State of Rhode Island - Division of Taxation
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.
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.
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.
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...
(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.
(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
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
September 3, 1998