Does selling an entire business still qualify for Utah's isolated-or-occasional-sale sales tax exemption when the deal is structured through an asset purchase agreement plus a 20-year lease-with-purchase-option instead of a simple sale?

Plain-English summary

A law firm represented the seller in the sale of an entire business (described as a wholesale manufacturer) and initially got an advisory ruling from the Commission's Auditing Division confirming the deal would qualify as an exempt "isolated or occasional sale" of a business — except for any Utah-registered motor vehicles included in the deal, which stay taxable. As negotiations progressed, the deal's structure changed and grew more complex, so the firm came back with an amended request describing the actual final structure and asking the Commission to confirm the exemption still applied.

The final structure wasn't a simple one-time sale: it combined (1) an Asset Purchase Agreement transferring inventory, equipment, contracts, intellectual property, and goodwill outright; (2) a 20-year triple-net Lease Agreement covering real property, fixtures, machinery, and other fixed assets not otherwise transferred; and (3) a Purchase Option and Escrow Agreement giving the buyer the right (expected to be exercised well before the 20-year term ends) to buy the leased assets outright — with the lease/option structure used "for Tax purposes only," per the deal documents themselves. The seller argued this was still, in substance, a sale of the entire business to a single buyer who would continue operating it.

The Commission agreed. It confirmed the sale of an entire business qualifies for the isolated-or-occasional-sale exemption regardless of this multi-document lease-and-option mechanics, except for registered motor vehicles, which remain taxable (valued at fair market value via NADA guide or a qualified dealer appraisal). The Commission also clarified a related rule about sale-leasebacks generally: property that was already fully taxed when the seller originally purchased it, and is later sold and financed back through a lease, still qualifies as an exempt isolated sale — but property that was never taxed on its full purchase price (for instance, because it was financed through a lease shorter than its normal useful life) does NOT get the isolated-sale exemption.

Note: the source page for this ruling number also contains what appears to be an unrelated fragment of a different, later ruling on court-record information services sold to credit bureaus (dated 1992) — likely a page-capture artifact from the Commission's historical archive rather than part of PLR 91-004 itself. That fragment isn't reflected in this summary since its actual ruling number and full context aren't available here.

What this means for you

Business sellers and buyers structuring an acquisition

You don't lose the isolated-or-occasional-sale exemption just because your deal uses a multi-document structure (asset purchase + leaseback + purchase option) instead of one simple bill of sale — the Commission looks at economic substance (is the whole business being transferred to one buyer who'll run it) rather than the specific legal mechanics. But budget for sales/use tax on any Utah-registered vehicles included in the deal regardless of how the rest of the transaction is structured.

M&A and tax attorneys documenting sale-leaseback deals

This ruling draws a bright line for a common structuring question: if the asset was fully taxed when the seller first bought it, a later sale-leaseback of that same asset stays within the isolated-sale exemption. If the asset was only ever taxed on a partial/short-term lease basis (not its full purchase price), that history follows the asset and the isolated-sale exemption won't apply when it's later sold.

Accountants handling business-sale tax positions

Fair market value for taxable motor vehicles in a business sale is measured by NADA guide value or a qualified dealer appraisal — useful as a specific valuation method to document for a deal that includes vehicles.

Common questions

Q: Does selling an entire business through a complex multi-document structure (asset sale plus leaseback and purchase option) still qualify for Utah's isolated-sale exemption?
A: Yes, according to this ruling — the Commission looks at whether the whole business is being transferred to a single buyer for continued operation, not the specific legal documents used to accomplish it.

Q: Are vehicles included in a business sale exempt from sales tax along with everything else?
A: No. Registered motor vehicles are specifically excluded from the isolated-or-occasional-sale exemption and remain taxable, valued at fair market value.

Q: If I sell equipment I originally financed through a short lease and never paid full sales tax on, does the isolated-sale exemption cover that later sale?
A: Not under this ruling's reasoning — the exemption applies to property already taxed on its full purchase price; property that avoided full taxation through a short-term lease doesn't carry the exemption when later sold.

Q: Does this ruling apply to my business sale?
A: Not automatically — it's a private letter ruling binding only on the Commission for the taxpayer and facts described, though other taxpayers may cite it for persuasive weight if closely similar. Consult a Utah tax professional about your own transaction structure.

Citations and references

Statutes and rules (1991-era numbering — since renumbered/amended):

• Utah Code Ann. § 59-12-104(14) (1991) (isolated or occasional sale exemption)
• Utah Code Ann. § 59-12-103(k) (1991) (leases treated as sales)
• Utah Code Ann. § 59-12-102 (1991) (wholesale sale definition)
• Utah Admin. Rule R865-19-38S (1991) (isolated/occasional sale of a business)
• Utah Admin. Rule R865-19-32SB (1991) (leases deemed sales)
• Utah Admin. Rule R865-19-29S (1991) (wholesale sales)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/91-004.htm

Original ruling text

March
25, 1991 Response from Tax
Commission

March
19, 1991 Letter from XXXXX of
XXXXX

February
27, 1991 Letter from XXXXX of Tax
Commission

February
21, 1991 Letter from XXXXX of XXXXX

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on
whether the isolated or occasional sale exemption provided for in Sales Tax
Rule R865-19-38S is available in the case of the sale of an entire business.
The assets transferred include motor vehicles.

The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendation. The division's recommendation is as follows:

1.
The sale of an entire business does qualify for exemption as an isolated or
occasional sale, with the exception of motor vehicles.

2.
Property which was taxed upon purchase, then sold and financed through a lease
agreement does qualify as an exempt isolated or occasional sale. If property
was not taxed on the full purchase price, such as in the case of a lease for a
period shorter than the normal financial life, the isolated or occasional sale
or lease exemption does not apply.

Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendation. Obviously, if there are deviations from these facts,
this opinion may be negated.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights is attached.

For
the Commission,

Joe
B. Pacheco

Commissioner

Mr.
XXXXX, CPA

Director,
Auditing Division

Utah
State Tax Commission

160
East 300 South

Salt
Lake City, Utah 84111

Re: Request for Amended Advisory Ruling

Dear
Mr. XXXXX:

By
letter dated February 21, 1991, attached hereto as Attachment "A," I
requested the issuance of an advisory ruling on behalf of a client concerning
the sales and use tax consequences of the contemplated transfer of assets
compromising an on-going business. In
conjunction with this request, I provided a description of the relevant facts
and a legal analysis of those facts. In
response to that request, you issued an advisory ruling dated February 22,
1991, concurring with my analysis that, based upon the facts outlined in the
request for advisory ruling, the contemplated transaction would qualify for purposes
of Utah's sale and use tax laws as a non-taxable isolated or occasional sale,
except for Utah registered motor vehicles.
Your advisory ruling letter was conditioned upon the accuracy of my
representation of the relevant facts.

As
negotiations between the parties progressed, the terms of the sale have changed
sufficiently such that the facts, as outlined in Attachment "A," may
no longer set forth all of the relevant facts concerning the sale and transfer
of our client's business. Accordingly,
this letter will provide you with additional relevant facts upon which we
request an advisory ruling.

First,
I reaffirm the basic accuracy of the facts set forth in paragraph nos. 1-5 of
the fact statement portion of Attachment "A". However, although the facts are accurate,
they must be expanded to more accurately reflect the whole transaction as
currently constituted. Regarding the
facts set forth in Attachment "A," the two facts that require an
expanded description are those found in paragraph no. 1, that the "sale
shall be consummated as an asset sale" and in paragraph 2.1 regarding the reference to "all other
assets." The reasons for an expanded description will become clear upon a
more detailed explanation of the "transaction" as it is currently
structured.

Second,
the "transaction" between the Seller and Buyer contemplates the
ultimate transfer to the Buyer of all
or substantially all of the assets comprising a distinct business operation
currently operated by Seller. Buyer
will continue to operate that business after the transfer of assets. The "transaction" will be
consummated through the execution of a series of transfer documents and
agreements. Although not all relevant
in analyzing the sales and use tax consequences are identified as follow: (a) Asset Purchase Agreement: (b) Lease
Agreement; (c) Purchase Option and Escrow Agreement; (d) Trademark License
Agreement; and (e) Milk Supply Agreement.

The
parties have always intended the transaction to be a sale of the assets,
however, for various reasons, have selected to proceed with the sale through
the agreements identified above.
Nonetheless, the parties intent to sell and to buy the assets comprising
the whole business is still clear from the documents. For instance, Section 26 of the Lease Agreement states that:

Irrespective
of its designation as a Lease within the terms of this Contract and
irrespective of the treatment given to this transaction by the individual
parties for financial statement reporting purposes, the Lessor and Lessee agree
that for all state, local and federal income tax purposes the transaction
contemplated by this Lease is an acquisition by Lessee from Lessor of all the
Lease Assets.

The
intent to sell is further evidenced by analyzing the provisions of the basic
documents of the transaction:

1. Asset Purchase Agreement

The
relevant terms of the Asset Purchase Agreement are not much different from the
terms originally set forth in Attachment "A," however, the following
additional facts should be considered:

(a)
Upon closing, Seller will no longer engage in the business operation
transferred to Buyer. This fact is
clear from a closer analysis of the assets being sold under the Asset Purchase
Agreement. As set forth in Subsections

2. c, d, e, f, g, j, and k of Attachment "A," the Seller is selling
   every significant intangible or intellectual property asset necessary to the
   operation of its business, including its names, patents, trademarks, trade
   names, service marks, copyrights, slogans, trade secrets, know-how, customer
   and mailing lists, contracts, licenses, permits, leases, promotional and
   advertising materials, and goodwill.
   Seller will have nothing available to sustain a going concern. In fact, Section 3.4 of the Asset Purchase Agreement
   further specifies that the "Seller shall deliver to Buyer possession of
   all of the Purchased Assets and the entire right title and interest of Seller
   in and to the Purchased Assets shall pass to Buyer on the Closing Date; . .
   ." If no sale were contemplated, the parties could have merely proceeded
   pursuant to license agreements.

(b)
Section 6.17 further verifies the Seller's intent to transfer its entire
business by providing as follows:

The
Purchased Assets and the Leased Assets include all rights used for the conduct
of the Business and are sufficient to permit Buyer to conduct the Business as
it has been and is being conducted by Seller without infringing on the rights
of any other person or entity.

(c)
Section 8.7 of the Asset Purchase Agreement further supports Seller's assertion
by providing as follows:

Except
for the use authorized in the Trademark License Agreement . . .Subsequent to
the Closing Date, Seller shall not use the name "(name omitted)" or
"(name omitted)" or any other name which includes the words
"(name omitted)" or "(name omitted)" or which is
substantially similar thereto or to any other name described in Section 1.1.6
for any purpose except to refer to the Business conducted prior to the Closing.

(d) The Seller and Buyer recognize that the bulk
sale transfer provisions of Utah law may be applicable as a result of the sale
and transfer of assets, but have selected to proceed without seeking the
protections those statutory provisions offer by having Seller indemnify Buyer for
any future liabilities in this regard.

(e)
As shall be further discussed, Buyer is receiving an option to purchase all
"leased" assets. In the event
Buyer does not exercise the option provided in the Purchase Option and Escrow
Agreement, Buyer will be required to assign to Seller all right, title and
interest "in and to the Proprietary Rights" and grant to Seller
"the exclusive right and license to use any trademarks or trade names used
by Buyer, except its own original names and marks." This provision evidences that a sale of
those assets will actually have occurred, otherwise Buyer would not have to
transfer title back to Seller.

2. Lease Agreement.

(a)
The Lease Agreement acts as the mechanism to transfer certain other assets not
otherwise transferred to Buyer pursuant to the Asset Purchase Agreement, or
otherwise, including "all real property, fixture, machinery and equipment
and other fixed assets."

(b)
The specific terms of the Lease Agreement are important to an understanding of
the parties' intent: (1) the lease term
shall be 20 years; (2) the lease shall be a "triple net" lease; (3)
the leased assets shall be used to conduct a business "substantially
similar" to the business conducted by Seller; (4) Lessee is required to
keep, at its own expense, the real property in good order, working condition
and repair, whether structural or nonstructural, ordinary or extraordinary; (5)
Lessee may dispose of any personal property that has become obsolete and without
significant value.

3. Purchase Option and Escrow Agreement.

The
Purchase Option and Escrow Agreement ties together the sale of some assets with
the lease of others to complete the whole sales agreement. Pursuant to that Agreement:

(a)
Seller grants Buyer the exclusive option to purchase any real and personal
leased pursuant to the Lease Agreement:

(b) Seller and Buyer are required to place all
deeds, documents and investment securities necessary to effectuate the sale and
transfer of the property into escrow;

(c)
The option, if not exercised earlier, will be deemed exercised in the year
2010, the year the 20-year lease term expires, and although a portion of the
transaction will proceed as a lease, the lease and option provisions were
required by the Seller for Tax purposes only, and it is contemplated by the
parties that the actual exercise will occur long before the expiration of the
20-year lease term; and

(d)
Buyer has the option to exclude certain property from the exercise, however,
the purchase price will not be adjusted if property is excluded. The parties have included this provision to
allow Buyer to sell off some of the unwanted assets, mostly real property,
during the lease term.

In
light of these facts, we request an advisory ruling that the described
transaction is exempt from sales and use tax except for the registered motor
vehicles. The following analysis
supports this request.

1. The facts outlined above describe the sale
   of an entire business to a single buyer.
   As such, pursuant to Utah Code Ann.
   � 59-12-104(14) and Rule R865-19-38S, Utah Administrative Code, the
   proposed transaction should qualify as an isolated and occasional sale, except
   for registered motor vehicles. Although
   the transaction will be accomplished through a series of sale, lease and option
   agreements, the immediate result is that Seller will no longer be engaged in
   operating Seller's business. The
   important fact is that all of the assets comprising the business are being
   transferred to the Buyer for operation as a business and that the parties
   intend this transfer not immediately consummated. Pursuant to Utah Code Ann. � 59-12-103(k) and Rule R865-19-32SB,
   Utah Administrative Code, leases are deemed to be sales for purposes of Utah's
   sales and use tax laws. Inasmuch as the
   Buyer shall have the right to possession, operation and use of all Seller's
   assets, even the leased assets which are subject to the purchase option should
   be deemed sold for purposes of analyzing the isolated and occasional sale provisions.

2. All motor vehicles registered in the State
   of Utah which are sold or leased as part of the transaction will be subject to
   Utah sales and use tax.

3. Pursuant to Utah Code Ann.� 59-12-102 and
   Rule R865-19-29S, Utah Administrative Code, Seller's inventory would be exempt
   from sales and use tax as a wholesale sale because Seller currently holds such
   inventory for sale to wholesalers or to retailers and such inventory will be
   sold to Buyer who is a wholesale or retailer and who also will sell that
   inventory at either wholesale or retail.

In
conclusion, we appreciate the expeditious manner by which you responded to our
earlier request. The transaction was
originally intended to have closed in early March, 1991, however, Closing was
delayed to resolve several issues.
Currently, the Closing is planned within the next ten days, therefore,
time is again of the essence and your immediate attention to this request is
appreciated.

Thank
you for your cooperation. Should you
have any questions, please call either XXXXX or XXXXX at XXXXX.

Sincerely,

XXXXX

XXXXX

Attorneys
at Law

Dear
XXXXX:

In
response to your February 26, 1991 request for an advisory ruling from the
Auditing Division, based upon the facts presented in your request, the
transaction you referred to will qualify as an exempt isolated or occasional
sale of an entire business, with the exception of any motor vehicles. The
vehicles will be taxed based upon their fair market value (NADA), or based upon
an appraisal by a qualified motor vehicle dealer. Obviously, if there are
deviations from these facts, this opinion may be negated.

Respectfully,

XXXXX,
CPA

Director

Auditing
Division

Telephone
No. (801)XXXXX

Mr.
XXXXX, CPA

Director,
Auditing Division

Utah
State Tax Commission

160
East 300 South

Salt
Lake City, Utah 84111

RE:
Request for Advisory Ruling

Dear
Mr. XXXXX:

We
are in the process of completing the negotiations for the sale of assets
comprising an entire business on behalf of one of our clients (referred to as
"Seller"). In order to
complete the negotiations and close the transaction, we have been requested by
Seller to obtain an advisory ruling from the Auditing Division of the Utah
State Tax Commission relative to the sales tax consequences of the
transaction. Time is of the essence and
we request your expeditious review of the transaction based upon the following
representations:

1. The sale shall be consummated as an asset
   sale.

2. The assets of Seller to be sold include the
   following types of property:

a. inventory, including finished goods, goods
in process, ingredients, packaging and other raw materials;

b. machinery, equipment and fixed assets;

c. contractual rights under various leases,
contracts, agreements, licenses, commitments, purchase orders and unfilled
sales orders;

d. copyrights, trademarks, patents, trade names
and advertising names and slogans;

e. trade secrets and "know-how";

f. books and records, including customer lists,
promotional materials, contracts, collection and credit records;

g. catalogs, pamphlets and advertising
materials;

h. claims against suppliers, including warranty
claims;

i. prepaid expense items, credit advance
payments, security deposits and rights of refunds relating to the inventory;

j. goodwill;

k. all transferable licenses and permits; and

l. all other assets, except as expressly
excluded in schedules to the agreement governing the transaction.

3. The purchase price for the assets shall be a
   lump sum of $$$$$ plus the estimated value of the inventory.

4. Seller currently operates as a wholesale
   manufacturer.

5. The purchaser of the assets will operate as
   a wholesale manufacturer and/or as a retailer of its manufactured products.

We
respectfully request an advisory ruling by the Auditing Division that the sales
tax consequences of the above-described transaction are as follows:

1. Pursuant to Utah Code Ann.� 59-12-104(M) and
   Rule R865-19-38S, the transaction constitutes the sale of an entire business to
   a single buyer and, therefore, qualifies as an isolated and occasional sale,
   exempt from the imposition of the Utah sales and use tax, except for registered
   motor vehicles.

2. All motor vehicles registered in the State
   of Utah which are transferred as part of the foregoing transaction will be
   subject to Utah sales and use tax.

3. Pursuant to Utah Code Ann.� 59-12-102 and
   Rule R865-19-29S, wholesale sales are sales of tangible personal property made
   by a wholesaler, retailer or other person to a retailer, jobber, dealer or to
   another wholesaler for resale. Utah law
   exempts wholesale sales from Utah sales and use tax. Seller is a wholesaler which sells product to other wholesalers
   or to retailers. Seller's assets,
   including its inventory, are being sold to an entity which will hold the
   inventory for sale to other wholesalers or to retailers. To the extent the sale of Seller's inventory
   may not qualify for sales and use tax exemption as an isolated or occasional
   sale, it will qualify as a wholesale sale, no different, except in volume, than
   any other wholesale sale that it has previously made in the ordinary course of
   its business.

Due
to the confidentiality of the negotiations, the parties prefer to submit this
request for an advisory ruling without disclosing the names of the
parties. In the event you are unable to
provide an advisory ruling without knowing the identity of the parties, we
would be pleased to meet with you and provide this information.

As
indicated, above, time is of the essence in completing this transaction. The proposed closing date is less than
fourteen days from the date of this letter.
Should you require further information concerning the proposed
transaction or wish to discuss our analysis of Utah law, please contact either
XXXXX or XXXXX at XXXXX.

Thank
You for your cooperation in this matter.

Sincerely,

XXXXX

March
20, 1992 Response from Tax
Commission

March
1, 1991 Letter from XXXXX of
XXXXX

XXXXX

Re:
Sales Tax on Information Services

Dear
XXXXX:

This
letter is in response to your request for a Tax commission ruling on whether
sales tax should be collected on the service to gather information from various
court proceedings and provide that information to credit bureaus.

The
Tax commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendations. The division's recommendations are as follows:

1. The sales tax law imposes tax on the sale of
   tangible personal property. The service to gather information from various
   courts and provide that information to credit bureau clients is not a taxable
   service. It is a professional service somewhat similar to legal or accounting
   services. If the same information is provided to a second client, it is
   considered the sale of tangible personal property and is subject to sales tax.

2. The client who is presently remitting sales
   tax to XXXXX should be contacted and given this information. They should be
   advised that they may apply to XXXXX for a refund of tax paid on nontaxable
   professional services during the past three years. XXXXX could then take credit on their sales tax return or apply
   to the Tax Commission for a refund.

Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.

For
The Commission

Joe
B. Pacheco

Commissioner

Roger
Tew

Utah
State Tax Commission

160
E 300 S

SLC,
UT 84134

Dear
Roger,

As
you can see from the enclosed letters, I was concerned as to our responsibility
to collect sales tax for gathering information from various courts for two
credit bureaus. But, unknown to me, the one started paying sales tax due to a
call I made to warn them that they might have to pay.

Apparently,
we have dutifully sent it on to the Tax Commission while I continued to think
they were not paying. The question I now have is what should I do? One customer
just by accident pays sales tax for the work involved in gathering information,
and the other does not. Should I tell the first customer not to continue paying
as per your letter of 1988?

Competition
is so high in the gathering business, that I hate to have them pay if they do
not need to, but at the same time, I do not want to take any chances myself by
not charging. I have another customer who does not pay and we specifically
collect different information for them. If we sell the same material to anyone
else, we then charge them sales tax as I discussed with your auditor.

Sincerely,

XXXXX