Did buying about 80% of an asphalt company's assets in one transaction qualify as an exempt occasional sale?

Subject

Purchase of substantially all asphalt-business assets was an exempt occasional sale

Plain-English summary

Virginia treated the buyer's acquisition of an asphalt business as an exempt occasional sale. The asset purchase agreement transferred the asphalt plant, construction equipment, motor vehicles, office equipment and furniture, small tools, and the remaining tangible and intangible assets of the asphalt operations.

The seller retained some property to establish a different type of operation. But its 2005 federal return showed that approximately 80% of its total assets were sold to the taxpayer.

Based on the agreement and tax-return schedule, the Department found that the transaction transferred substantially all of the seller's assets. The occasional-sale exemption applied, and the remaining assessment was abated.

What this means for you

• A one-time sale of all or substantially all business assets can qualify for Virginia's occasional-sale exemption.
• Retaining some property did not defeat the exemption where the transferred assets still represented substantially all assets.
• Asset schedules, tax returns, and the purchase agreement were central evidence.
• A series of sales significant enough to constitute a regular activity falls outside the quoted definition.

Common questions

What percentage of assets was transferred?

The seller's tax-return schedule showed approximately 80% of total assets.

Did the seller retain anything?

Yes, it retained assets for operations dissimilar to the asphalt business.

What happened to the assessment?

Virginia abated the remaining balance.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-609.10(2).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-166

Original ruling text

October 23, 2009

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the period May 2003 through April 2006. I apologize for the delay in responding to your appeal.

FACTS

By the terms of an Asset Purchase Agreement, the Taxpayer purchased the business assets of an asphalt company in Virginia (the "Seller"). The Taxpayer contends that it purchased in a single transaction substantially all of the tangible personal property that was used by the seller in its manufacturing and sale of asphalt. To this end, the Taxpayer maintains that the transaction at issue is an exempt occasional sale and the assessment should be revised accordingly.

DETERMINATION

Virginia Code § 58.1-609.10 2 provides that the retail sales and use tax is not imposed on an occasional sale, as defined in Va. Code § 58.1-602. The statute defines 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 of any 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 significant in number, scope and character to constitute an activity requiring the holding of a certificate of registration.

The Asset Purchase Agreement provides that the seller sold to the taxpayer certain tangible personal property consisting of the asphalt plant, construction equipment, motor vehicles, office equipment and furniture, small tools and all remaining tangible and intangible assets of the asphalt operations. The agreement also provided that certain assets were excluded for the purpose of the Seller's establishment of operations dissimilar from that of the asphalt operations. According to Schedule L of the Seller's federal income tax return for 2005, the Seller sold approximately 80% of its total assets to the Taxpayer. Based on the documents presented, I find that the sale of the assets constitutes substantially all of the assets of the Seller and that the transaction qualifies as an exempt occasional sale. Accordingly, the balance of the Department's assessment will be abated.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1222242296.Q