Rulings of the Tax Commissioner

April 18, 2019

Re:  § 58.1-1821 Application:  Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period September 2014 through March 2016. I note that the assessment has been paid in full. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a motorcycle and all-terrain vehicle dealer located Virginia. The auditor assessed use tax in the audit on the purchase of various assets by the Taxpayer from ***** (the “Company”) because the Taxpayer did not pay sales tax at the time the purchases were made, nor did the Taxpayer accrue and remit use tax to the Department. The Taxpayer states that while the Company remains in business following the sale, the Company liquidated all the assets of one of its major divisions during a corporate restructuring process. The Taxpayer contends that the purchase of those assets by the Taxpayer qualifies as an exempt occasional sale in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-1080. The Taxpayer requests that the assets at issue be removed for the audit.   

DETERMINATION

Virginia Code § 58.1-609.10 2 states the retail sales and use tax does not apply to “An occasional sale, as defined in § 58.1-602.” Virginia Code § 58.1-602 defines 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 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.

Title 23 VAC 10-210-1080 B further defines occasional sales as:

1. A sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales; or 
2.  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. The words "not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration" mean that a registered dealer is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells; or 
3. The sale or exchange of all or substantially all the assets of any business; or 
4. The reorganization or liquidation of any business. 

An occasional sale may occur when a company sells all or substantially all of the assets of its business, or as part of the reorganization or liquidation of the business. Based on the information provided in your appeal, the Company did not sell all or substantially all of the assets of its business, as the Company remains in business. Rather, the Company sold a division of its business for purposes of reorganizing or restructuring the business.

Prior determinations by the Tax Commissioner are instructive regarding the sale of a division of an on-going business and the application of the occasional sale exemption to sales of tangible personal property. In Public Document (P.D.) 16-58 (4/20/16) and P.D. 91-290 (11/18/91), the Department determined that the disposition of one separate and distinct activity of a multifaceted business can qualify as a sale of all or substantially all the assets of a business. However, in making the determination that a division is separate and distinct from an on-going business entity, the Department looks to certain criteria to determine if the sale of the assets of a division would qualify as an occasional sale. Such criteria are set forth below:

• Each division must have a completely separate set of books which are separately maintained.
• Separate back accounts must be maintained.
• Employees must be active in only one division.
• Divisions must be separately housed.
• Each division must have its own fixed assets which are not used interchangeably.

In order to determine if the division of the Company is separate and distinct from the Company itself, an analysis of the criteria must be completed by the Department.  The Taxpayer did not provide documentation requested by the auditor during the performance of the audit to support its contention that the sale of the assets at issue qualify as an occasional sale. Likewise, the Taxpayer has not provided documentation with its appeal upon which an analysis can be done to determine if the aforementioned criteria have been met. Based on the available information, the Company remains in business and continues to make retail sales. As such, I am unable to determine if the sale of the assets at issue qualifies as an occasional sale subject to the occasional sale exemption. The Taxpayer has not met its burden of proving that the assessment with respect to the purchases of the assets at issue is incorrect. Accordingly, the assessment, which has been paid in full by the Taxpayer, is correct as issued. Revision to the audit are not warranted and no further action is required.  

The Code of Virginia, regulation, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions concerning this matter, please contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner