Did a single bulk sale of real, tangible, and intangible fossil assets qualify in full as a casual sale exempt from Rhode Island sales and use tax?

Plain-English summary

The entire bulk asset sale could not be classified as a casual sale. One seller, Y Corporation, was a registered Rhode Island retailer, and the request did not show which tangible assets it had held or used in the activities for which it was required to hold a seller's permit.

The single transaction included real estate, improvements, fuels, supplies, materials, critical spares, machinery, equipment, vehicles, furniture, contracts, leases, permits, books, records, and other tangible and intangible property. The ruling request excluded Rhode Island motor vehicles from the requested casual-sale conclusion.

Rhode Island's casual-sale rule generally covered sales by someone other than a retailer, but excluded property held or used in seller-permit activities and treated a person making more than five retail sales in twelve months as a retailer. Because the record did not allocate the assets by seller and use, the Division could not approve one exemption for the group as a whole.

The discussion noted that some machinery and equipment might qualify for a manufacturing exemption. It did not determine which assets qualified.

What this means for you

Buyers in asset acquisitions

Do not assume that a one-time bulk closing makes every transferred item a casual sale. Review each seller, asset type, prior use, permit activity, and any separate exemption.

Registered retailers

Property held or used in the activity requiring the seller's permit may fall outside casual-sale treatment even when sold in a large, unusual transaction.

Accountants and tax professionals

Allocate tangible and intangible property, realty, vehicles, and potentially exempt manufacturing equipment. The ruling did not supply enough facts for asset-level conclusions.

Common questions

Was every asset held taxable? The ruling did not say that. It rejected casual-sale classification for the sale as a whole and left individual asset treatment unresolved.

Why did Y Corporation's retailer status matter? Its tangible property could be excluded from casual-sale treatment if held or used in activities requiring a seller's permit.

Did a single transaction automatically qualify as casual? No. Seller status, asset use, and the statutory series-of-sales rule still mattered.

Were motor vehicles included in the requested holding? No. The buyer expressly excluded Rhode Island motor vehicles from the request.

Could manufacturing machinery still be exempt? Possibly. The discussion noted that some equipment might qualify, but made no item-specific determination.

Citations and references

• R.I. Gen. Laws § 42-35-8 — authority for the declaratory-ruling request.
• R.I. Gen. Laws § 44-18-18 — seven-percent sales tax on retail sales under the law quoted in the order.
• R.I. Gen. Laws § 44-18-20(5)-(7) — casual-sale definition, retailer threshold, and seller-permit activity rules.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1998-02

Original ruling text

Ruling Request No. 98-02

Declaratory Rulings

Ruling Request No. 98-02

Re: Request for Ruling Regarding the Application of the Casual Sales Provision of the Sales/Use Tax Law to a Bulk Sales of Assets

Request for Ruling

Pursuant to R.I.G.L. 42-35-8, you request, on behalf of your client, ("Client") a declaratory ruling as to the applicability of the casual sales provision of the sales and use tax law to the sales of assets in bulk.

Facts

The facts set forth herein are taken from the ruling request dated August 10, 1998. Incorporated by reference and made a part of this ruling request is the "Asset Purchase Agreement" dated August 5, 1997.

On August 5, 1997, Client entered into an Asset Purchase Agreement ( the "Agreement") with X Corporation, a Massachusetts corporation, and Y Corporation, A Rhode Island Corporation ("Sellers") . Pursuant to the Agreement, on or about August 31, 1998 (the "Closing Date"), the Sellers will sell, assign, convey, transfer and deliver to Client all of the Sellers' rights, title to, and interest in, certain tangible and intangible real and personal property that is located in Rhode Island (the "Assets"). Client will pay cash (in United States currency) for the Assets.

The Assets include, but are not limited to, real estate (including buildings, structures, and other improvements thereon); fuels, supplies, materials and critical spares; machinery, equipment, vehicles, furniture, and other personal property; contracts, agreements and personal property leases; transferable permits; and books and operating records. The Agreement refers collectively to these assets as "Fossil Assets".

The sale of these Assets will take place in a single transaction. The Sellers are not "retailers", as that term is defined in chapter 18 of title 44 of the Rhode Island General Laws, as amended, of the Assets being transferred pursuant to the Agreement.

Ruling Requested

That the sale of Assets (other than motor vehicles located in Rhode Island) by the Sellers to Client pursuant to the Agreement is not subject to the Rhode Island sales or use tax.

Discussion

RIG: 44-18-18 imposes a seven percent (7%) sales tax on sales at retail within the state. "Casual Sales" that is, sales made by a person other than a retailer are generally not subject to tax. RIGL 44-18-20, which defines casual sales reads in pertinent part as follows:

> (5) The term "casual" shall mean a sale made by a person other that a retailer, provided, however, that in the case of a sale of a motor vehicle, said term shall mean a sale made by a person other than a licensed motor vehicle dealer, or an auctioneer at an auction sale...
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> (6) Every person making more that five (5) retail sales of tangible personal property during any twelve-month period, including sales made in the capacity of assignee for the benefit of creditors or receiver or trustee in bankruptcy, shall be considered a retailer within the provisions of this chapter.
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> (7) Casual sale includes a sale of tangible personal property not held or used by a seller in the course of activities for which he is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if activities were conducted in this state, provided such sale is not one of a series of sales sufficient in number, scope and character (more than five (5) in any twelve-month period) to constitute an activity for which he is required to hold a seller's permit if the activity were conducted in this state. (emphasis added)

In the statement of facts it is represented that the sellers are not retailers of the assets being transferred pursuant to the Agreement. Y Corporation, however , is a registered retailer in the State of Rhode Island. Since Y Corporation is a retailer in this state, RIGL 44-18-20, particularly subsection (7), must be closely examined.

That section would exclude from the casual sales provision, the sale of tangible personal property, sold in bulk or otherwise, which is held or used by a seller in a course that any of the equipment being sold was held or used by Y Corporation in said course of activities for which the seller is required to hold a permit.

The assets in question, referred to in the Fact as "Fossil Assets" are defined in the Agreement. Those assets include both realty and personalty, tangible property and intangible property. Also included is machinery and equipment; some of which would probably qualify as exempt manufacturing equipment. It cannot be determined from this ruling request which portion of the assets were held or used by Y Corporation in a course of activities for which it is required to hold a sales tax permit. It is clear, however that the sale of all the assets would not fall within the definition of a "casual sale" under Rhode Island law

Ruling

The sale of assets by the Sellers to Client cannot be classified, as a whole, as a casual sale.

This ruling may be relied upon by Client and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying situations described above change.

**R. Gary Clark

Tax Administrator**

September 3, 1998