Did a lump-sum transfer of substantially all usable aerospace-business assets qualify as an occasional or isolated sale?

Subject

Exchange of Property

Plain-English summary

The transfer of substantially all usable aerospace and related operating assets qualified as an occasional or isolated sale under the represented facts. The seller was not in the business of selling those assets, and no sale of all or a substantial portion of its business assets had occurred in the prior twelve months.

Florida treated numerous obsolete and salvage sales as different in character from the going-concern asset transfer. The exemption did not extend to aircraft, boats, mobile homes, motor vehicles, or other vehicles required to be registered, licensed, titled, or documented.

What this means for you

The ruling classified sales by the kind of property and business activity involved. Recurring salvage dispositions did not automatically turn a separate transfer of substantially all operating assets into the seller's regular business.

Common questions

Did the lump-sum price prevent the exemption? No, not under the analyzed facts.

Did earlier obsolete-asset auctions defeat the result? No. Florida distinguished them from the operating-asset transfer.

Were all tangible assets covered? No. Registered or documented vehicles were expressly excluded.

Citations and references

• Fla. Stat. §§ 212.02(2), 212.02(16), and 213.22
• Fla. Admin. Code r. 12A-1.037

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-008

Original ruling text

Jan 14, 1994

TAA 94A-008
Re: Technical Assistance Advisement
Sales Tax - Exchange of Property
Sections 212.02(2) and 212.02(16), F.S.
Rule 12A-1.037, F.A.C.

Dear :

This response is in reply to your September 20, 1993,
petition for the Department's issuance of a Technical Assistance
Advisement ("TAA") pursuant to s. 213.22, F.S., concerning the
captioned matter and parties. Your petition has been carefully
examined and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C.
Therefore, the Department is herewith granting your request for
the issuance of a TAA and the ensuing discourse shall embody
said ruling.

DISCUSSION OF FACTS

Your petition imparts the following description of the
transaction under advisement herein:

"[A] is a diversified enterprise which is principally in
the businesses of aerospace, electronics, information
management, energy and materials. [A] is engaged in the
design, manufacture and integration of systems and products
in the fields of space, defense, aviation, communications,
information management, and energy; production of
construction aggregates and specialty chemical products;
and various other activities conducted through certain
consolidated subsidiaries and non-consolidated associated
companies or joint ventures.

"Prior to the transfer [discussed infra], in addition to
its other diverse businesses, [B] manufactured, sold and
distributed, through its aerospace component (`Aerospace'),

aerospace products and related services including
electronics, avionic systems, military vehicle equipment,
automated test systems, computer software, armament
systems, missile systems components, simulation systems,
space craft, communication systems, radar and sonar systems
and systems integration; through a wholly-owned subsidiary,
[B] also provided engineering and management services to
the U.S. Government and to defense and government
contractors. [B] also operated and managed for the U.S.
Government an atomic power laboratory.

"This ruling request pertains to the transfer of a Floridabased manufacturing facility, and associated assets used in
the operation of [B's] Aerospace business, and a Floridabased accounting service facility which provides services
to [B's] Aerospace and non-Aerospace components. The
accounting facility was owned and operated by a separate
subsidiary of [B]. This transfer is part of a larger
transaction that has been consummated between [A] and [B].
The overall transaction involved the combination of [B's]
businesses identified above with the businesses of [A] in
the form of affiliated corporations. The steps taken to
effect the combination were as follows:

"(1) [A] and [B] together formed a corporation [C],
parent corporation... , which in turn formed a
wholly owned subsidiary [D], Child Corporation.
"(2) On the Closing Date, [D] merged with and into [A]
(`The Merger') such that [A] became the surviving
corporation and a wholly-owned subsidiary of [C],
and the outstanding shares of [A] were converted
on a one-for-one basis into shares of [C]....
"(3) Immediately after The Merger, [B] and its
affiliates transferred the Aerospace and other
businesses described above to [C] in exchange for
cash, the assumption of certain liabilities and
preferred stock in [C] which is convertible into
approximately 23.5% of the common stock of [C].

"Upon consummation of these transactions, (1) the former
shareholders of [A] own all of the common stock of [C], (2)

[B] owns all of the preferred stock of [C], (3) [C]
conducts the Aerospace and other businesses transferred by
[B], (4) [C] owns all of the common stock of [A] which
continues to conduct the businesses it held prior to these
transactions.

"The merger between [A] and [D] is governed by Section
368(a) of the Internal Revenue Code of 1986, as amended
(`Code'), and all of the transactions, taken as a whole,
are governed by Section 351(b) of the Code. The transfer
of assets from [B] to [C] includes all of the assets,
properties, rights, licenses, permits, contracts, causes of
action, claims, operations and business of every kind and
description, wherever located, real, personal or mixed,
tangible or intangible, owned by, leased by, or in the
possession of [B] or any affiliated transferor and held and
used primarily in the conduct of [B's] Aerospace and other
businesses described above as the same existed on the
closing date. All of [B's] assets, real, tangible and
intangible, were transferred for one lump sum price,
without allocation or separate identification in any
purchase and sale document. For federal income tax and
financial accounting purposes, there will be a post-closing
determination of the fair market value of each transferred
asset by an independent appraisal firm and allocation of
the purchase price among the assets; however, this
allocation was not pre-determined by the parties and had no
bearing on determining the purchased price to be paid for
the transfer.

"[B] has held sales of obsolete, salvage assets on numerous
occasions, including on or about February 11, 1992, March
25, 1992, June 23, 1992, October 14, 1992, and December 12,
1992. No sales of all or a substantial portion of its
business assets have been held within the past twelve month
period."

In your follow up letter of October 29, 1993, the following
additional information is provided:

"[B] is a corporation comprised of several diverse and

distinct operating divisions. The transaction described in
our TAA request involved the transfer of [B's] Aerospace
business; the Neutron Devices and Apparatus Service
facilities are operationally unrelated to the Aerospace
business. Moreover, the manufacturing and accounting
facilities specifically described in our September 20 TAA
are located in XXX and XXX, respectively, and are not a
part of the Neutron Devices facility in Largo nor the
Apparatus Service facility...."

REQUESTED ADVISEMENT

Per your letter dated September 20, 1993, you specify that:
"The question posed by this ruling request concerns the Florida
sales and use taxation of the transfer of useable, operational
business assets comprising and used in the Florida manufacturing
and accounting facilities, as distinguished from any sales of
obsolete, salvage property. The Florida facilities will
continue in operation, as going concerns with substantially all
assets (and personnel) in place, after the transaction is
completed."

Therefore you submit for consideration and response the
issue of: "Whether the transfer of Florida assets from [B] to
[C] is subject to Florida sales or use tax."

ANALYSIS OF LAW

Section 212.02(16), F.S., defines the term "sale" as:

"Any transfer of title or possession, or both, exchange,
barter, license, lease, or rental, conditional or
otherwise, in any manner or by any means whatsoever, of
tangible personal property for a consideration." (Emphasis
added.)

As provided in the above statutory quote, the transfer of
tangible personal property is considered to be a "sale," for
sales and use tax purposes. Thus, absent any exempting
provisions, the transfer of tangible personal property is
subject to Florida sales tax.

Section 212.02(2), F.S., provides:

"(2) Business' means any activity engaged in by any person, or caused to be engaged in by him, with the object of private or public gain, benefit, or advantage, either direct or indirect. Except for the sales of any aircraft, boat, mobile home, or motor vehicle, the termbusiness'
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,..."

A progression of Florida Supreme Court decisions have
served to establish the long-standing and fundamental precept of
statutory construction, which mandates that exemptions from or
exceptions to taxing statutes must be strictly construed against
the taxpayer. See Asphalt Pavers v. Dept. of Revenue, 584 So.2d
57 (Fla. 1st DCA 1991); Dade Cty. Taxing Auth. v. Cedars of
Lebanon, 355 So.2d 1205 (Fla. 1978), reh. den. April 5, 1978;
Williams v. Jones, 326 So.2d 425 (Fla. 1975), reh. den. March 4,
1976; Straughn v. Camp, 293 So.2d 689 (Fla. 1974); United States
Gypsum Company v. Green, 110 So.2d 409 (Fla. 1959). However,
unlike the construction of an exemption statute, Florida courts
have held that the construction of a definitional statute must
be strictly construed against the taxing authority. See State
ex rel. Drum Service Co. of Florida v. Kirk, 234 So.2d 358 (Fla.
1970); Dickinson et al. v. Stauffer Chemical Company, etc., 268
So.2d 396 (Fla. 1 DCA 1972); Dickinson et al. v. Swift &
Company, 277 So.2d 560 (Fla. 1 DCA 1973). Section 212.02(2),
F.S., is a definitional statute and, therefore, in accord with
the case law just noted must be strictly construed against the
Department.

To provide administrative interpretation of the occasional
or isolated sale exclusion contained in the above statutory
definition of the term "business", the Department has
promulgated Rule 12A-1.037, F.A.C., which provides in pertinent
part the following:

"Occasional or Isolated Sales of Tangible Personal

Property.
"(1)(a)Occasional or isolated sales of tangible personal
property made by a person who does not hold himself out as
engaged in business are exempt. However, this exemption
never applies to occasional or isolated sales of aircraft,
boats, mobile homes, motor vehicles, or other vehicles in
this state of a class or type required to be registered,
licensed, titled, or documented in this state or by the
United States Government (see Rule 12A-1.007, F.A.C.), or
to sales made by those persons who hold themselves out as
engaged in a business, notwithstanding the fact that their
sales may be few and infrequent.
"(b) 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....
"3. Such sale does not involve an aircraft, boat, mobile
home, motor vehicle, or any other vehicle of a class or
type required to be registered, licensed, titled, or
documented in this state or by the United States
Government.
"4. 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.
"5. 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. (Emphasis added.)

Thus, pursuant to s. 212.02(2), F.S., and Rule 12A-1.037,
F.A.C., certain sales made by persons not engaged in the
business of selling such tangible personal property are exempt.

Rule 12A-1.037, F.A.C., focuses on the character of sales
as it relates to the different types of tangible personal
property sold by persons engaged in the business for the purpose
of determining whether the occasional or isolated sale exemption
may apply. For example, a grocer who engages in the sale of
food can engage in an occasional or isolated sale of the assets
used in the grocer's business without having to collect sales
tax. Therefore, the Department's position is that 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 such assets.

An agency's administrative interpretation of statutes by
rule has been accorded great deference by the courts, and will
not be overturned unless the agency's interpretation of the
statutes are clearly erroneous; a reviewing court will defer to
any interpretation within the range of possible interpretation.
See Pershing Industries v. Department of Banking, 591 So.2d 991,
993 (Fla. 1 DCA 1991); Eager v. Florida Keys Aqueduct Authority,
580 So.2d 771, 772 (Fla. 3 DCA 1991); Natelson v. Department of
Ins., 454 So.2d 31, 32 (Fla. 1 DCA 1984); State ex rel. Szabo
Food Serv., Inc. of N.C. v. Dickinson, 286 So.2d 529, 531 (Fla.
1973), reh. den. Jan. 9, 1974.

CONCLUSION OF LAW

Based on the foregoing analysis of law, the Department
concludes that B is not engaged in the business of selling its
useable, operational business assets. B's sale of substantially
all of its Aerospace business assets and the other business
assets as describe herein to C is distinguishable from its sale
of obsolete, salvage property. Therefore, B's sale of the
Aerospace business assets and the other business assets as
describe herein to C would qualify for exemption from sales or

use tax as an occasional or isolated sale so long as B has not
engaged in the sale of all or a substantial portion of its
business assets two or more times in the previous twelve month
period or more than twice in any other twelve month period.

However, you are hereby alerted to the fact that pursuant
to Rule 12A-1.037, F.A.C., 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 Government does
not qualify for the occasional or isolated sales exemption.
Therefore, to the extent that the transferred property consists
of these items, sales or use tax would be due.

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 advice as specified in s. 213.22, F.S. Our response is
predicated on 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 are 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 you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

Daniel M. Wagner, Jr.
Tax Law Specialist

DW/pb