Technical Assistance Advisory No. 88-007 Re: Application Of Consumers Sales And Service Tax To Sales Of Repossessed Collateral By Banking Institutions [Recently advice was requested from this Office as to whether a banking institution in its position as a secured creditor selling repossessed collateral is required to collect and remit consumers sales and service tax with respect to any private or public sale conducted for the purpose of disposing of such collateral. Sales of repossessed collateral by banking institutions have historically been treated as taxable sales and thus consumers sales tax was required to be collected and remitted when such sales were conducted unless the purchaser was eligible to claim an exemption either by issuing to the vendor an exemption certificate or by giving to the vendor his or its direct pay permit number. This treatment was based on the fact that neither the consumers sales and service tax statutes nor the corresponding regulations thereto contained any provision that would act to exempt such sales. Because of legislatively mandated amendments which were approved as of March 12, 1988, banking businesses or institutions are by regulation no longer required to collect consumers sales tax on sales of repossessed collateral. The ruling set forth under this Technical Assistance Advisory shall be applicable to sales of repossessed collateral by banking businesses or institutions conducted on or after March
12, 1988.] This letter is in response to your correspondence of August
17, 1988 in which you requested a ruling on behalf of one of your clients pertaining to the application of consumers sales and service tax to sales of repossessed collateral by banking institutions. Based upon the information provided, your firm represents the Bank of X which is a national banking association with its principal place of business located outside West Virginia. As the result of a series of revolving and term loan agreements, the Bank in 1986 loaned to ABC Corporation, a West Virginia corporation (hereinafter "ABC"), a manufacturer and distributor of various products, the aggregate sum of two million nine hundred thirty thousand dollars ($2,930,000). The loans to ABC are secured by a deed of trust on ABC's real property and by a Uniform Commercial Code Security Agreement covering all of ABC's tangible and intangible personal property including all inventory, equipment and fixtures. Because ABC defaulted on all its loan obligations, the Bank of X exercised its rights under the authority of the above mentioned security agreement by entering and taking possession of the business premises of ABC and all property of the Corporation located thereon. Subsequently, the Bank notified ABC of its intent to sell, in accordance with the provisions of the Uniform Commercial Code, all or a portion of the collateral of which the Bank had taken possession at one or more private sales on or after a specified date. In addition, the Bank of X presently intends to sell at public auction all of the repossessed collateral which cannot be disposed of by private sale. According to your understanding of the situation, your client intends to conduct the private sale by soliciting sealed bids from former customers of ABC and any other parties in the manufacturing industry who may have an interest in the Corporation's inventory. It is your understanding that the primary means of advertising such private sale is to by wordofmouth advertising within the industry. In view of the factual situation presented, the question posed in your correspondence is whether the Bank of X in its position as a secured creditor selling repossessed collateral pursuant to the provisions of the Uniform Commercial Code is required to collect and remit any West Virginia consumers sales tax with respect to any private or public sale it may conduct for the purpose of disposing of such collateral. After consideration of the circumstances surrounding this matter, you are of the opinion that the sales in question should not be subject to the consumers sales tax because the Bank is not a dealer in the goods being sold, and the sales to be conducted are not in the ordinary course of its business. You further contend that the sales in question represent an isolated transaction which should exempt the Bank from the requirement to collect consumers sales tax. The West Virginia Consumers Sales and Service Tax is codified in Article 15, Chapter 11 of the West Virginia Code. This tax is imposed on sales and leases of tangible personal property and on the dispensing of selected services in this State. See W.
Va. Code §
11-15-3. All sales of tangible personal property or services are presumed subject to the consumers sales and service unless excepted or exempted. See W.
Va. Code §
11-15-6. West Virginia Code §
11-15-8 excepts from the imposition of consumers sales tax professional services, personal services and services provided by corporations subject to the control of the Public Service Commission. The consumers sales tax is also not applicable to contracting services or to services provided by an employee to his employer. See W.
Va. Code §
11152(i). The exemptions to the consumers sales tax are set forth under West Virginia Code §
11159. West Virginia Code §
11159(h) provides that "an isolated transaction in which any tangible personal property is sold, transferred, offered for sale or delivered by the owner thereof or by his representative for the owner's account, such sale, transfer, offer for sale or delivery not being made in the ordinary course of repeated and successive transactions of like character by such owner or on his account by such representative" is exempted from the imposition of consumers sales and service tax. The corresponding regulations to the consumers sales tax dictate the following with regard to the exemption contained in West Virginia Code §
11159(h): "Isolated transaction" means a transaction or event in which tangible personal property is sold, transferred, offered for sale or delivered by the owner thereof or by his representative. In order to qualify as an isolated transaction, the seller may not be in the business of selling the type of tangible personal property which is the subject of the transaction. The isolated transaction may be in the form of a single transaction, or a series of transactions which would be an event. An example of a single transaction would be the sale of a boat or an individual's furnishings. An example of a series of transactions comprising an event would be a yard sale. Whether as separate transactions or as events, or as a combination of the two, a person may hold no more than four isolated transactions in any twelve month period. Additionally, an event may not be longer than fortyeight hours in duration. See 110 C.S.R. 15, §
2.11 (1987). Given the description in your correspondence of the manner in which ABC's inventory is to be disposed of, it is evident that the proposed disposition, although constituting an event, does not qualify as an isolated transaction due to the fact that the duration of the subject sales will exceed the fortyeight hour limitation established by the consumers sales and service tax regulation set forth and cited above. Although we cannot conclude that the manner in which the sale in question is to be conducted constitutes an isolated transaction for purposes of the consumers sales tax, we nonetheless are of the opinion that the contemplated transaction would not necessitate the collection of sales tax due to a provision contained in the consumers sales and service tax regulations pertaining to banking business. The said provision provides the following guidelines regarding the application of consumers sales tax to banking business: 31.1.1 For purposes of this regulation, "banking business" includes any bank, banking association, trust company, industrial loan company, small loan company or licensee, building and loan association, savings and loan association, finance company and any other similar business organization at least 90% of the assets of which consist of intangible personal property and at least 90% of the gross receipts of which consist of dividends, interest and other charges derived from the use of money or credit. 31.2 Any purchase by banks of tangible personal property or services directly used or consumed in providing a taxable service or for resale are not subject to the sales and service tax or use tax. 31.3 Generally, the services rendered to consumers by banks, state and national, are exempt from the sales and service tax because such services constitute professional services, consideration for the extension of credit, charges related to the transfer of intangible property, or electronic data processing services for others. 31.4 Nevertheless, the sale of some bank services and bank related tangible property are taxable. The following constitutes a complete list of items or services on which banks must charge and collect sales and service tax unless the purchaser or transaction is exempt: 31.4.1 Charges made for real estate management unless the service is provided by a licensed real estate broker, 31.4.2 Any payment received after July
1, 1987, for rental of safety deposit boxes regardless of the fact that a rental or lease agreement may have been executed prior to July
1, 1987, 31.4.3 Fees received for collection of notes and accounts of others, 31.4.4 Sales to consumers of promotional items, such as glassware, silverware, appliances, etc., and 31.4.5 Sales to consumers of checks, checkbooks and money bags, and similar items, 31.4.6 Charges for research and copying. See §
110 C.S.R. 15, §
31 (1987). Inasmuch as the above cited regulation sets forth a complete list of items and services on which banks are required to collect consumers sales and service tax and such list does not require the collection of tax on sales of repossessed collateral, banking businesses or institutions are not responsible for the collection of consumers sales tax when such sales are conducted. ________________________________ Michael E. Caryl State Tax Commissioner Date: September 20, 1988