Tax Type
Corporation Income Tax
Description
Sale of assets
Topic
Clarification
Computation of Income
Date Issued
04-08-1994
April 8, 1994
RE: Ruling Request: Corporation Income Taxes
Dear*********
This will reply to your letter dated October 10, 1990 in which you request the various Virginia tax treatments regarding the Internal Revenue Code (I.R.C.) §338(h)(10) election for********* (the "Taxpayer"). I apologize for the inexcusable delay in responding to your requested ruling. I understand that a member of the Tax Policy staff recently discussed your situation by phone.
FACTS
The Taxpayer is contemplating the sale of a subsidiary (S1) which is Virginia domiciled, and is contemplating an election to treat the sale as a sale of assets under I.R.C. §338(h)(10).
RULING
Corporate Income Tax
Basically, Virginia will follow the federal treatment of the I.R.C. §338(h)(10) election. Some modifications are necessary due to the unique nature of the various filing methods (separate, combined, or consolidated) available to Virginia taxpayers, and apportionment factor considerations.
Virginia treatment of the I.R.C. §338(h)(10) election is detailed in Public Document (P.D.) 91-317 (12/30/91), a copy of which is attached. Since your fact situation is similar to that of the taxpayer in this public document, you may rely on it in determining the Virginia tax treatment of your contemplated transaction.
Sales and Use Tax
The Taxpayer inquires about the sales and use tax implications of the described transaction. More specifically, the Taxpayer asks whether Virginia would treat this transaction as a stock sale or would it be cast as an asset sale created by the legal fiction of the I.R.C. §338(h)(10) election.
Generally, Va. Code §§58.1-603 and 58.1-604 imposes the sales or use tax on the sales of or use or consumption of tangible personal property in the Commonwealth. As provided by Virginia Regulation (VR) §630-10-102.1, the definition of tangible personal property expressly states;
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Stocks, bonds, notes, insurance and other obligations or securities are intangible personal property and are not subject to the tax.
While the I.R.C. §338(h)(10) election treats the transaction as an asset sale for federal income tax purposes, as a factual matter the transaction is a sale of stock. Therefore, since the substance of the transaction constitutes a sale of intangible personal property, the transaction would be exempt for sales and use tax purposes under VR §630-10-102.1. Because Virginia would not consider this transaction a sale of tangible personal property, the questions posed concerning an occasional sale exemption from the sales and use tax would not be pertinent.
Recordation and Transfer Taxes
There is no Virginia transfer tax on sales of stock or securities. Although there is no tax on the transfer of real estate, there may be a tax on the recordation of a deed conveying real estate, a deed of trust creating a security interest, a lease, or other contract relating to real estate. If no deed is recorded, then there is no tax. If a deed is required, then a recordation tax would be imposed unless an exemption is applicable. For example, Va Code. §58.1-811 A 8 exempts deeds resulting from a statutory merger. A copy of the relevant recordation tax sections is enclosed.
Property Taxes
Local property taxes are based on the fair market value as assessed by local tax officials. Virginia law requires general reassessments of real estate at periods from 1 to 6 years to ensure that all properties are uniformly assessed. Thus, the transfer itself will not trigger a reassessment. However, it is possible that appraisals and other information related to the transfer may be used by the assessor in determining fair market value as of the next general reassessment.
Tangible personal property is assessed at current fair market value based on published pricing guides in the case of many types of motor vehicles. A transfer would have no impact on such assessment values. Other types of tangible personal property are usually assessed on the basis of a percentage of original cost. It is possible that information related to the transfer may be used by the assessor in determining original cost for purposes of subsequent annual assessments.
I trust this will answer the questions posed in your letter; however, please contact the department if you have additional questions or if we may be of any further assistance.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
TPD/4681L
Rulings of the Tax Commissioner