Was a medical laboratory's final business-asset sale occasional when it disclosed three earlier transactions?

Plain-English summary

A California medical laboratory sold its business assets to a California medical center. The laboratory analyzed medical samples and provided reports, did not hold a seller's permit, and identified four sales: $100 of laboratory equipment, $252 of used blood, a $200 registered on-road vehicle, and the final $262,041.84 sale of business assets.

Staff said the relevant question was not merely whether the laboratory had made other taxable retail sales. Any sale of tangible personal property, including an out-of-state or resale transaction, could affect whether the final sale was part of a series requiring a seller's permit. The opinion therefore assumed there were no other sales anywhere.

The registered vehicle did not count toward the series-of-sales test under Regulation 1595(a), and human blood was not taxable under section 33. That left two countable sales: the $100 equipment sale and the final business-asset sale. Staff concluded that the final sale was not part of a sufficient series to require a seller's permit.

The final asset sale was therefore an exempt occasional sale under sections 6006.5(a) and 6367, except for any vehicles, vessels, or aircraft included in it.

Request, four-sale record, conditions, and source limits

Supervising Tax Counsel David H. Levine answered the medical center's financial-operations director on August 29, 1996. The letter quotes, but does not reproduce separately, a July 12 request about the center's recent purchase of all assets from a California laboratory service provider. The request itself prints CRTC §§6606.5 and 6367; the opinion applies section 6006.5 and does not explain the extra 6.

The laboratory analyzed medical samples and supplied reports. According to the quoted request, it had no California seller's permit and had made no other taxable retail sales during the prior twelve months. Its list contained a $100 laboratory-equipment sale, $252 of used blood sold to another laboratory, one $200 on-road vehicle requiring DMV registration, and $262,041.84 of tangible personal property in the final all-assets transaction. The last category included equipment, computer hardware and software, vehicles, and supplies.

Levine said taxable California retail sales were the wrong universe for the count. Under sections 6014 and 6066 and Regulation 1699(a), a person selling property of a kind taxable at retail could be a seller even if every transaction was for resale. A final California business sale also did not become occasional merely because every earlier sale occurred outside California.

The rest of the opinion therefore assumed the four listed transactions were the laboratory's only tangible-property sales anywhere. The letter twice says it does not apply if that assumption is incorrect and invites a new request identifying every other retail or resale transaction inside or outside California.

Regulation 1595(a) treated three or more sales for substantial amounts in twelve months, or a substantial number for relatively small amounts, as permit-requiring activity. The $200 registered-vehicle sale did not count because the laboratory was not described as permit-required by the number of its vehicle sales. The $252 blood sale did not count because section 33 made human-blood sales nontaxable and section 6014 excluded property of a type never taxable even at retail.

That left the $100 equipment transfer and final asset sale: two countable sales. On the stated assumption, the final sale was not part of a sufficient series and qualified under sections 6006.5(a) and 6367. The conclusion expressly withheld the exemption from any vehicles, vessels, or aircraft included in that transaction.

The PDF omits the separate July 12 request and attachments, asset-purchase agreement, transaction date, asset schedule and valuation support, invoices, payment and delivery records, computer-software classification, blood type and transfer records, vehicle identity and registration, evidence of all earlier sales, resale certificates, laboratory and medical-center tax records, permits, returns, claimed or paid tax, agency follow-up, audit, assessment, refund claim, appeal, and later outcome.

The live annotation preserves the business descriptions, no-permit assertion, four-sale framework, substantial- and small-sale tests, registered-vehicle and blood exclusions, two-sale count, occasional-sale result, and August 29, 1996 date. It prints the blood transaction as $250 rather than the letter's $252, rounds $262,041.84 to $262,042, and states the final-sale exception only for vehicles rather than the letter's vehicles, vessels, or aircraft. It also omits the July request and its section-number typo, all-sales-anywhere assumption and repeated inapplicability warning, resale and out-of-state analysis, full statutory and regulation trail, missing records, outcome gap, and reliance status.

What this means for you

Service businesses selling their assets

A business without a seller's permit may qualify for occasional-sale treatment, but every tangible-property sale matters, whether taxable, for resale, in California, or elsewhere.

Medical and laboratory businesses

The historical analysis excluded human blood and one registered-vehicle sale when counting the series, but it did not exempt vehicles, vessels, or aircraft included in the final asset sale.

Accountants and tax professionals

Build a complete sales history before applying the exemption. The letter expressly became inapplicable if the laboratory had made any unreported sale of tangible personal property.

Common questions

Q: How many sales did staff count?

A: Two: the $100 laboratory-equipment sale and the final sale of the business assets.

Q: Why was the $252 blood sale excluded?

A: Section 33 made sales of human blood nontaxable, so staff did not count it for this purpose.

Q: Why was the $200 vehicle sale excluded from the count?

A: It involved an on-road vehicle required to be registered with the Department of Motor Vehicles.

Q: Did the exemption cover vehicles in the final asset sale?

A: No. Staff expressly excluded vehicles, vessels, and aircraft from its occasional-sale conclusion.

Q: What fact could invalidate the opinion?

A: Any additional sale of tangible personal property, whether retail or resale and whether inside or outside California.

Q: Did the letter and live annotation state the same amounts?

A: No. The letter states $252 for used blood and $262,041.84 for the final tangible-property value; the annotation prints $250 and $262,042.

Q: Did the final-sale exception cover only vehicles?

A: No. The supporting letter excludes vehicles, vessels, and aircraft, although the live annotation mentions only vehicles.

Q: Did staff verify that these were the laboratory's only sales anywhere?

A: No. The answer assumes that fact and says the opinion is inapplicable if the assumption is wrong.

Q: Does the source show whether the parties applied the exemption?

A: No. It supplies no later response, return, audit, tax payment, claim, or outcome.

Citations and references

• California Revenue and Taxation Code §§ 33, 6006.5(a), 6014, 6066, and 6367
• California Sales and Use Tax Regulations 1595(a) and 1699(a)
• July 12, 1996 request — quoted in the response but not separately included
• Asset agreement and schedule, prior-sale evidence, blood and vehicle records, tax filings, agency follow-up, and later outcome — described or implicated but not included

Verbatim support

From the official August 29, 1996 Supervising Tax Counsel letter:

However, as discussed above, this is not the relevant test. The relevant test is whether S--- had made any other sales of tangible personal property, whether those sales were inside or outside California and whether those sales were at retail or were for resale.

The remainder of this opinion is based on the assumption that S--- made no other sales of tangible personal property anywhere except for the four sales listed in your letter. If this assumption is incorrect, this opinion does not apply.

This means that, for purposes of determining whether S---’s final sale of assets was one of a series of sales requiring the holding of a seller’s permit, S--- made a total of two sales of tangible personal property.

As such, the final sale was not one of a series of sales requiring the holding of a seller’s permit, and we therefore conclude that S---’s final sale of assets (other than its sale of any vehicles, vessels, or aircraft included in that final sale) was an exempt occasional sale under Revenue and Taxation Code sections 6006.5(a) and 6367.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0673.250
• Original supporting opinion: 395.0673.250 PDF

Original ruling text

395.0673.250

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 445-5550
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

August 29, 1996

────────
E. L. SORENSEN, JR.
Executive Director

Mr. M--- M--Director of Financial Operations
J--- --- Medical Center
XXXX --- --- Road
--- ---, California XXXXX-XXXX
Re:

S--- C--- S--- L--- Inc.
J--- --- Medical Center
Account No. SR --- XX-XXXXXX

Dear Mr. M---:
This is in response to your letter dated July 12, 1996 in which you ask whether a sale of assets to J--- --- Medical Center is an exempt occasional sale. You state: “J--- --- Medical Center is a hospital located in California. J--- --Medical Center has recently purchased the assets of S--- C--- S--- L--- Inc. (S---), a laboratory service provider located in California that does not hold a California seller’s permit. We believe S---’s sale of the assets, with the exception of vehicles purchased in the transaction, to J--- --- Medical Center may be exempt as an occasional sale (purchase). We request that the State Board of Equalization (SBE) provide written advice to clarify whether the sale of all of S---’s assets to J--- --- Medical Center is an exempt occasional sale pursuant to CRTC §§6606.5 and 6367, and 18 Cal.Code Reg. §1595. “S--- is in the business of analyzing medical samples and providing reports to its clients. S--- has not made retail sales of tangible personal property taxable under the California sales and use tax law during the 12 months preceding the sale of assets to J--- --- Medical Center, with the exception of the following activities:

Mr. M--- M---

-2-

August 29, 1996
395.0673.250

“Amount

Description of Sale

$100

Laboratory equipment

$252

Used blood sold to another laboratory (not held or
used in a selling activity)

$200

One vehicle for on-road use that is required to be
registered with the Department of Motor Vehicles

$262,041.84 (value of
tangible personal
property)

All assets of the business in one transaction to J----- Medical Center, including equipment, computer hardware and software, vehicles and supplies”

The exemption about which you inquire is provided by Revenue and Taxation Code section 6367 for occasional sales and is explained in subdivision (a) of Regulation 1595. As relevant to your inquiry, “occasional sale” is defined by subdivision (a) of Revenue and Taxation Code section 6006.5 as: “A sale of property not held or used by a seller in the course of activities for which he or she is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if the activities were conducted in this state, provided the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which he or she is required to hold a seller's permit or would be required to hold a seller's permit if the activity were conducted in this state.” Any person who is a seller is required to hold a seller’s permit. (Rev. & Tax. Code § 6066.) The term “seller” includes every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are subject to sales tax. (Rev. & Tax. Code § 6014, Reg. 1699(a).) That is, even if a person’s sales are all for resale, that person is a seller and is required to hold a seller’s permit. That seller’s one retail sale of its entire business would not be an occasional sale under subdivision (a) of section 6006.5. Furthermore, even if all of that person’s sales were made outside California except for the final sale of the business, that final sale would not qualify as an occasional sale. You list four sales made by S---, but it is not clear whether these are the only sales of tangible personal property made by S---. Rather, you state that S--- had not made other retail sales of tangible personal property taxable under California law. However, as discussed above, this is not the relevant test. The relevant test is whether S--- had made any other sales of

Mr. M--- M---

-3-

August 29, 1996
395.0673.250

tangible personal property, whether those sales were inside or outside California and whether those sales were at retail or were for resale. The remainder of this opinion is based on the assumption that S--- made no other sales of tangible personal property anywhere except for the four sales listed in your letter. If this assumption is incorrect, this opinion does not apply. As explained in subdivision (a) of Regulation 1595, a person who makes three or more sales for substantial amounts in any period of 12 months is required to hold a seller’s permit, as is a person who makes a substantial number of sales for relatively small amounts. Sales of vehicles required to be registered or subject to identification under the Vehicle Code are not counted in determining the number of sales for this purpose when the seller is not a person required to hold a permit by virtue of the number of its sales of vehicles. Thus, S---’s sale of the vehicle required to be registered with the Department of Motor Vehicles is excluded from the calculation. In addition, sales of property of a type which would never be subject to sales tax (even at retail) are also not counted for these purposes. (Rev. & Tax. Code § 6014.) Sales of human blood are not subject to tax. (Rev. & Tax. Code § 33.) This means that, for purposes of determining whether S---’s final sale of assets was one of a series of sales requiring the holding of a seller’s permit, S--- made a total of two sales of tangible personal property. As such, the final sale was not one of a series of sales requiring the holding of a seller’s permit, and we therefore conclude that S---’s final sale of assets (other than its sale of any vehicles, vessels, or aircraft included in that final sale) was an exempt occasional sale under Revenue and Taxation Code sections 6006.5(a) and 6367. We hope this answers your question. However, as discussed above, this opinion is specifically based on the facts stated in your letter and the assumptions made above. If our assumptions are incorrect, for example, if S--- made any sales other than those specifically discussed above, this opinion does not apply. If such is the case and you wish an opinion applicable to the actual facts of the transactions, please write again and describe with specificity the nature and types of sales made by S---, whether at retail or for resale, and whether inside or outside California. Sincerely,

David H. Levine
Supervising Tax Counsel
DHL/cmm
cc:

--- District Administrator (--)