Did selling substantially all assets of a corporate division qualify as a nontaxable isolated sale in Florida?

Plain-English summary

Florida treated the transfer of substantially all assets of the corporate division as a nontaxable isolated sale, subject to specific exclusions and conditions. The agreement transferred the properties, contracts, rights, and related liabilities needed to operate the line of business, and the seller completely withdrew from it.

Noninventory business assets qualified when the seller had paid applicable sales or use tax on acquiring them. A later discovery that tax was missed on a small portion did not make the entire transaction taxable, but the seller had to pay that original tax plus penalty and interest.

Inventory did not itself qualify for isolated-sale treatment; the seller had to collect tax or obtain a valid resale certificate by the transfer date. Registered or titled aircraft, boats, motor vehicles, and mobile homes also remained taxable, though including motor vehicles did not taint the rest of the division sale.

The transaction also had to avoid disqualifying intermediaries and be completed within 60 days from its first asset distribution.

What this means for you

An asset purchase agreement should separately identify inventory, titled property, and assets lacking proof of tax-paid cost. “Substantially all” meant an operating division or line of business, not a piecemeal asset disposition.

Common questions

Q: Did prior unrelated asset sales disqualify this transaction? No.

Q: Were the motor vehicles exempt? No, but their inclusion did not tax the whole deal.

Q: Could inventory transfer tax free? Only with a valid resale certificate; otherwise tax had to be collected.

Q: What if the seller later found an untaxed acquired asset? It paid the original tax, penalty, and interest without losing isolated-sale treatment for the whole transaction.

Citations and references

• Fla. Stat. §§ 212.02(2) and 212.05 — business and taxable retail sales
• Fla. Admin. Code r. 12A-1.037(1)–(2) — occasional and isolated sales
• Fla. Admin. Code rr. 12A-1.007 and 12A-1.038 — titled property and inventory resale documentation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99A-080

Original ruling text

SUMMARY

QUESTION: Does the sale of all the assets of a division of
a corporation qualify as an isolated sale that is not
subject to tax under Chapter 212, Florida Statutes?

ANSWER - Based on Facts Below: A transaction that includes
the transfer of substantially all of the property of a
division of a seller's business qualifies as an isolated
sale that is not subject to tax under Chapter 212, Florida
Statutes, if the applicable sales tax was paid on the
purchase of the non-inventory items. If a determination is
made subsequent to the completion of the transaction (sale
of the division), that the applicable sales and use tax had
not been paid on some small portion of the non-inventory
items that are a part of the transaction, this will not
render the entire transaction taxable. However, the seller
must pay the applicable tax, penalty, and interest from the
time of the seller's acquisition on those items, in order
for the items to be considered a part of the isolated sale
transaction. Although not qualifying as part of the
isolated sale, before inventory items can be transferred
tax exempt, a valid resale certificate must be procured
from the buyer on or before the inventory items are
transferred. The transfer of any aircraft, boat, motor
vehicle, or mobile home, which is required to be
registered, licensed, titled, or documented in this state
or by the Unites States Government does not qualify as an
isolated sale.

Dec 30, 1999

Re: Technical Assistance Advisement 99A-080
Sales and Use Tax -Isolated Sale Transaction
Rule 12A-1.037, F.A.C.
XXX ("Taxpayer")
XXX("Buyer")

XXX ("Parent of Buyer")

Dear :

Your letter of December 10, 1999, requested a Technical
Assistance Advisement concerning the above referenced matter.
This response constitutes a Technical Assistance Advisement
(TAA) under Chapter 12-11, Florida Administrative Code, and is
issued to you under the authority of s. 213.22, Florida
Statutes.

STATED FACTS

The following facts are reprinted herein, exactly as stated in
your letter:

The transaction at issue (hereafter "Transaction") is a
sale of assets (hereafter "Assets") by [Taxpayer]
(hereafter "Seller") pursuant to the Amended and Restated
Master Transaction Agreement (hereafter "Agreement") which
is enclosed with this Request....

Seller was and is engaged in diversified business
activities in the United States, including Florida, and
internationally. These activities are conducted though
incorporated and unincorporated divisions [] within this
company; all business units in other countries are
separately incorporated. The Assets sold consisted of
substantially all the assets of one of the divisions
(hereafter "Division"), which was known prior to the sale
as the [] and which held a separate Chapter 212
registration (referenced above as the canceled number). The
Assets were located within and outside of Florida. The
other parties to the Agreement were [] Corporation, a
new corporate entity (referred to as "Buyer" in the
Agreement and in this Request), and [***] Corporation, the
Parent of Buyer, also newly formed (hereafter "Parent").

The sale effected Seller's complete withdrawal from the
business of the Division. Closing occurred [***]. On this
date, all of Seller's Division Assets were transferred,

there having been no prior or subsequent transfers of such
Assets pursuant to the Transaction. The Transaction was not
made by or though an auctioneer, agent, broker, factor, or
other person required to be registered for such purposes.

The Assets included real, tangible, and intangible personal
property. The Florida tangible personal property which was
sold included inventory, raw materials, work in process,
and motor vehicles, but no boats, aircraft, or mobile
homes. The vehicles were itemized at closing and a sales
price was assigned to each vehicle in accordance with
applicable statutes and rules. In addition, Buyer furnished
Seller with a properly executed resale certificate
pertaining to the inventory. Seller was not a lessor of
tangible personal property in Florida of the kind which was
conveyed. The purchase price consisted of cash and a note.
In the wake of the sale of these Assets, the Division no
longer exists, but Seller continues operating its other
businesses in Florida and globally.

Prior to the Transaction, Seller from time to time engaged
in sales of tangible personal property that was no longer
useful in the conduct of its businesses, including tangible
personal property of the Division. These sales occurred,
for example, when tangible personal property became
obsolete or physically deteriorated. Their purpose was to
remove the property from the Division's facilities and,
where possible, to recoup its value. The gross revenue from
these sales was minimal when compared to the gross revenue
derived by the Division from its other business activities.
These sales were part of the normal operations of the
Division and were unrelated to the Transaction. For present
purposes it is assumed that such sales included sales of
tangible personal property located in Florida, which
occurred more frequently than twice in any twelve month
period. The Assets sold by Seller pursuant to the
Transaction at issue included a negligible amount of such
obsolete or physically deteriorated property.

In [***], Seller sold certain Division intangible personal
property and finished goods inventory related to a specific

product line [***] to an unrelated third party. The closing
occurred outside Florida, and no Florida tangible personal
property was sold except a negligible amount of finished
goods inventory. Most of the finished goods inventory was
located in another state and a foreign nation.

In [], Seller sold the assets of a facility located in
another state. Tangible personal property was included in
this sale, but none of the property was located in Florida,
and the closing did not occur in Florida. In [], Seller
sold land, buildings, and improvements in another out-of
state transaction that involved no tangible personal
property and no Florida property. Contemporaneously, some
tangible personal property at the out-of state location was
written off or sold as assets are normally disposed of in
operations, but not as part of the sale of the realty, and
none of the tangible personal property subject to these
routine retirements was located in Florida. Prior to the
sale, an insignificant portion of the realty had been
occupied by Division personnel, although it had been
transferred from that Division's accounting records in
1995.

Prior to [], the Division operations also included a
facility that manufactured certain products in Florida. On
that date, Seller sold this facility, which included
Florida tangible personal property. The buyer furnished
Seller a resale certificate with respect to inventory
included in this sale. This sale was in no way related to
the Transaction which is the subject of this Request.
Neither Buyer nor Parent was a party to it, just as the
purchaser of the facility sold in [] was not a party to
the Transaction here at issue.

Indeed, all of the sales described above were made to
unrelated third parties; none was part of the Transaction
or part of a plan for the sale of the entire Division, and
none consisted of a sale of substantially all the assets of
the Division or the corporation. Seller has not previously
sold substantially all its assets or the assets of the
Division.

To the best of Seller's knowledge and belief, Seller has
paid all applicable Chapter 212 taxes on its original
purchases of the Assets.

REQUESTED ADVISEMENT

1. Except for the motor vehicles, and assuming Seller receives
   a proper resale certificate with respect to inventory, the
   Transaction will not be subject to Chapter 212 tax.

2. Although the proper tax must be paid with respect to the
   transfers of motor vehicles, including the motor vehicles in the
   Transaction will not render the entire Transaction taxable.

APPLICABLE LAW

The following statutory and administrative law are relevant to
the issue under advisement:

Section 212.05, F.S., provides, in part:

212.05 Sales, storage, use tax.-It is hereby declared to be
the legislative intent that every person is exercising a
taxable privilege who engages in the business of selling
tangible personal property at retail in this state,
including the business of making mail order sales, or who
rents or furnishes any of the things or services taxable
under this chapter, or who stores for use or consumption in
this state any item or article of tangible personal
property as defined herein and who leases or rents such
property within the state.

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 or her, 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 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 or herself out as engaged in business, but
includes other charges for the sale or rental of tangible
personal property, sales of services taxable under this
chapter, sales of or charges of admission, communication
services, all rentals and leases of living quarters, other
than low-rent housing operated under chapter 421, sleeping
or housekeeping accommodations in hotels, apartment houses,
roominghouses, tourist or trailer camps, and all rentals of
or licenses in real property, other than low-rent housing
operated under chapter 421, all leases or rentals of or
licenses in parking lots or garages for motor vehicles,
docking or storage spaces for boats in boat docks or
marinas as defined in this chapter and made subject to a
tax imposed by this chapter....

Rule 12A-1.037, F.A.C., provides, in part:

12A-1.037 Occasional or Isolated Sales or Transactions
Involving Tangible Personal Property or Services.

(1) Occasional or isolated sales or transactions involving
tangible personal property or taxable services are exempt,
provided the sales or series of sales meet the requirements
set forth in this rule, regarding: the intent of the
parties; the frequency and duration of the sales; the type
of tangible personal property or services offered for sale;
the location where the sales take place; and the status of
the parties, as it relates to the tangible personal
property or taxable services being sold.

(2) An exempt isolated sale or transaction occurs when an
entity, which for purposes of this rule is a "person," as
defined in s. 212.02(12), F.S., required to be registered
as a dealer, either distributes tangible personal property
in exchange for the surrender of a proportionate interest
in an entity, or transfers all, or substantially all, of
the property of a person's business, or a division thereof.
Also, the transfer of property to an entity in exchange for
an interest therein in proportion to the tangible personal

property contributed is exempt as an isolated sale.

(a) The isolated sales exemption does not apply to:

1. Sales of aircraft, boats, mobile homes, or motor
   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; however, such sales may
   be exempt if they meet the criteria in Rule 12A1.007(26)(a)3., 4., or 5., F.A.C.

2. The distribution or sale of inventory. (However, for the
   sale of inventory see Rule 12A-1.038, F.A.C.)

3. The distribution or sale of tangible personal property
   used in the business, such as salvage, surplus, or obsolete
   property, will not qualify as an isolated sale or
   transaction, unless the transaction is described in (2)(b)
   or (c), below; but such sale qualifies as an occasional
   sale or transaction if it complies with the requirements
   set forth in subsection (3), below, and provided none of
   the elements set forth in subsection (5), below, are
   present.

4. Transactions where the transferor has not paid any
   applicable sales or use tax on the tangible personal
   property, unless at the time of transfer the statute of
   limitations for assessment of sales and use tax on the
   property had expired, as provided in s. 95.091(3), F.S.

5. Sales made by or through an auctioneer, agent, broker,
   factor, or any other person registered or required to be
   registered as a dealer to engage in, conduct, or hold
   itself out as engaged in business, regardless of whether
   the sale of such items by the owner would have qualified
   the sale as an isolated sale. See Rule 12A-1.066, F.A.C.

6. Transactions which are not completed within 60 days from
   the date of the first distribution of assets of an entity.
   (emphasis added)

DETERMINATION

Florida law imposes a tax on the privilege of engaging in the
business of making retail sales of tangible personal property in
this state. Section 212.05, F.S. The term "business" is
defined in s. 212.02(2), F.S., and specifically excludes
occasional or isolated sales or transactions involving tangible
personal property or services by a person who does not hold
himself or herself out as engaged in business. Whether a
transaction is considered a nontaxable "occasional or isolated"
sale is determined by reference to Rule 12A-1.037, F.A.C.

Rule 12A-1.037, F.A.C., makes a distinction between occasional
sales versus isolated sales. Certain transactions that include
transfers of tangible personal property, but that also involve
the sale or reorganization of a business or business assets, may
qualify as "isolated sales," pursuant to subsection (2) of Rule
12A-1.037, F.A.C. An advantage to having a transaction
classified as an isolated sale as opposed to an occasional sale
is that there is no quantifiable limit (i.e., 2 sales) to how
many nontaxable isolated sales a person may make during a 12
month period.(FN 1)

One such transaction that is considered to be an isolated sale
occurs when a person, as defined in s. 212.02(12), F.S.,
"transfers all, or substantially all, of the property of his or
her business, or a division thereof." Rule 12A-1.037(2), F.A.C.
This provision of the rule does not require that the sale be in
exchange for an interest in the purchasing entity, or that the
consideration be in the form of stock in the purchasing entity.

The rule language cited contemplates the sale of the entire
division or line of business, rather than a sale of individual
assets. Such a sale usually includes substantially all of the
assets and liabilities that make up the division or line of
business, and that allows the division or line of business to
function on its own as a separate business enterprise. This is
distinguished from the sale of individual assets of the division
or line of business, wherein the division remains part of the
Seller's business.

The Amended and Restated Master Transaction Agreement provides
ample support that the transaction at issue is the sale of an
entire line of business. The Agreement provides for a sale of
all of "the properties, assets, contracts and rights
constituting or primarily used or held primarily for use in the
Business . . . whether such assets are real, personal or mixed,
tangible or intangible, matured or unmatured, known or unknown,
contingent or fixed...." See Agreement, p. 2. The Amended and
Restated Master Transaction Agreement also provides for an
assumption by Buyer of the "[l]iabilities and obligations
relating to the Transferred Assets...." Id., p. 6. Furthermore,
Taxpayer attests that "[t]he sale effected Seller's complete
withdrawal from the business of the Division." See Taxpayer's
Request, p. 3.

Therefore, based on the facts as represented by Taxpayer, as
well as analysis of the Master Transaction Agreement submitted
by Taxpayer, the Transaction at issue qualifies as an isolated
sale, since the Transaction includes the transfer of
substantially all of the property of a division of Seller's
business.

However, Rule 12A-1.037(2)(a), F.A.C., specifically states that
the isolated sales exemption does not apply to: 1.) the sale of
aircraft, boats, mobile homes, or motor vehicles; 2.) the
distribution or sale of inventory; 3.) the distribution or sale
of tangible personal property used in the business, such as
salvage, surplus, or obsolete property, unless the transaction
is described in (2)(b) or (c) of the rule; 4.) transactions
where the transferor has not paid any applicable sales or use
tax on the tangible personal property being transferred, unless
an assessment of such tax would be barred by the statute of
limitations; 5.) sales made by or through an auctioneer, agent,
broker, factor, or any other third party registered or required
to be registered as a dealer to engage in, conduct, or hold
itself out as engaged in business; or 6.) a transaction that is
not completed within 60 days from the date of the first
distribution of assets of an entity.

Therefore, although the Transaction falls within the scope of
the language cited in Rule 12A-1.037(2), F.A.C., regarding the

sale of substantially all of the assets of a business, a
determination cannot be made that the Transaction is not subject
to tax until the six limitations to isolated sale treatment are
analyzed.

A. Sale of Aircraft, Boats, Mobile Homes, and Motor Vehicles

The sale of aircraft, boats, mobile homes, and motor vehicles
cannot qualify for isolated sale treatment. Nevertheless, the
fact that motor vehicles will be transferred as part of the sale
of the division in this instance shall not render the entire
Transaction taxable. Applicable sales tax must be paid on the
transfer of the motor vehicles. See Rule 12A-1.007(8)(j) and
(26)(d), F.A.C.

B. Sale of Inventory

The distribution or sale of inventory cannot qualify for
isolated sale treatment. Along the same lines as the previous
paragraph, the fact that inventory will be transferred as part
of the sale of the division in this instance shall not render
the entire Transaction taxable. Sales tax must be collected and
remitted from Buyer at the time of sale on the sales price of
the inventory sold, or, in lieu of collecting sales tax, Seller
must procure from Buyer a validly executed resale certificate at
the time of sale.

C. Sale of Tangible Personal Property Used in the Business

The distribution or sale of tangible personal property used in
the business, such as salvage, surplus, or obsolete property
does not qualify for isolated sale treatment, unless the
transaction is described in paragraphs (2)(b) or (c) of the
rule. It is the Department's position that this limitation is
not applicable to the Transaction. If the Transaction involved
a sale of less than "substantially all" of the assets of the
division, and the division was remaining as part of Seller's
business, this limitation would be applicable. However, the
Transaction is not an individual sale of tangible personal
property used in the business, such as salvage, surplus, or
obsolete property, but it is rather a sale of the entire

division or line of business.

D. Sale of Tangible Personal Property Upon which Tax Had Not
Been Paid by Transferor

Isolated sales do not include transactions where the transferor
has not paid any applicable sales or use tax on the tangible
personal property, unless at the time of transfer the statute of
limitations for assessment of sales and use tax on the property
had expired. Seller asserts that, to the best of its knowledge
and belief, it has paid all applicable Chapter 212, F.S., taxes
on its original purchase of the assets.

The question then arises: What happens if a determination is
made subsequent to the completion of the Transaction that
applicable sales and use tax had not been paid on the Seller's
acquisition of some of the tangible personal property that is
part of the Transaction?

To begin with, a subsequent finding that applicable tax had not
been paid on the acquisition by seller of some of the assets
that are part of the Transaction would not cause the entire
Transaction to be subject to sales and use tax.

Additionally, it is the intent of subparagraph (2)(a)4., to
ensure that assets that are sold as part of an isolated sale
transaction are subject to at least one level of sales tax, if
applicable. It is not the intent of this provision to
disqualify the transfer of assets upon which no tax has been
paid from isolated sale treatment. To construe the rule to mean
that such assets are disqualified from isolated sale treatment
would cause two levels of tax to be assessed on the same assets:
a tax on the original acquisition of the assets; as well as one
on the sale to Buyer of the disqualified assets pursuant to the
isolated sale transaction.

Therefore, if a determination is made subsequent to the
completion of the Transaction that applicable sales and use tax
had not been paid on the Seller's acquisition of some of the
tangible personal property that is part of the Transaction,
Seller must simply pay the applicable tax, penalty, and interest

from the time of Seller's acquisition.

E. Transfers by Auctioneers, Agents, Brokers, Factors

The transfer of property made by or through an auctioneer,
agent, broker, factor, or any other third parties registered or
required to be registered as a dealer to engage in, conduct, or
hold itself out as engaged in business does not qualify for
isolated sale treatment. Based on the facts as provided in
Taxpayer's request, the Transaction is not being conducted
through such a third party.

F. Transactions Not Completed within 60 Days

Finally, a transaction that is not completed within 60 days from
the date of the first distribution of assets of an entity cannot
qualify as an isolated sale. Based on the facts provided in
Taxpayer's request, the Transaction will be completed within 60
days of the first distribution of assets. Additionally, the
Department agrees with Taxpayer's assertion that "the first
distribution of assets" refers to the first distribution
pursuant to the Transaction at hand (for which isolated sale
treatment is sought), and does not refer to prior occasional or
isolated sale transactions, such as those occurring in [],
[], and [***]. Those unrelated transactions have no bearing
on whether this Transaction qualifies for isolated sale
treatment.

In conclusion, based on the facts as stated in your letter and
as reflected in the Amended and Restated Master Transaction
Agreement, the Transaction at issue is not subject to sales tax
under Chapter 212, F.S., subject to the limitations enunciated
in the above paragraphs.

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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names,
addresses, and any other details which might lead to
identification of the taxpayer. Your response should be
received by the Department within 15 days of the date of this
letter.

Sincerely,

Ralph G. Pepe
Tax Law Specialist
Technical Assistance & Dispute
Resolution

Control #: 39690

Footnote 1: Although Rule 12A-1.037(2), F.A.C., does not place a
"2 sale" limit on how many isolated sales can be made, if a
business is deemed to be "engaged in the business" of selling
business assets or selling off divisions, the sale will meet the
definition of "business" under s. 212.02(2), F.S., and will be
subject to tax. Based on the facts in this letter, Taxpayer is
not engaged in the business of selling divisions.