Tax Type
Retail Sales and Use Tax
Description
Sale of division
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
01-27-1993
January 27, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter seeking reconsideration of the department's April 28, 1989 determination to your client, **** (the "Taxpayer").
You maintain that in its previous determination to the Taxpayer regarding whether the sale of the Taxpayer's seller's training division qualified as an exempt occasional sale, the department ignored the question of whether the training services business itself constituted a "business." You point out that the "sale" involved not only the assets of the training services section, but also the transfer of employee and fringe benefit information, good will, training expertise, trade secrets, and contracts. In addition, you point out that a noncompete provision was agreed to by the seller of the equipment.
Based upon the department's review, I do not find any basis for deeming the transaction at issue an exempt occasional sale. In reaching this determination, I have reviewed in their totality the facts presented by the Taxpayer both initially and in subsequent correspondence.
Based upon the department's analysis, the Taxpayer's seller's business operations appear to be little different than any other vertically integrated business. The seller had various divisions within which there were several sections. (e.g., within the ***** (the "division"), there were separate sections for nuclear fuel services, engineering services, training services, etc.). Within each division, the various sections appear to be inextricably linked to each other through a flow of services and/or goods and to the business as a whole. This is evidenced by the fact that while the utility training business may have been accounted for as a separate business operation in the seller's internal books and records, the accounting and administration functions appear to have been centralized for the entire division. In addition, the Training Services section is inextricably linked to the seller's manufacturing of equipment in that it provided laboratory and classroom training in the operation and maintenance of equipment identical to that which the seller manufactured. Accordingly, insufficient evidence has been presented to deem the sections of each division of the business "discrete" business enterprises effectively functioning independently of each other.
Under well established Virginia case law, exemptions from taxation are to be construed strictly against the taxpayer. As the Taxpayer has not met the burden of demonstrating that the transaction represented the sale of a discrete business enterprise, the department's assessment must stand.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/4138H
Rulings of the Tax Commissioner