Today I want to talk about the sales tax cost of selling or buying the assets of a business. The buyer and seller of a business often argue over who will pay any sales tax on the tangible personal property, such as, the furniture, equipment and machinery.
Many states, however, won’t tax the sale of the tangible personal property under what is called the occasional sales exemption. This exemption often applies when selling the assets of a business.
A recent North Carolina ruling illustrates how the occasional sales tax exemption works in connection with an asset sale. The company involved was a manufacturer and retailer. It had no plants in North Carolina. However, the company’s information technology division owned and used “servers, computer-related equipment, software, and other tangible personal property … in North Carolina … (to) … provide IT services to other divisions and affiliated companies … as well as to third parties.”
The company sold its IT division, including the servers, computer-related equipment, software and other tangible personal property located in North Carolina. In a private letter ruling, North Carolina determined that the sale of the North Carolina tangible personal property was exempt from the sales tax under the occasional sales exemption:
“Based on the information provided, Taxpayer is not in the business of selling servers and other computer-related equipment and did not hold itself out to be selling such items in its regular course of business. Therefore, sales tax is not due on the servers and other computer-related equipment transaction as such is an occasional or isolated sale.”
The North Carolina Department of Revenue private letter ruling is SUPLR 2018-0002 (Jan. 19, 2018) and can be found at: https://files.nc.gov/ncdor/documents/files/suplr_2018-0002_redacted.pdf?9OHs6C.f875T2aL_KQl5dvSFvjRQ5LxM
Comment. Most states provide an occasional sales exemption which generally apply to sales in bulk or sales not in the ordinary course of business. However, each state is different.
This company might end of up with a different result if the North Carolina servers and other tangible personal property had been in California and the company had sold more than 2 items of the California tangible personal property in the 12 months preceding the sale. The earlier sales would disqualify the sale from the California occasional sales tax exemption.
By John McCauley: By John McCauley: I help people manage their tax risk when buying or selling a business.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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