Tax Type
Retail Sales and Use Tax
Description
Business successor liability; Liability of successor business
Topic
Collection of Delinquent Tax
Date Issued
06-28-1996
June 28, 1996
Re: Request for Ruling: Retail Sales & Use Tax
Dear*************
This will reply to your letter of May 31, 1996 in which you seek a ruling on behalf of your client (the "Taxpayer") regarding the application of tax to certain situations involving with the purchase of existing businesses in Virginia.
FACTS
The Taxpayer is contemplating the purchase of a business with two separate locations within Virginia. The Taxpayer is concerned with the tax liability generated in the procurement of such businesses and provides two scenarios with supporting questions related to the conditions of the purchase.
DETERMINATION
Code of Virginia § 58.1-609.10.2 provides a sales and use tax exemption for "an occasional sale, as defined in § 58.1-602." Code of Virginia § 58.1-602 defines occasional sale as follows:
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- "Occasional sale" means 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.
Code of Virginia § 58.1-602 also presents a definition of "tangible personal property" which defines that term to mean any:
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- personal property which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses. The term "tangible personal property shall not include stocks, bonds, notes, insurance or other obligations or securities.
With the foregoing in mind, I will respond to the issues as you have presented them.
TRANSACTION # 1.
The Taxpayer purchases the stock of the selling corporation, and continues the operation of the two separate Virginia business locations.
Question # 1. Is sales tax due the seller on the purchase of stock?
Based on the wording of Code of Virginia § 58.1-602, the sale or purchase of stock is not the sale of tangible personal property and, therefore, not subject to the application of the Virginia Retail Sales & Use Tax.
Question # 2. Is the purchaser liable for any current sales and use tax owed by the seller of the stock?
Yes, unless the Taxpayer takes certain precautionary measures outlined in Code of Virginia § 58.1-629 which provides that:
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- If any dealer liable for any tax, penalty, or interest levied hereunder sells out his business or stock of goods or quits the business, he shall make a final return and payment within fifteen days after the date of selling or quitting the business. His successors or assigns, if any, shall withhold sufficient of the purchase money to cover the amount of such taxes, penalties, and interest due and unpaid until such former owner produces a receipt from the Tax Commissioner showing that they have been paid or a certificate stating that no taxes, penalties, or interest is due. If the purchaser of a business or stock of goods fails to withhold the purchase money as above provided, he shall be personally liable for the payment of the taxes, penalties, and interest due and unpaid on account of the operation of the business by any former owner.
Question # 3. Subsequent to the purchase of the stock, would the purchaser be liable for any sales tax from a period where the previous owner operated the business, and which might be disclosed by audit?
The provisions of Code of Virginia § 58.1-629 would continue to apply in this instance.
TRANSACTION # 2.
The Taxpayer forms a new corporation which buys the assets of the current corporation. The new corporation operates the same type of business out of the acquired Virginia locations.
Question # 1. Is any sales tax due on the sale of the assets by the current owner?
The sale of assets is subject to the sales and use tax unless the transaction qualifies for the occasional sale exemption under Code of Virginia § 58.1-609.10.2.
Question # 2. Is the purchaser of the assets liable for current sales or use taxes owed by the seller?
The provisions of Code of Virginia § 58.1-629 would apply.
Question # 3. Subsequent to the purchase of the assets, would the purchaser be liable for any sales tax from a period where the previous owner operated the business, and which might be disclosed by audit?
The provisions of Code of Virginia § 58.1-629 would apply.
For your information and assistance I have enclosed copies of the previously referenced sections of the Code of Virginia, as well as copies of the appropriate sections of the Virginia Retail Sales and Use Tax Regulations, which assist in the further interpretation of the Code of Virginia. Additionally, I have enclosed P.D. 85-132 which presents the department's position relating to successor corporations, and P.D. 85-149, which relates to the applicability of the occasional sales exemption.
I trust that this information has been of some assistance to you. If you have any additional questions, please contact ***** of the department's Office of Tax Policy at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11302Q
Rulings of the Tax Commissioner