Did both assumed vehicle debt and cancelled notes count as gross receipts when an insolvent corporation transferred a car to its creditor?

Plain-English summary

An insolvent corporation transferred a Buick to a creditor. The creditor assumed $2,400.86 remaining on the car and cancelled notes that the corporation owed him. The taxpayer argued that only the assumed vehicle balance counted as the automobile's sale price.

Tax counsel concluded that both forms of consideration entered gross receipts under section 6012. The transfer occurred in exchange for both assumption of the car debt and cancellation of the corporation's separate notes, so together they measured the taxable transaction.

The letter's main factual description gives the cancelled-note amount as $2,042.11, producing the audited total of $4,442.97. A quoted adjuster's report instead says approximately $2,410; the official source does not reconcile that difference.

Citations and references

• California Revenue and Taxation Code section 6012 (as cited)
• October 8, 1954 letter to J. C. Ingle contesting the $4,442.97 audited Buick price and October 23 letter claiming the creditor's canceled debt was unrelated to the transfer — letters not separately reproduced beyond the response's summaries
• April 14, 1954 adjuster's report quoting the creditor and schedule of assets and liabilities submitted to creditors — report quoted in part and schedule described; complete records not reproduced in the official PDF
• February 1954 automobile transfer, $2,400.86 purchase-contract debt, $2,042.11 notes, report's approximately $2,410 note account, debt assumption, cancellation or failure to file an assignee claim, and audit measure — purchase contract, notes, transfer, assignee and creditor records, valuation, audit workpapers, and computations not reproduced in the official PDF
• Invitation to submit further information or request a Board hearing — no later evidence, hearing request, Board action, redetermination, collection, refund, appeal, or outcome supplied
• Official Annotation 295.0780's property transfer, assumed property debt, canceled transferee-held notes, gross-receipts treatment, and Dec. 30, 1954 date — annotation omits the request letters, audit measure, exact amounts and $2,042.11-versus-approximately-$2,410 conflict, insolvency and assignee context, auditor advice, adjuster's report and creditor schedule, procedural invitation, missing records, absence of other numbered authority, reliance status, and later outcome and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-0780.pdf

Original ruling text

295.0780

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 30, 1954

--- --- ----- --- ----- --- --Attention:

Gentlemen:
Your letter of October 8, 1954, to Mr. J. C. Ingle has been referred to me for reply. We understand that you contend that the sale price of a Buick Riviera Sedan sold in February 1954 to Mr. --- --- should be $2,400.86 rather than $4,442.97 as set forth in our audit. Our information is that, at the time taxpayer transferred the automobile to Mr. A., taxpayer still owed $2,400.86 on the purchase price of the automobile and owed Mr. A $2,042.11 on outstanding notes. Mr. A. assumed the indebtedness owing on the automobile and cancelled taxpayer’s obligations to him. Both the assumption of taxpayer’s indebtedness on the car and the cancellation of taxpayer’s notes to Mr. A. would fall within the definition of “gross receipts” under Section 6012 of the Sales and Use Tax Law and thus be the measure of tax on the transaction. In your letter of October 23 you state that the only consideration paid by Mr. A. for the automobile was the assumption of the unpaid balance which taxpayer owed on the purchase contract for the car and that Mr. A.’s cancellation (failure to file a claim with the assignee) of the indebtedness owed to him by taxpayer was in no way related to the purchase of the automobile. Our auditor advises us that your adjuster, Mr. B., in going over taxpayer’s assets and liabilities notices that the assets included a 1953 Buick and the liabilities included a contract payable on this automobile and a note payable to Mr. A. Your adjuster’s report dated April 14, 1954, in this regard reads as follows: “Mr. A. was asked regarding the transfer of this car from the corp. to him and he stated that the corp. owed him $2, 410.00 and he took the Buick and assumed the contract with a balance owing of around $2,400.00. This car is not worth the balance owing on the contract.”

--- ---

-2-

December 30, 1954
295.0780

Thereafter, the schedule of assets and liabilities submitted by you to the creditors for their consideration omitted the Buick automobile as an asset and the contract payable on the automobile and the note payable to Mr. A. as liabilities. We think these facts clearly show that the automobile was transferred to Mr. A. in consideration of his assuming the balance due on the purchase price and cancelling the note payable to him from the corporation. If you have any further information with respect to this matter, we will be pleased to consider it. Otherwise, if you desire, we will set the matter for Board hearing. Yours very truly,

John H. Murray
Associate Tax Counsel

JHM:ja