Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Reorganization.
Topic
Taxability of Persons and Transactions
Date Issued
11-14-1997
November 14, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************
This is in response to your letter of October 13, 1997, in which you seek a ruling on behalf of ******** (the "Taxpayer"). At issue in this case is the application of the occasional sale exemption to a proposed corporate reorganization of the Taxpayer and its wholly owned subsidiary ******** (the "Subsidiary").
FACTS
The Taxpayer and the Subsidiary together operate a chain of retail stores in Virginia. The Subsidiary owns the tangible personal property used in the stores' business and the Taxpayer's employees operate the stores. Both the Taxpayer and the Subsidiary own other assets and conduct other businesses.
The Taxpayer proposes a corporate reorganization to locate all aspects of operating the stores to the Taxpayer. To this end, the Taxpayer and the Subsidiary will conduct a series of transactions. First, the Subsidiary will form a new corporate subsidiary ("New Company") and contribute to New Company all of the assets used by the Subsidiary in the stores in exchange for all of the stock of New Company. You believe this transaction will qualify as a tax free reorganization under Internal Revenue Code § 351. The Subsidiary will then distribute all of the stock of New Company to the Taxpayer as a dividend. Finally, the Taxpayer will liquidate New Company and receive all of the assets in New Company.
RULING
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:
-
- 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 first transaction between the Subsidiary and New Company is a tax exempt reorganization of assets for stock in the commencing organization. The department has previously determined that such a transaction is a qualifying reorganization for purposes of the occasional sale. The second transaction is also not taxable under the sales and use tax laws. As it is a stock dividend, the second transaction does not entail any transfer of tangible personal property. The final transaction is a liquidation of all the assets of New Company. This transaction is a qualifying liquidation under the occasional sale exemption as it represents the "sale or exchange of all or substantially all the assets" of New Company.
Accordingly, and based on the facts as presented in your correspondence, the transactions you describe are exempt from sales and use taxation under the occasional sale exemption. As you point out, the ultimate ownership of the tangible personal property and the property's use in the stores will not change. Nor does this reorganization envision selling the stores or the tangible personal property used in the stores to unrelated parties.
Please contact***** in the department's Office of Tax Policy at**** if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13087I
Rulings of the Tax Commissioner