling it. I cannot agree that those sales can be categorized as occasional in nature.

An "occasional sale' is defined in Code of Virginia §58.1-602 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.)

The statute does not define the "scope' or "character' of an exempt occasional sale or what would be required to satisfy these criteria. Nevertheless, a fundamental characteristic of an occasional sale is that it lacks continuity and regularity and it occurs without being expected or without design. This characteristic is absent in the instant case because the sale of hotel properties is clearly the Seller's primary responsibility. Regardless that the sales of the Virginia hotels were infrequent in number, such sales were an integral part of the Seller's activities. In fact, the sale of the hotels was the Seller's normal business activity. Accordingly, such sales cannot be characterized as occasional in nature.

Further, this determination is consistent with the doctrine of strict construction of tax exemptions. Under this rule, when a statute is subject to two interpretations, one granting the exemption and the other denying the exemption, the latter will be chosen. See Winchester TV Cable Co. v. State Tax Commissioner, 216 Va. 286, 217 S.E.2d 885 (1975).

Based on the above, I deny the Taxpayer's protective claim for refund. Under Code of Virginia §§ 58.1-1824 and 58.1-1825, the Taxpayer may seek redress from the circuit court under Code of Virginia § 58.1-1825: (1) before the end of one year after the date of this determination, or (2) within three years of the date of the assessment, whichever is later.

If you have any questions regarding this letter, please contact * * * * * in the department's Office of Tax Policy at * * * * *.

Sincerely,

Danny Payne
Tax Commissioner

Rulings of the Tax Commissioner