Did debt remaining on an insolvent business's conditional-sale property count toward taxable consideration when an assignee or receiver sold it?

Plain-English summary

An assignee or receiver of an insolvent business sometimes sold property that the business had bought under a conditional-sale contract. The buyer either expressly assumed the unpaid contract balance or acquired the property subject to that balance.

Tax counsel concluded that the unpaid debt was part of the consideration for the asset sale and was subject to sales tax. The same result applied to a subject-to transfer because the purchaser had to pay the existing balance to acquire the property.

Citations and references

• United States v. Hendler, 303 U.S. 564 (as cited)
• Redacted request for advice about recurring liquidation sales by assignees or receivers — date, requester identity and role, form, complete contents, and copy not supplied in the official PDF
• Unidentified insolvent businesses, conditional-sale contracts, property, unpaid balances, liquidation representatives, purchasers, assumptions, and subject-to transfers — general scenarios only; contracts, assignments, receivership orders, sale agreements, payments, tax records, and outcomes not reproduced in the official PDF
• Official Annotation 295.0800's insolvent debtor, assignee or receiver, conditional-sale property, assumed or subject-to balance, consideration, taxable result, and June 22, 1955 date — annotation omits the request provenance, recurring hypothetical posture, United States v. Hendler citation, missing records, absence of a cited California statute or regulation, reliance status, and later outcome and supplies no additional transaction 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/295-0800.pdf

Original ruling text

295.0800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

June 22, 1955

Dear Ms. --- ---:
You request our advice as to the application of tax under circumstances which often arise in the liquidation of assets of businesses. From time to time the assignor or receiver of the assets of the insolvent business will sell property purchased by the insolvent under a conditional sale contract on which there is a balance due. Sometimes the buyer assumes and agrees to pay the unpaid balance. In other instances, the buyer acquires the property “subject to” the unpaid balance. We think that where property is sold and the purchaser assumes the balance due under conditional sales contract such balance due is part of the consideration for the sale of the property and is subject to sales tax. (See U. S. v. Hendler, 303 U. S. 564.) We also think there is no substantial difference between a sale in which the buyer assumes the balance due under a conditional sales contract and a sale where the buyer acquires the property “subject to” the unpaid balance since, in order to acquire the property, the purchaser must pay that unpaid balance. If you have any further questions with respect to this matter, please feel free to call upon us. Very truly yours,

John H. Murray
Associate Tax Counsel

JHM:ph
cc:

Los Angeles – Auditing