Did Virginia's occasional-sale exemption cover business assets bought during a bankrupt seller's five-month liquidation and reorganization?

Subject

Five-month bankruptcy liquidation qualified for the occasional-sale exemption

Plain-English summary

Virginia held that tangible property bought with part of a bankrupt consulting firm's business qualified for the occasional-sale exemption. The seller's bankruptcy court authorized asset auctions, and the buyer acquired the public-services practice and associated Virginia property.

The seller disposed of business divisions to five different purchasers over approximately five months under a liquidation and reorganization plan. Its North American operations were closing or closed, although some branded consulting entities continued in other regions.

Virginia compared the arrangement to Steuart Petroleum, where five sales over nine months completed an orderly liquidation of an entire business division. Multiple buyers and transactions did not defeat the exemption when they implemented the overall liquidation plan rather than piecemeal ordinary sales.

The acquired tangible personal property was therefore exempt, and the buyer had no Virginia retail sales and use tax liability on the transaction.

What this means for you

• An occasional sale can include an orderly liquidation completed through several transactions.
• Multiple buyers do not automatically defeat the exemption.
• The overall plan, timing, business divisions sold, and remaining operations matter.
• A contract assigning tax responsibility does not replace the substantive exemption analysis.

Common questions

Did the seller dispose of everything in one sale?

No. Five entities bought portions over about five months.

Did some business activity continue?

Yes. The ruling noted continuing branded consulting services outside North America.

Did the buyer owe tax on the acquired Virginia property?

No. Virginia treated the transaction as an exempt occasional sale.

Citations and references

• Va. Code §§ 58.1-602 and 58.1-602.10, as cited in the ruling.
• 23 VAC 10-210-1080(B).
• Steuart Petroleum Co. v. Virginia Department of Taxation, 44 Va. Cir. 392 (1998).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-186

Original ruling text

December 18, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear **:

This is in response to your letter submitted on behalf of** (the “Taxpayer”), in which you request a ruling regarding the application of the occasional sale exemption to tangible personal property acquired in connection with the purchase of business entities.

FACTS

The Taxpayer is a limited liability partnership engaged globally in providing consulting services. The Taxpayer acquired another entity’s (the “Seller”) public services practice in 2009. The Seller is in bankruptcy and was granted permission by the bankruptcy court to auction its assets. The Taxpayer acquired certain tangible personal property in Virginia as part of the acquisition. Per the terms of the sales agreement, the Seller assumed full responsibility for sales tax resulting from the sale. It is the Taxpayer’s understanding that the Seller has taken the position that the sale at issue constitutes an occasional sale, and the Seller does not intend to remit Virginia sales and use tax with respect to the tangible personal property sold as part of the transaction.

Citing Va. Code § 58.1-602 (definition of occasional sale), Title 23 of the Virginia Administrative Code (VAC) 10-210-1080, and Steuart Petroleum Co. v. Virginia Department of Taxatio , 44 Va. Cir. 392 (1998), the Taxpayer contends that the occasional sale exemption applies to the sale of tangible personal property at issue. The Taxpayer states that the Seller basically liquidated all of its assets within a fairly short period of time (May 2009 to September 2009) 1 . The Taxpayer also states that the Seller’s bankruptcy plan calls for complete liquidation of the corporation, and that there will be no remaining business or assets or business activity, short of the final wrap up of the bankruptcy estate.

RULING

Virginia Code § 58.1-602.10 2 provides, in pertinent part, the retail sales and use tax does not apply to “[a]n occasional sale, as defined in § 58.1-602.”

Virginia Code § 58.1-602 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 or all or substantially all the assets of any business and the reorganization or liquidation of any business, provided such sale or exchange constitute an activity requiring the holding of a certificate of registration.

Title 23 VAC 10-210-1080 B further defines occasional sale as:

1. A sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales; or

2. 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. The words “not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration” mean that a registered dealer is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells; or

3. The sale or exchange of all or substantially all the assets of any business; or

4. The reorganization or liquidation of any business.

At issue in the Steuart Petroleum case was the sale by the taxpayer of 24 retail service stations/convenience stores owned and operated by the taxpayer’s motor fuels division in Virginia. As the taxpayer was unable to locate a single purchaser for all of the stores, the taxpayer sold the stores in five separate transactions to five separate purchasers over a nine-month period. The taxpayer was audited by the Department and assessed tax on the sale of tangible personal property associated with the sale of the stores. Citing the occasional sale exemption, the taxpayer appealed the assessment asserting that the exemption applied to the tangible personal property at issue. Following the issuance of the Department’s determination that upheld the tax assessment, the taxpayer appealed to the circuit court. The court stated that the taxpayer was a corporation that sold off all the assets of a division pursuant to an orderly plan of liquidation. The court further stated there was no piecemeal disposition, and the five transactions were made during a nine month disposition of assets. Accordingly, the court held that the occasional sale exemption applied to the transactions at issue, and the taxpayer was not liable for the tax on the tangible personal property at issue.

The Seller in this instance filed for Chapter 11 bankruptcy, which is typically used to reorganize a business. The Seller’s website indicates that its North American operations are closing or have closed . The website further indicates that “several entities continue to provide consulting services” under its “brand in Europe, Latin America and the Asia Pacific region” 3 . The Seller’s divisions were sold off in an orderly plan of liquidation and reorganization. According to the facts presented, the sales took place over a period of five months, during which portions of the Seller’s business were sold to five separate entities. Pursuant to the holding in the Steuart Petroleum case, Va. Code § 58.1-602 and Title 23 VAC 10-210-1080, the sales at issue are deemed occasional sales. As such, the tangible personal property acquired in the transactions is exempt in accordance with the occasional sale exemption. Accordingly, the Taxpayer is not liable for the retail sales and use tax on the purchase of the tangible personal property acquired through the purchase of a portion of the Seller’s business.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3937621509

1..Citing the Seller’s website and/or published articles, the Taxpayer states that the Seller sold portions of its business to 5 separate entities

3 Id.