Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Convenience store chain
Topic
Taxability of Persons and Transactions
Date Issued
04-30-1993
April 30, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter of July 2, 1992 in which you seek correction of a sales and use tax assessment issued to********(the Taxpayer) as the result of the department's audit for the period January 1989 through December 1991.
FACTS
In 1988 the Taxpayer purchased three subsidiary corporations from a single seller. Two of the subsidiaries operated as two separate chains of convenience stores doing business under two trade names and located in separate geographical regions of the Commonwealth. The third subsidiary operated as a chain of auto parts stores. Upon purchase, and because of Subchapter S rules of the Internal Revenue Code prohibiting subsidiaries, the three subsidiaries were merged into the Taxpayer's Subchapter S corporation.
In September 1990 the Taxpayer sold all twelve stores of one chain of convenience stores to a single buyer but continues to operate the remaining convenience stores as well as the auto parts stores. An audit of the Taxpayer produced an assessment for its failure to collect and remit the tax on the tangible personal property transferred in that sale.
The Taxpayer contests the above assessment, contending that the transfer represents an exempt occasional sale.
DETERMINATION
Va. Code §58.1-608(A)(10)(b) exempts from the tax an "occasional sale" which is defined to be:
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- a sale of tangible personal property not held or used by the 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 the assets of any business....
- a sale of tangible personal property not held or used by the 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 the assets of any business....
You contend that the sale of one chain of stores constitutes the sale of a "business" within the meaning of the Code. Had the Taxpayer operated only one chain of convenience stores, your conclusion would be correct. However, the Taxpayer engaged in the business of operating three chains of retail stores; as such, the sale of twelve stores does not constitute the sale of all or substantially all of the Taxpayer's assets.
Furthermore, as noted in the enclosed Public Document 91-290 (11/18/91), the department has previously determined that the sale of one separate and distinct activity of a business may qualify as a sale of all or substantially all the assets of a business. In the instant case, however, the Taxpayer sold twelve convenience stores but continued to operate other convenience stores. Nor can I find any evidence that the twelve stores operated as an entirely separate and distinct activity under the guidelines presented in that prior ruling.
You also contend that had it been allowed, the Taxpayer would have organized each chain into separate subsidiary corporations. Presumably for its own benefit, however, the Taxpayer chose to organize as a Subchapter S corporation and was thus required by I.R.S. regulations to organize as a single taxable entity. This argument is not persuasive, however, as the Taxpayer's organizational structure was chosen in order to reap federal income tax benefits. In this regard, it is well established that federal tax planning opportunities may produce other results at the state and local tax level.
Accordingly, I find no basis for correction of the assessment in this case, the full amount of which is hereby due and payable. A payment copy of that assessment, with interest accrued to date, will be sent shortly and must be paid within 30 days to prevent the accrual of additional interest
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6263
Rulings of the Tax Commissioner