Was an electrical contractor's purchase of a generator from its owner an exempt occasional sale, and could audit interest be waived?

Plain-English summary

Virginia exempted the generator transfer as an occasional sale but kept the audit interest. The electrical contractor bought the generator from its owner, and the facts showed a sale outside an activity for which the owner had to hold a sales-tax registration certificate.

Virginia therefore removed the generator from the audit. It refused to waive interest, however, because interest is mandatory compensation for the taxpayer's use of money due to the Commonwealth. The Department found no deliberate audit delay and noted that the contractor had received opportunities to provide documents.

Common questions

Q: Are all owner-to-company asset transfers occasional sales?
A: No. This ruling applied the exemption to the specific generator transfer and statutory definition presented.

Q: Did the lengthy audit justify reducing interest?
A: No. Virginia found no deliberate delay and no legal basis to waive the interest.

Citations and references

• Va. Code §§ 58.1-602, 58.1-609.10(2), and 58.1-1812.

Subject

Occasional sale exemption applies to the transfer of the generator to the Taxpayer

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-69

Original ruling text

May 3, 2012

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 May 2004 through April 2010. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is an electrical contractor that specializes in commercial, industrial and new construction services. The Taxpayer maintains that the audit took an excessive amount of time to complete and requests that the interest assessed in the audit be reduced. The Taxpayer also contests the inclusion of a generator in the audit and requests that it be removed from the exceptions list.

DETERMINATION

Interest

Virginia Code § 58.1-1812 mandates the application of interest to any tax assessment. Interest is not assessed as a penalty for noncompliance with tax laws. Rather, it simply represents a fee for the use of the money over a period of time.

Based upon my review of the audit, I do not find that audit process was deliberately prolonged. The Taxpayer was given the opportunity to provide additional documentation and adjustments were made when warranted, prior to the audit being finalized. In this instance, the Taxpayer had the use of money that was properly due to the Commonwealth. Accordingly, I find no basis to waive the interest assessed as a result of the Department's audit.

Generator

The Taxpayer contests the inclusion of a generator on the Contested Assets Exceptions List. The Taxpayer states that the generator was purchased by the Taxpayer from the Taxpayer's owner. The Taxpayer contends the occasional sale exemption applies, and the purchase of the generator is not subject to the retail sales and use tax.

Virginia Code § 58.1-609.10 2 provides that the retail sales and use tax does not apply to "An occasional sale, as defined in § 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, including 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.

Based upon the facts and information provided, the occasional sale exemption applies to the transfer of the generator to the Taxpayer. Accordingly, the generator will be removed from the Contested Assets Exceptions List, and the assessment will be revised in accordance with this determination.

Updated bills, 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. Please remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *, Post Office Box 27203, Richmond, Virginia 23261-7203.

The Code of Virginia sections 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,

Craig M. Burns

Tax Commissioner

AR/1-4898406111.P