Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Sale of business assets in series of transactions.
Topic
Taxability of Persons and Transactions
Date Issued
11-12-1997
November 12, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This is in response to your letter of August 7, 1997, in which you seek correction of a sales and use tax assessment issued to **** (the "Taxpayer") for the period March 1996 through March 1997. I understand that one of the contested issues, concerning materials and installation of bathtub liners, has been resolved. The only remaining issue is the purchase of furniture, fixtures, and other tangible personal property from *** (the "Seller").
FACTS
The Taxpayer is a Virginia hotel which began its operation by purchasing the assets of an existing hotel - land, buildings, and tangible property - from the Seller. The Seller is a limited partnership which was formed primarily by a major credit corporation and a major investment firm. The Seller was formed to dispose of a number of properties which were originally financed by the credit corporation. These properties, including eight hotels located in Virginia, were acquired by the credit corporation through foreclosure when the prior owners filed for bankruptcy.
The Seller operated the eight Virginia hotels and accordingly held certificates of registration. The hotels were operated by the Seller for periods ranging from 5 months to 18 months. The Seller eventually sold all its Virginia hotels. It appears that the sales were made to eight separate buyers in eight separate transactions beginning in August 1995 and culminating in February 1996.
At issue in this case is the application of the occasional sale exemption to the Taxpayer's purchase of tangible personal property associated with its purchase of a hotel from the Seller.
DETERMINATION
Code of Virginia § 58.1-609.10(2) provides an exemption from the tax for an occasional sale as defined in § 58.1-602. That section defines an "occasional sale" as:
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- 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.
The transfer of assets in this case is not an exempt occasional sale. The Seller held certificates of registration to collect and remit the Virginia sales tax on the rental of hotel accommodations. The tangible personal property sold to the Taxpayer as part of the hotel sale was held or used by the Seller in this registerable activity.
Also, the sale of one hotel to the Taxpayer was one of a series of sales of hotels. These multiple sales by themselves are sufficient in "number, scope and character" to require the holding of a certificate of registration. In this regard, the department has issued a number of prior rulings which address the application of the occasional sale exemption to sales of business entities. Public Documents 87-56 (2/27/87) and 97-199 (4/25/97) appear to be especially analogous to the instant case. As these determinations show, the sale of business locations requiring several transactions over an extended period of time to different purchasers does not qualify as an exempt occasional sale. Also see Public Documents 95-172 (6/26/95), 97-99 (2/24/97) and 97-313 (7/29/97) which address the occasional sale exemption as it applies to the sale of hotel properties.
In Public Document 96-5 (2/27/96), the department determined that a fundamental characteristic of an occasional sale is that it lacks continuity and regularity. This is clearly not the case in the instant transaction. Here, the sale of assets is the very nature of the Seller's activities and is an integral part of the Seller's business. Also see Public Document 93-164 (7/23/93) which discusses in part the application of the occasional sale exemption to a partnership formed to sell a limited amount of tangible personal property.
Finally, you contend that the occasional sale exemption is satisfied when the assets of a particular line of business are disposed of. This is certainly true in some cases. For example, in Public Document 91-290 (11/18/91) the department reiterated its position that the disposition of one separate and distinct activity of a multifaceted business may qualify as the exempt sale of all or substantially all the assets of a business. The case set out in Public Document 89-93 (3/9/93) shows that the occasional sale exemption did apply to the sale of all the assets of a business division. In that case, the assets were sold in a single transaction.
There is no information in the instant case concerning the Seller's other business activities. There is no indication, for example, that the sale of hotel properties is separate and distinct from the Seller's other activities. The question of separate and distinct activities, however, has no bearing on the contested transaction in this case. As discussed above, the sale of one hotel to the Taxpayer was one of a series of such sales made by the Seller. Also, the sale of hotels was an integral part of the Seller's business.
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be sent to the Taxpayer as soon as practicable. No additional interest will accrue provided the assessment is paid within 30 days.
Please call ***** in the department's office of Tax Policy at ********if you have any questions concerning this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12900I
Rulings of the Tax Commissioner