Tax Type
Retail Sales and Use Tax
Description
Occasional sales; Sale of division exempt
Topic
Taxability of Persons and Transactions
Date Issued
04-16-1999
April 16, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ********************
This is in response to your letter regarding a sales and use tax assessment issued to * * * * * (the "Taxpayer') for the period September 1994 through July 1997. At issue in this case is the Taxpayer's sale of equipment and other tangible personal property used in its chemical testing laboratory division (the "Laboratory Division'). I apologize for the delay in responding to your letter.
The Taxpayer sold 88% of the Laboratory Division's fixed assets to a buyer in one transaction. Other assets, such as goodwill and customer lists, were also sold. In a determination dated February 26, 1998, the Tax Commissioner found that the sale was not an exempt occasional sale. You provide additional information and request a redetermination on this issue.
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:
-
- 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.
The Taxpayer clearly did not sell all or substantially all its assets. The Taxpayer remains in business in Virginia with its petroleum refinery operation. It is therefore necessary to look at the sale of the Laboratory Division to determine if that division is a "business' for purposes of the occasional sale exemption.
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, separation of employees, and the flow of economic advantage from one division of the organization to another.
In the instant case, the Laboratory Division was separately housed. Employees worked exclusively in the Laboratory Division's activities (and not in other facets of the Taxpayer's business), and assets used in the Laboratory Division were not shared with other activities of the corporation. Financial records and financial reports were substantially separate. The laboratory did not have its own checking account, but did use separate checks which were identified by the Laboratory Division's exclusive logo.
You maintain that the Laboratory Division not only operated separately, but also operated as a distinct business activity. In this regard, the Laboratory Division performed chemical testing for third-party customers and about 81% of its gross receipts were from these third-party customers.
Further, transactions between the Laboratory Division and the Taxpayer's petroleum refinery division were conducted on an arm's-length basis with inter-company charges. These charges were at the same rate as the Laboratory Division charged its third-party customers for testing services. I also understand that the Laboratory Division employed its own salesman who marketed the environmental testing services and who did not sell or assist in selling the products manufactured in the Taxpayer's petroleum refinery division. Finally, the Laboratory Division ran separate advertisements in specialty publications.
Based on the circumstances in this case, and taking into account the additional information you recently provided, I find that the Laboratory Division operated as a separate and distinct activity of the Taxpayer's multifaceted business. As such, the sale of all or substantially all of the assets of the Laboratory Division is an exempt occasional sale.
I note that the entire assessment has been paid. Based on this determination, the assessment associated with the sale of the Laboratory Division will be refunded to the Taxpayer. Accrued interest will be added to the refund.
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