Was a contribution of substantially all phosphate-business assets to a joint venture exempt as a resale or occasional sale?

Subject

Occasional Sale

Plain-English summary

The Department approved exemptions for some—but not all—assets contributed to the phosphate joint venture. The venturers transferred substantially all of their mining, chemical-processing, and distribution business assets in exchange for joint-venture interests, with no cash or other property exchanged.

Inventories of phosphate chemicals and salvage items held for later resale qualified for the resale exemption if the Corporation, subsidiary, and Partnership obtained the necessary resale certificates for each step of the transfer.

The usable operational assets qualified as an occasional or isolated sale if none of the transferring entities had sold all or a substantial portion of its phosphate-business assets more than once in the previous 12 months or more than twice in any other 12-month period. The venturers' recurring but comparatively small salvage sales did not make them sellers of their usable operating assets.

Aircraft, boats, mobile homes, motor vehicles, and other property required to be titled, licensed, registered, or documented remained subject to sales or use tax.

What this means for you

The ruling separated resale inventory from operational assets and titled property. A transfer of substantially all business assets did not receive one blanket classification; exemption depended on certificates, prior transfer frequency, the type of asset, and the entity making each transfer.

Common questions

Q: Did inventory automatically qualify for resale treatment? No. The necessary resale certificates had to be obtained.

Q: Did prior scrap and salvage sales defeat the occasional-sale exemption for operating assets? No, because the ruling treated those as a different commodity class from the usable operational assets.

Q: Were titled vehicles exempt? No.

Q: Did the ruling decide documentary stamp or intangible tax on real property? No. Those taxes were outside the requested ruling.

Citations and references

• Fla. Stat. § 212.05(1)(a) — retail sales of tangible personal property
• Fla. Stat. §§ 212.02(16), 212.02(15)(a), 212.02(2) — sale, resale, and occasional sales
• Fla. Admin. Code r. 12A-1.037 — occasional or isolated sales
• Fla. Admin. Code r. 12A-1.038 — resale certificates
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93A-031

Original ruling text

May 10, 1993

Re: Technical Assistance Advisement No. 93A-031
Sales and Use Tax; Occasional Sale
XXX (hereinafter "Corporation")
XXX (hereinafter "Corporation-Sub"
XXX (hereinafter "Partnership")

Dear :

This is in response to your request for a Technical
Assistance Advisement on the following question:

ISSUE

Whether the transfer of Florida tangible personal property
as part of the transfer of substantially all of the phosphate
business assets of "Corporation" and "Partnership" into a Joint
Venture in exchange for their Joint Venture interests is exempt
from the Florida Sales Tax under (1) the "sale for resale"
exemption as to a portion of the property, and (2) the
"occasional or isolated sale" exemption as to the balance of the
property.

FACTS

"Corporation", a Delaware corporation and "Partnership", a
Delaware limited partnership (collectively referred to
hereinafter as "Venturers") are engaged in the production,
distribution, and sale of (1) phosphate rock, fertilizers, and
agricultural chemicals, (2) uranium oxide, and (3) related
products (hereinafter referred to as the "Phosphate Chemicals").
A substantial portion of the Venturers' Phosphate Business
facilities are located in Florida and can be generally described
as follows:

1. Mining and Production Facilities. Phosphate ore is
   mined using large draglines, rough ore is transported via
   pipeline to benficiation plants where impurities are removed.

Processed phosphate ore is then transported to the Venturers'
chemical processing plant or sold to third parties.

2. Chemical Processing Facilities. These facilities are
   used to produce a variety of "Phosphate Chemicals" using the
   refined phosphate ore.
3. Distribution Facilities. The "Venturers" operate
   phosphate distribution facilities in Florida which primarily
   include rail and sea transportation facilities used to transport
   the "Phosphate Chemicals."

The "Venturers" have decided to combine their operations by
contributing legal title to substantially all of the
"Venturers'" tangible personal property that is part of the
Phosphate Business facilities described above into a Joint
Venture. Real and tangible personal property located outside
Florida will also be contributed to the Joint Venture.
"Partnership" will transfer by deed and bill of sale its
"Phosphate Business" assets to "Joint Venture" and receive in
exchange an interest in the joint venture. "Corporation" will
transfer ownership of its "Phosphate Business" assets to
"Corporation-Sub" its wholly owned subsidiary. Title and
possession of the assets now owned by "Corporation-Sub", but
still held by "Corporation" will then be transferred by deed and
bill of sale to "Joint Venture." "Corporation-Sub" will receive
in exchange for this transfer an interest in the joint venture.
No cash or other property interest will be exchanged for the
transfer of the "Phosphate Business" assets.

The "Venturers" have on more than two occasions during the
past twelve month period disposed of obsolete, unneeded, or
defective items of tangible personal property in their
continuous maintenance of the facilities (including, machinery
and equipment, fixtures, structures, etc.) because of normal
wear and tear, technological changes or other business reasons.
This property is either removed from the facility by third
parties who are paid by the "Venturers" for such removal or is
sold to scrap dealers for resale or other person for their own
use. The sales include everything from office furniture and
equipment to scrap metal and are all made for the sole purpose
of removing salvage items from the property and to recoup, where
possible, the scrap value of the salvage items. The total sales

to scrap dealers and others are de minimis in comparison to the
"Venturers'" overall business.

LAW AND ANALYSIS

Section 212.05(1)(a), Florida Statutes, imposes a tax on
every person who engages in the business of selling tangible
personal property at retail in this state. Subsection (16) of
section 212.02, F.S., defines the term "sale" for the purpose of
this subsection to include "[a]ny transfer of title or
possession, or both...of tangible personal property for a
consideration." There is no doubt that the transfer in question
is within the meaning of "sale" for purposes of Chapter 212 and
that sales tax or use tax would apply to the transfer of the
assets in question absent a specific exemption for the tangible
personal property.

Sale for Resale

Section 212.02(15)(a), Florida Statutes, states that a
"retail sale" or "sale at retail" encompasses sales to consumers
or other persons for any purpose other than for resale. A
seller of tangible personal property must obtain from the
purchaser a certificate stating that the property was purchased
for resale in accordance with rule 12A-1.038, F.A.C.

Inventories of the "Phosphate Chemicals" held for resale
and salvage items on hand at the time of the transfer which the
"Venturers" intend to dispose of by sale to scrap dealers or
other persons after the transfer would be entitled to the resale
exemption if the Corporation-Sub and the Partnership obtain a
resale certificate with respect to those items from the Joint
Venture and the Corporation obtains a resale certificate from
the Corporation-Sub.

Occasional or Isolated Sales

Section 212.02(2), F.S., provides an exemption from sales
tax for certain sales made by persons not engaged in business.
Subsection 212.02(2), states in pertinent part:

... Except for the sales of any aircraft, boat, mobile
home, or motor vehicle, the term "business" shall not be
construed in this chapter to include occasional or isolated
sales or transactions involving tangible personal property
or services by a person who does not hold himself out as
engaged in business...

This exemption is further explained in the Department's
rule 12A-1.037, F.A.C. The rule provides in pertinent part as
follows:

(1) An exempt occasional or isolated sale occurs when
the sale is made by the owner of tangible personal property
under the following circumstances:

1. The seller does not hold himself out as engaged in
   business and such sales or series of sales occur no more
   frequently than 2 times during any 12 month period. The
   third sale or series of sales of tangible items during any
   12 month period makes that person engaged in that business
   and that person is required to register as a dealer and to
   collect and remit tax on the third sale or series of sales
   and on all subsequent sales....
2. Sales by a person of his household furniture or by a
   farmer of his farm machinery or equipment, or by a grocery
   store of its fixtures are exempt because such persons are
   not engaged in the business of selling tangible personal
   property of a similar type. An office equipment dealer, a
   furniture or electrical appliance dealer cannot make an
   exempt, occasional or isolated sale when he sells his own
   furniture, fixtures and equipment because of the definite
   similarity between the commodity he handles and the
   equipment which he sells.
3. The sale of office equipment, furniture and fixtures,
   etc., included in the sale of a business by its owner who
   is not engaged in the business of selling such office
   equipment, furniture and fixtures, is exempt as an isolated
   sale...

The rules distinguish between the sales of different classes of
commodities by persons engaged in business for the purpose of
determining whether the occasional or isolated sale exemption

may apply. For instance, a grocer who engages in the sale of
food and other various products at retail can engage in an
occasional sale of the grocer's business assets without
collecting sales tax. The rule also exempts as an occasional or
isolated sale the sale of the entire assets of a business where
the business owner is not engaged in the sale of his such
assets.

The "Corporation" and the "Partnership" are each engaged in
the business of selling "Phosphate Chemicals" they are also
engaged in the business, albeit de minimis in comparison to
their overall operations, of selling salvage property at retail
or for resale. "Corporation" and "Partnership" are not engaged
in the business of selling their useable, operational business
assets. "Corporation's" sale of substantially all of its
phosphate business assets to "Corporation-Sub" and
"Partnership's" sale of substantially all of its phosphate
business assets to the Joint Venture is distinguishable from
their sale of "Phosphate Chemicals" or salvage property and
would qualify as an occasional or isolated sale so long as
neither "Corporation" nor "Partnership" has engaged in the sale
of all or a substantial portion of its business assets more than
once in the previous twelve month period or twice in any other
twelve month period. "Corporation-Sub's " sale of the
"Phosphate Business" assets to the joint venture would qualify
as an occasional or isolated sale so long as "Corporation-Sub"
has not engaged in the sale of all or a substantial portion of
its business assets more than once in the previous twelve month
period or twice in any other twelve month period.

Aircraft, Boats, Mobile Homes and Vehicles

There is no specific exemption for the transfer of
aircraft, boats, mobile homes, motor vehicles, or any other
vehicles of a class or type required to be registered, licensed,
titled, or documented in this state or by the United States. To
the extent that the transferred property represents any of these
items sales tax or use tax would apply.

Real Property

While sales tax does not apply to the transfer of real
property such transfers may be subject to documentary stamp tax
and intangible personal property tax. You have not requested a
ruling with regard to the applicability of either of these taxes
and therefore none has been provided.

CONCLUSION

Therefore, it is the Department's position that inventories
of the "Phosphate Chemicals" held for resale and salvage items
on hand at the time of the transfer which the "Venturers" intend
to dispose of by sale to scrap dealers and others after the
transfer would be entitled to the resale exemption if
"Corporation," "Corporation-Sub" and "Partnership" obtain the
necessary resale certificates with respect to those items. The
sale of substantially all of the assets of "Corporation,"
"Corporation-Sub" and "Partnership's" respective phosphate
businesses qualifies as an occasional or isolated sale under the
facts as presented that neither "Corporation," "Corporation-Sub"
nor "Partnership" has engaged in the sale of all or a
substantial portion of their phosphate business assets more than
once in the previous twelve month period or more than twice in
any other twelve month period. Any transfer of aircraft, boats,
mobile homes, motor vehicles, or any other vehicles of a class
or type required to be registered, licensed, titled, or
documented in this state or by the United States would be
subject to sales or use tax.

This response constitutes a technical assistance advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advise as specified in s. 213.22, F.S. Our response is
predicated upon those facts and the specific situation
summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which is subject to

disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the department
before disclosure. In an effort to protect confidential
information, we request that you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or this response.

Sincerely,

Lisa R. Echeverri
Assistant General Counsel

Con. #8528