Was Company B's one-transaction sale of all rights and assets in its five Rhode Island grocery stores to Company A subject to sales or use tax?

Plain-English summary

Company B's one-transaction sale of all rights, title, and interests in its five Rhode Island grocery stores was not subject to Rhode Island sales or use tax. Because Company B was liquidating every Rhode Island outlet and would cease being a retailer in the state, the Division treated the transfer as a casual sale.

Company A was a Connecticut-based grocery retailer that already operated in Rhode Island. It planned to acquire eight Company B stores across Connecticut, Massachusetts, and Rhode Island, including five Rhode Island retail outlets.

The contemplated store assets included equipment, trade fixtures, leasehold improvements, other fixed assets, leasehold interests, customer lists, fixture plans, mechanical drawings, and closing-date inventory. The fixed-asset category excluded shopping carts, coffee mills, ordering equipment, software programs, and signs.

The ruling turned on the complete Rhode Island liquidation and the single transaction transferring all of Company B's rights in the five outlets. It did not eliminate Company B's separate duty to give the Tax Administrator five days' notice of the asset sale and comply with the related legal requirements.

What this means for you

Buyers of an operating business

Confirm whether the seller is truly disposing of the entire Rhode Island retail operation and ceasing business in the state. A partial sale or continuing retail activity would not match these facts.

Sellers and transaction teams

Sales-tax exemption did not erase bulk-sale compliance. Build the five-day Tax Administrator notice and other sale-of-assets requirements into the closing process.

Accountants and tax professionals

Document the single transaction, the five Rhode Island outlets included, the asset schedule, and the seller's complete liquidation. Those facts supported the casual-sale treatment.

Common questions

Why was the transfer a casual sale? Company B was liquidating all Rhode Island stores, would stop being a retailer in the state, and sold all rights in the five outlets in one transaction.

What assets were included? The transaction covered specified fixed assets, leasehold interests and related records, and inventory on hand at closing.

Did the ruling cover Company A's stores outside Rhode Island? The tax holding addressed Company B's five Rhode Island outlets.

Did the exemption remove the seller's notice duty? No. Company B still had to give the Tax Administrator five days' notice and comply with the governing sale-of-assets provisions.

Would a partial store sale necessarily qualify? The order did not decide that. Its conclusion relied on a complete Rhode Island liquidation in one transaction.

Citations and references

• The official order does not identify a numbered sales-tax or bulk-sale statute; it states the casual-sale conclusion and the separate five-day notice duty directly.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1995-02

Original ruling text

Ruling Request No. 95-02

Declaratory Rulings

Ruling Request No. 95-02

Re: Request for Ruling Regarding the Bulk Transfer of Assets Under the Sales/Use Tax Law

Request for Ruling

On behalf of your client, Company A, you request a declaratory ruling regarding the application of the sales/use tax law to the bulk transfer of assets to Company A.

Facts

Company A, which has its principal place of business located in Connecticut, owns and operates retail grocery stores in Rhode Island. It has entered into a letter of intent with Company B to acquire eight (8) of Company B's stores in Connecticut, Massachusetts, and Rhode Island, including five (5) retail outlets owned and operated by Company B in Rhode Island

The letter of intent contemplates the acquisition by Company A of the following assets attributable to each of the stores:

1. Fixed assets, including equipment, trade fixtures, leasehold improvements, and other assets located at each store, but excluding shopping carts, coffee mills, ordering equipment, software programs and signs;

2. Leasehold interests in the stores and equipment, together with customer lists, fixture plans and mechanical drawings; and

3. Inventory on hand at the date of closing.

Ruling Requested

Company A requests a declaratory rulings that the sale by Company B to Company A of the assets identified above in a single transaction involving the sale by Company B of all of its right, title and interest in its five (5) retail outlets in Rhode Island is exempt from the Rhode Island sales and use tax.

Discussion

Company B is liquidating all of its stores in Rhode Island. At such time that it does liquidate, it will cease to be a retailer in this state. Therefore, the subsequent sale of all of its assets in a single transaction to Company A becomes a casual sale which is not subject to the sales or use tax.

Ruling

The sale by Company B to Company A of all of its right, title and interest in its five (5) retail outlets in Rhode Island in a single transaction is not subject to the Rhode Island sales and use tax.

This ruling does not affect Company B's obligation under the law to give a five (5) day notice of the sale of assets to the Tax Administrator and comply with the provisions therein.

This ruling may be relied upon by this taxpayer and shall be valid until the applicable statutory provisions are amended in a manner requiring a different result.

**R. Gary Clark

Tax Administrator

May 8, 1995**