Was an automotive company's purchase of substantially all assets from three related store operators exempt as an occasional sale?

Plain-English summary

Virginia treated the automotive-store asset acquisition as an exempt occasional sale because the agreement transferred all or substantially all assets of the sellers' businesses. The buyer acquired equipment, inventory, furniture, fixtures, supplies, customer and supplier lists, business records, intangible property rights, and a noncompete agreement from three related entities that operated retail automotive service and repair stores.

Virginia's occasional-sale definition included a sale or exchange of all or substantially all business assets, provided the transaction was not one of a series of sales and exchanges extensive enough to constitute a business activity requiring registration.

The Department compared the transaction to P.D. 96-39, where the transfer of a corporation's full Virginia operation—including real and tangible personal property—qualified as an occasional sale. Based on the submitted agreement, it reached the same result here.

The Department removed fixed-asset line items 4 through 9 from the audit exception list, adjusted the assessment, and said the taxpayer would receive a refund of the related tax, penalty, and interest, plus accrued refund interest.

What this means for you

• A genuine transfer of all or substantially all business assets can qualify for Virginia's occasional-sale exemption.
• The complete agreement and the range of transferred operating, record, customer, and intangible assets matter.
• Repeated or piecemeal sales can fall outside the definition if they amount to an activity requiring registration.
• An audit refund depends on proving that the assessed assets were part of the qualifying transaction.

Common questions

Q: Did the transaction qualify merely because fixed assets were sold?
A: No. The ruling relied on the agreement's transfer of all or substantially all assets of the sellers' businesses.

Q: Did inventory and intangible rights count in the analysis?
A: Yes. The ruling described inventory, lists, records, intangible property rights, and the noncompete agreement among the transferred assets.

Q: What audit relief was granted?
A: Six fixed-asset line items were removed, with a refund of the associated tax, penalty, interest, and accrued refund interest.

Citations and references

• Va. Code §§ 58.1-602, 58.1-609.10 2, and 58.1-1824.
• Virginia Public Document 96-39 (April 5, 1996).

Subject

Occasional Sale; Fixed Assets Exceptions

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-22

Original ruling text

February 20, 2013

Re: § 58.1-1824 Application: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you submit a protective claim for refund of overpaid sales and use taxes for the period March 2007 through February 2010 on behalf of * (the “Taxpayer”). I apologize for the delay in the Department’s response.

FACTS

The Taxpayer is in the business of selling tires, accessories and related automotive services. During the audit period, the Taxpayer entered into an asset purchase agreement with three related entities (the “Sellers”). The Sellers owned and operated retail automotive service and repair stores (the “Stores”). The Taxpayer agreed to purchase, and the Sellers agreed to sell, all equipment, inventory, customer lists and other personal property located at or related to the Stores. Acquired assets include all furniture, fixtures, equipment and supplies owned by the Sellers, all inventory, all customer and supplier lists, all business records, correspondence, files, and other related books and records, as well as all intangible property and intangible property rights. The asset purchase agreement includes a non-compete agreement between the Taxpayer and the Sellers. The Taxpayer contests the assessment of tax on certain fixed assets related to the asset purchase agreement, contending that the sale at issue is an occasional sale and not subject to the retail sales and use tax.

DETERMINATION

Virginia Code 58.1-609.10 2 states that, the retail sales and use tax does not apply to “An 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 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.

In Public Document 96-39 (4/5/96), the taxpayer was an out-of-state corporation that had its business operations physically located in Virginia. The owners were planning to form an out-of-state limited liability company (LLC) and to sell all of the Virginia corporate business operation, to include real and tangible personal property, to the LLC. The assets were going to be sold at fair market value and were going to consist of all the inventory, furniture, fixtures, machinery and equipment, and land and buildings. Based upon the information provided, it was determined that the sale at issue constituted the sale of all or substantially all the assets of the business. As such, it was determined that the sale at issue was an occasional sale that was exempt from the retail sales and use tax.

Based upon the information provided and the terms of the asset purchase agreement, the sale at issue is for the sale of all or substantially all the assets of the Sellers’ business. In accordance with the aforementioned authorities, the sale at issue is deemed an occasional sale that is not subject to the retail sales and use tax. Accordingly, line item numbers 4, 5, 6, 7, 8 and 9 will be removed from the Fixed Assets Exceptions list and the audit assessment adjusted accordingly. The Taxpayer will receive a refund of tax, penalty and interest paid with respect to these line items, plus refund interest accrued to date.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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,

Craig M. Burns

Tax Commissioner

AR/1-5050852072.P