Were business assets transferred to new subsidiaries in a corporate restructuring exempt as an occasional sale or sale for resale?

Subject

Transfer of Tangible Personal Property Occasional or Isolated Sale Exemption

Plain-English summary

Factory and office equipment transferred in the restructuring qualified for the occasional or isolated sale exemption under the represented facts. The division produced aircraft engines and parts rather than selling substantially all of its operating assets and represented that it remained within the rule's frequency limits.

Aircraft, boats, mobile homes, motor vehicles, and other property required to be registered, licensed, titled, or documented could not use that exemption. Inventory and salvage or surplus intended for resale instead could qualify for resale treatment if the receiving entity was registered and gave the corporation a resale certificate. Cash and accounts receivable did not affect either analysis.

What this means for you

The ruling classified each asset group separately. A broad corporate transfer did not give inventory, vehicles, operating equipment, cash, and receivables identical sales-tax treatment.

Common questions

Did prior sales of obsolete or salvage property defeat occasional-sale treatment for operating assets? No. Florida distinguished those sales from a sale of all or substantially all usable operating assets.

Did inventory automatically qualify as an occasional sale? No. Inventory intended for resale relied on recipient registration and a resale certificate.

Did transferring cash and receivables change the exemption? No.

Citations and references

• Fla. Stat. §§ 212.02(2), 212.02(16), and 213.22
• Fla. Admin. Code rr. 12A-1.037, 12A-1.038, and 12A-1.039

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94A-020

Original ruling text

Feb 15, 1994

Re: TAA 94A-020
Sales Tax; Transfer of Tangible Personal Property
Occasional or Isolated Sale Exemption
s. 212.02(2), F.S.
Rule 12A-1.037, F.A.C.
Sale for Resale Exemption
Rules 12A-1.038 and 12A-1.039, F.A.C.

Dear :

This is in response to your letter to the Department, dated
January 27, 1994, requesting a Technical Assistance Advisement
(TAA), regarding the above referenced matter. This response to
your request constitutes a TAA under Chapter 12-11, F.A.C., and
is issued to you under the authority of s. 213.22, F.S.

FACTS

As ascertained from your letter, the following conclusions
of fact have been reached. XXX (hereinafter, Corporation) is a
publicly-held corporation, incorporated in XXX and authorized to
do business in a number of states, including XXX. In addition
to various subsidiaries, Corporation has a number of divisions,
including XXX (hereinafter, Division).

Division produces aircraft engines and spare parts for both
military and commercial aircraft. Division's Florida facilities
are known as XXX (hereinafter, Facility). These facilities are
devoted to government contract work and principally comprise a
research and development and testing center. Division is not
engaged in the business of selling all or substantially all of
its assets, and has not done so more than two times in any
twelve month period.

In order to more effectively compete in global markets,
Corporation intends to convert the Division into one or more
subsidiaries, in order to allow Corporation to enter into

strategic partnerships and investment alliances in its own name.

It is contemplated that Division would be converted into
three Corporation Subsidiaries, namely "XXX" (hereinafter, B),
"XXX" (hereinafter, C), and "XXX" (hereinafter, D).
Corporations B, C and D would be second-tier Division
subsidiaries, whose parent company, Division (hereinafter, A),
would also be a newly-created, wholly-owned subsidiary of
Corporation. The newly-created subsidiaries will continue the
business activities now conducted by Division.

This subsidization will be effected as follows. First,
Corporation will transfer substantially all of the assets and
liabilities of Division to B, C and D in exchange for the stock
in those corporations in a transaction qualifying for nonrecognition treatment under s. 351, I.R.C. The assets
transferred will include cash, accounts receivable, inventories,
salvage or surplus property, and factory and office equipment.
Subsequently, Corporation will contribute the stock of B, C and
D to A as a contribution to A's capital. Corporation will,
prior to and after such contribution, own 100% of the
outstanding stock of A.

As stated above, Division is in the business of producing
aircraft engines and spare parts for both military and
commercial aircraft. Division is not engaged in the business of
selling all or substantially all of its assets, and has not done
so more than two times in any twelve month period.

ISSUES

1. Whether the transfer of the items of tangible personal
   property (i.e., inventory, salvage or surplus property, and
   factory and office equipment) from Corporation to B, C and
   D is exempt from Florida's sales tax: (a) as an occasional
   or isolated sale exemption; and/or (b) as a sale for resale
   exemption.
2. Whether the transfer of cash and accounts receivable will
   affect the tax treatment of this transaction.

DISCUSSION

Occasional or Isolated Sales

Section 212.02(2), F.S., defines the term "business", in
pertinent part as follows:

"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...."

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 s. 212.02(16), F.S., the transfer of
tangible personal property is considered to be a sale, for sales
and use tax purposes. However, pursuant to s. 212.02(2), F.S.,
the Department has promulgated Rule 12A-1.037, F.A.C., which
provides, in pertinent part, as follows:

"(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... 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...."

Therefore, the transfer or sale of assets of a business,
when such sale is outside the normal course of trading, is not
subject to sales tax when the owner of that tangible personal
property is also the seller, provided that such owner has not
held himself out as engaged in such business activity, as
described in Rule 12A-1.037(1)(b)1., F.A.C., supra.

Since Division is in the business of producing jet engines
and spare parts, and it is not engaged in the business of
selling all or substantially all of its assets, and has not done
so more than two times in any twelve month period, it is the
Department's position that the transfer of all or substantially
all the assets, such as the factory and office equipment, from
Division to B, C, and D is an occasional or isolated sale,
exempt from sales and use tax, because: 1) Division is not in
the business of selling all or substantially all of its factory
and office equipment used in the normal course of its business;
and, 2) Division has not sold all or substantially all of its
operating assets more that two times during the previous 12
month period.

The Department reaches this conclusion by noting that the
sale of all or substantially all of Division's useable and
operational business assets is distinguishable from the sale(s)
of obsolete, salvage property. Therefore, as it relates to the
frequency of the sale of all or substantially all of Division's
operating assets, irrespective of any sale(s) of Division's
obsolete or salvage property, the transfer of all or
substantially all of Division's assets to B, C and D would

qualify as an occasional or isolated sale, so long as Division
has not engaged in the sale of all or a substantial portion of
its useable business assets two or more times in the previous
twelve month period.

However, please be advised that pursuant to s. 212.02(2),
F.S., and Rule 12A-1.037, F.A.C., the transfer of aircraft,
boats, mobile homes, motor vehicles, or any other vehicle(s) 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
represents any of these items sales or use tax would be due on
such items.

Sale for Resale

Rule 12A-1.038, F.A.C., provides that it is the specific
legislative intent that every sale is taxable under Chapter 212,
F.S., unless it is specifically exempt. Therefore, as it
relates to inventory, and salvage and surplus property which is
intended for resale, such items of tangible personal property do
not qualify for the occasional or isolated sale exemption, but
may nevertheless be exempt from sales tax if at the time of the
sale D, or the designated party receiving the property, is, in
fact, registered with the Department and furnishes a resale
certificate to Corporation with respect to such items of
tangible personal property, disclosing that the intent of the
parties is that such items will be resold. (Enclosed please
find a copy of Rules 12A-1.038 and 12A-1.039, F.A.C., relating
to the sale for resale exemption.)

The Presence of Cash and Accounts Receivable

As it relates to the transfer of cash and accounts
receivable, the Department's position is that the inclusion or
exclusion of cash or accounts receivable does not affect the
determination of the applicability of the sales tax exemption
for occasional and isolated sales, or for the sales for resale
exemption.

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
based 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 the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Nydia Men‚ndez
Tax Law Specialist

NM/pb