Was a medical practice's one-time sale of imaging-center fixed assets taxable when the practice made no regular retail sales and was not required to register?

Subject

One-time imaging-center asset transfer qualified as an occasional sale

Plain-English summary

Virginia removed tax on a radiology practice's one-time sale of fixed assets made in connection with selling an outpatient imaging center. The practice was not registered for retail sales tax, made no regular retail sales, and did not otherwise sell tangible personal property during the audit period.

The occasional-sale definition covered property not held or used in an activity requiring a sales-tax registration certificate. Although the transfer was not a sale of all or substantially all assets, a reorganization, or liquidation, the practice's lack of regular sales activity independently brought the transaction within the exemption.

What this means for you

• The occasional-sale exemption is not limited to selling an entire business or substantially all assets.
• A one-time asset sale can qualify when the seller does not regularly engage in taxable retail sales.
• Healing-arts practitioners were not required to register on these facts because they did not regularly sell tangible personal property.
• Repeated or broader sales activity could produce a different registration and exemption result.

Common questions

Did the practice sell all or substantially all of its assets?

No, and the ruling did not require that route because another part of the occasional-sale definition applied.

Why was the practice not required to register?

It provided radiology services and did not regularly make sales of tangible personal property.

What happened to the assessment?

The tax tied to the asset sale was removed, and the audit was returned for revision.

Citations and references

• Va. Code §§ 58.1-609.10(2) and 58.1-602.
• 23 VAC 10-210-1080(B) and 23 VAC 10-210-2060.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-87

Original ruling text

June 4, 2010

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period November 2002 through October 2008. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer operates as, a medical office that provides radiology services to hospitals. In conjunction with the sale of an outpatient imaging center to a hospital, the Taxpayer also sold fixed assets located at the imaging center to the same hospital. The Taxpayer was assessed tax in the audit because the Taxpayer did not charge tax on the sale of these fixed assets. The Taxpayer is not registered for the retail sales tax and does not make retail sales of any kind. The Taxpayer states that the sale at issue does not involve the sale of all or substantially all of its assets, nor does the sale involve the reorganization or liquidation of the business. The Taxpayer contends that the occasional sale exemption applies to the sale at issue.

DETERMINATION

Pursuant to Va. Code § 58.1-609.10 2, the retail sales and use tax does not apply to an occasional sale as defined in Va. Code § 58.1-602.

Virginia Code § 58.1-602 defines occasional sale as:

A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration, include the sale or exchange of all or substantially all the assets of any business and the reorganization or liquidation of any business, provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration.

Title 23 of the Virginia Administrative Code (VAC) 10-210-1080 B further defines occasional sale as:

1. A sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales; or

2. A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration. The words "not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration" means that a registered dealer is not entitled to an occasional sales exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells; or

3. The sale or exchange of all or substantially all the assets of any business; or

4. The reorganization or liquidation of any business.

Based on the facts presented, and pursuant to the cited authorities, the occasional sale exemption applies to the sale at issue. During the course of the audit period, the Taxpayer only sold tangible personal property in conjunction with the sale of the outpatient imaging center. Pursuant to Title 23 VAC 10-210-2060, which addresses practitioners of the healing arts, the Taxpayer is not required to register for the retail sales tax because it does not regularly makes sales of tangible personal property. Accordingly, the tax assessed in the audit with respect to the miscellaneous sales exemption will be removed from the audit. The audit will be returned to the audit staff to complete the revision. Once the revision is complete, a revised bill, with interest accrued to date, will be mailed to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within thirty days of the date of the bill.

The Code of Virginia sections and regulations cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3387015367.P