Does selling an entire hospital campus to a related parent company, and that parent's later resale of the same hospital to an unrelated third party, both qualify for Utah's isolated-or-occasional-sale sales tax exemption?

Plain-English summary

A Utah hospital company agreed to sell its acute-care hospital campus -- the land, buildings, improvements, and personal property that made up the hospital -- to its own parent corporation, with the transaction to close on a later agreed date. Before that closing even happened, the parent's board authorized reselling those same assets to an unrelated third-party buyer once a definitive agreement could be reached. The hospital company kept its medical clinic and insurance-business assets out of the sale, and the hospital itself ran some incidental retail operations inside the building (a gift shop, cafeteria, and barber shop). The company asked the Commission to confirm both the initial sale to the parent, and the parent's planned resale to the third party, would qualify for Utah's isolated-or-occasional-sale sales tax exemption.

The Commission agreed on both counts. Utah Code § 59-12-104(14) exempts isolated or occasional sales made by people not regularly engaged in business, and Rule R865-19S-38(D) defines "business" as an enterprise engaged in selling tangible personal property or taxable services. Reading those together, the exemption turns not on whether the seller sold literally everything it owns, but on whether the seller is acting as a "retailer" of the type of property being sold -- established Utah case law (citing Knowledge Data Systems v. Utah State Tax Commission and Husky Oil Co. v. State Tax Commission) holds that a seller isn't a retailer if it doesn't regularly deal in, or hold itself out as dealing in, that kind of property. Selling an entire hospital campus plainly isn't something a company that operates medical services does in its ordinary course of business, so the sale to the parent qualified as an isolated sale, even though the hospital company retained other, unrelated assets and the hospital had small ancillary retail operations. The Commission also flagged an independent basis for exempting the first sale: Utah informally follows the federal 80% common-control test for related-party transfers in a business reorganization, and here the ultimate parent owned and controlled both the seller and the buyer 100%, both before and after the sale, so real ownership never actually changed hands.

The subsequent resale by the parent to the unrelated third party qualified for the same underlying reason -- the parent, like the original hospital company, doesn't regularly engage in or hold itself out as being in the business of selling hospitals or similar property, so that sale is isolated too, independent of the related-party reorganization analysis that covered the first transfer.

What this means for you

Businesses selling an entire facility, division, or business unit

The key question under Utah's isolated-sale exemption isn't "did you sell 100% of everything you own," but "is selling this type of asset something you do as your regular business." A company that sells one whole facility or division it operated -- even while keeping other unrelated business lines -- can still qualify as an isolated seller of that facility, as long as dealing in that kind of property isn't its ordinary trade.

Corporate groups restructuring assets among commonly-controlled affiliates

If a sale is really just moving an asset within a group under common ownership (Utah informally applies the federal 80%-control test here), that's an independent path to isolated-sale treatment even apart from the general "not a retailer" analysis -- useful for pre-sale reorganizations where an asset moves to a holding entity before eventually being sold to an outside buyer.

Sellers whose facility includes incidental retail operations

This ruling didn't have the Commission carve out or separately address the hospital's gift shop, cafeteria, and barber shop inventory -- the exemption analysis focused on the sale of the hospital campus as a whole. If your facility includes retail operations of the type you do regularly sell (unlike this hospital's incidental in-house shops), get specific advice, since Rule R865-19S-39(E) denies the exemption where sales are part of a series sufficient to show the seller deals in that type of item.

Accountants and tax professionals

Note the vehicle carve-out the Commission mentioned generally: Rule R865-19S-39(C) excludes vehicles required to be titled or registered in Utah from the isolated-sale exemption, regardless of the broader business-sale context -- worth flagging separately if a facility sale includes titled vehicles.

Common questions

Q: Does a business have to sell literally everything it owns to qualify for the isolated-sale exemption?
A: No. The test is whether the seller regularly deals in, or holds itself out as dealing in, the type of property being sold -- not whether every asset the company owns was part of the sale.

Q: Does selling an asset to a related, commonly-controlled affiliate qualify as an isolated sale?
A: It can, independently of the general "not a retailer" test -- Utah informally applies the federal 80% common-control standard, and a transfer where the same parent owns both sides both before and after can qualify as a reorganization-related isolated sale.

Q: If a related-party buyer later resells the same assets to an outside third party, does that resale also qualify?
A: In this ruling, yes -- for the same underlying reason as the first sale: the reseller also wasn't regularly engaged in selling that type of property.

Q: Does this ruling apply to my company's asset or business sale?
A: Not automatically. It's a private letter ruling binding only on the Commission for the taxpayer and facts described, and it's a 1995-era ruling citing statute numbering that has since changed. Consult a Utah tax professional and verify current law.

Citations and references

Statutes, rules, and cases (1995-era numbering -- since renumbered/amended):

• Utah Code Ann. § 59-12-104(14) (1995) (isolated or occasional sales exemption)
• Utah Admin. Rule R865-19S-38(D) (definition of "business")
• Utah Admin. Rule R865-19S-38 (sale of an entire business to a single buyer is isolated/occasional)
• Utah Admin. Rule R865-19S-39(E) (used fixtures/equipment; series-of-sales limitation)
• Utah Admin. Rule R865-19S-39(C) (vehicles requiring titling/registration excluded)
• Knowledge Data Systems v. Utah State Tax Commission, 865 P.2d 1387 (Utah Ct. App. 1993)
• Husky Oil Co. v. State Tax Comm'n, 556 P.2d 1268 (Utah 1976)
• L.A. Young Sons Construction Co. v. State Tax Commission, 23 Utah 2d 84, 457 P.2d 973 (1969)
• Geneva Steel Co. v. State Tax Commission, 116 Utah 170, 209 P.2d 208 (1949)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/95-072.htm

Original ruling text

95-072

Response
October 17, 1995

Request

Utah
State Tax Commission

210
North 1950 West

Salt
Lake City, Utah 94134

Attention:
Mr. Val Oveson, Chairman State Tax Commission

Re:
Request for Advisory Opinion

Dear
Mr. Oveson:

On
behalf of the taxpayer noted above, we respectfully request an Advisory Opinion
on the taxability for sales tax purposes of the transactions described below.

STATEMENT
OF FACTS

XXXXX
of Utah, XXXXX (the �Company�) entered into a contract effective as of XXXXX
for the sale of its acute care hospital to its parent, XXXXX with the transaction
to close at a mutually agreed upon date. In June of 1995 the Board of Directors
of XXXXX authorized the sale of these same assets to a third party. XXXXX
contemplates that it will resell these assets as soon as it can consummate a
definitive agreement with the buyer. XXXXX is a corporation commercially
domiciled in California and also in the business of operating acute care
medical facilities. XXXXX, in turn, is l00% owned and controlled indirectly by
XXXXX.

The
assets to be sold are all of the rights, title and interests of XXXXX of Utah,
Inc. in the land, buildings, improvements and personal property which make up
the hospital campus owned by XXXXX of Utah, XXXXX located in XXXXX. The company
will retain tangible and intangible assets used by its medical clinics and
insurance businesses. Certain of these assets may also be disposed of in a
separate transaction.

The
hospital operates a public gift shop, cafeteria and barber shop within the
building which make retail sales. Although the Company may occasionally sell
unneeded or obsolete equipment, such property is not of a type regularly sold
in the Company's service business.

The
Company has filed a Notice of Transaction with the State of Utah
Insurance Department with respect to the initial transaction described
above. If the Company is required to restructure the transaction, we
will notify you.

ISSUES
FOR DETERMINATION

1. Does the initial transaction between the
   Company and XXXXX, fall within the general rule for the sales tax exemption for
   an isolated or occasional sale? Alternatively, if the transaction does not
   qualify for exemption under the general rule, then does it qualify as an
   isolated sale as a result of a business reorganization between related parties?

2. Would the resale of the same assets by XXXXX
   to a third party also fall within the general rule for a sales tax exemption
   for an isolated or occasional sale?

SUPPORT
FOR POSITION

Issue
1:

�Any
sale of an entire business to a single buyer is an isolated or occasional sale,
and no tax applies to the sale of any assets made part of such a sale.� (Reg.
Rule R865-19S-38 UT STR CCH lT 65-250).

Under
a literal reading of the statute, the sale of the tangible personal property
within the hospital might be considered to be subject to tax. The fact that the
entire existing business operations are not sold, might appear to cast doubt on
the applicability of the occasional sale exemption.

However,
in a line of decisions, the Utah state courts have looked into the seller's
activities in connection with the property sold to determine whether the seller
is a �retailer.� The courts have not considered the seller a �retailer� if the
person is neither regularly engaged in or holding himself out as engaged in the
business of selling the same or similar property. See e.g. Knowledge Data
Systems v. Utah State Tax Commission. Utah court of Appeals, N. 930323-CA,
12/21/93, 865 P2d 1387.

In
the Knowledge decision, the court ruled that the purchase of used computer
equipment from University of XXXXX (the �University�) and XXXXX (�XXXXX�) was
an exempt transaction for purposes of the complementary use tax. The Utah court
concluded that the University and XXXXX were not �retailers� in the business of
selling new or used computer hardware. Thus, the sales of the computer
equipment were isolated or occasional sales exempt from tax.

Knowledge reaffirms other decisions
that the �isolated or occasional sales� exemption applies when the seller makes
a sale of property, �not of the type. . .regularly sold in the course of that
seller's retail or wholesale business.� See e.g. Husky Oil Co. v..State Tax
Commissioner. 556 P.2d 1268,1269 (Utah 1976). In XXXXX__,__ the seller,
XXXXX, sold one of its used assets to XXXXX. Even though ...�XXXXX did not sell
its entire business to XXXXX (but only a refinery reformer) and further, XXXXX
was in a retail and wholesale business when it sold the used reformer to
XXXXX...�, the court ruled that the sale was an isolated and occasional sale.

On
two other prior occasions, the Court applied the same principle - that the
legislature did not intend to tax the sale of property sold as a component
part of the sale of an integrated business. L.A. Young Sons Construction
Co. v. State Tax Commission, 23 Utah 2d 84, 85, 457 P.2d 973, 974 (1969)
and Geneva Steel Co. v. State Tax Commission, 116 Utah 170, 209 P.2d 208
(1949).

Applied
to the facts here, the sale of the Utah hospital is obviously not in the ordinary
course of the Company's medical services business. Consequently, this sale is
an isolated sale exempt from Utah sales tax.

In
addition, the state informally follows the federal 80% control test in defining
sales to related parties in a business reorganization. Transfers in such a
business reorganization may also be treated as isolated sales. Here, ultimate
ownership of the assets have not changed because XXXXX owns and controls 100%
of both parties, both before and after the transaction. Therefore, the transfer
of the hospitals falls within the exemption.

Issue
2:

We
believe that the subsequent sale of the assets to a third party by XXXXX also
falls within the general rule for an occasional isolated sales exemption for
the same reasons that it applies to the Company. XXXXX, like the Company, is
not a �retailer� because they neither regularly engage in or hold themselves
out as engaged in the business of selling the same or similar property.

CONCLUSIONS

The
initial sale of assets by the Company to XXXXX, is an isolated occasional sale.
The subsequent sale of the same assets by XXXXX, to a third party is also an
isolated occasional sale.

STATEMENT
WITH RESPECT TO PREPARATION

This
request was prepared by the undersigned on the basis of information made
available to him. All statements of fact contained herein are true, correct and
complete to the best of his knowledge and belief.

We
respectfully seek your Opinion confirming our conclusions that the transactions
described are exempt from sales tax. If your Commission should consider ruling
adversely to either of our two requests, we request that we be given the
opportunity to meet or otherwise discuss these requests with your Commission.

Any
questions regarding this request for Advisory Opinion may be directed to my
attention. Time is a factor in these transactions, and your prompt response
would be appreciated.

Very
truly yours,

XXXXX

RE:
Advisory Opinion - Application of sales tax to the sale of XXXXX assets.

Dear
XXXXX,

We
have received your request for an advisory opinion as whether a sale by XXXXX
of its business assets constitutes an isolated and occasional sale.

Under
section 59-12-104 (14) of the Utah Code, isolated or occasional sales by
persons not regularly engaged in business are exempt from sales tax. Utah
Administrative Rule R865-19S-38 (D) construes the term �business� as an
enterprise engaged in selling tangible personal property or taxable services.
Read together, these regulations exempt an isolated sale when it is made by a
person who is not pursuing his regular course of business of selling tangible
personal property. The sale by a business of its used fixtures, machinery, and
equipment is considered an isolated or occasional sale unless the sale is one of
a series of sales sufficient in number to indicate the seller deals in the sale
of such items. Utah Admin. R. R865-19S-39 (E). This exemption does not apply to
the sales of vehicles which are required by Utah law to be titled or
registered. Utah Admin. R. R865-19S-39 (C).

From
the facts presented in your letter, XXXXX sale of business property and
equipment through reorganization and sale to a third party appear to qualify
for this exemption. If we can answer any other questions, please let us know.

For
the Commission,

Alice
Shearer

Commissioner