Did a shareholder owe tax on rent after dissolving a corporation and leasing its previously tax-paid personal property?

Plain-English summary

An unidentified individual wrote an absent May 11, 1981 letter asking whether a seller's permit and rental-tax reporting were required. As restated, the individual bought all stock of an unidentified California corporation in late 1980. The corporation owned and operated a bowling alley, restaurant and golf driving range.

After the stock acquisition, the individual dissolved the corporation. The source calls the transfer of its property to the individual simultaneous with dissolution. The individual then leased the acquired real and tangible personal property to an unidentified operator. The requester said sales or use tax had been paid when the corporation acquired every personal-property item leased.

Section 6006.5(b) included a transfer of all or substantially all business property as an occasional sale when real or ultimate ownership remained substantially similar. It also treated shareholders as holding the corporation's ultimate ownership. Because this sole shareholder indirectly owned the assets before dissolution and directly owned them afterward, the opinion found the dissolution transfer qualified.

That made the corporation a qualifying transferor under section 6006(g)(5)(A). Assuming prior sales or use tax was in fact paid on each leased item and the individual leased it in substantially the same form as the corporation had acquired it, section 6006(g)(5) imposed no additional tax on rent. On those assumptions, the individual was not deemed a seller and did not need a seller's permit.

The source does not include the request, identities, stock-purchase or dissolution papers, proof that all or substantially all property transferred, an asset list, prior tax invoices/payments, the lease, returns, an audit or later outcome. Live Annotation 330.4173 publishes the stock purchase, dissolution occasional-sale and same-form lease result, but omits the bowling-alley, restaurant and driving-range operations, permit issue and evidentiary gaps.

Common questions

Why was the corporate dissolution transfer an occasional sale?

The same person held the ultimate ownership through the stock before dissolution and directly owned the transferred assets afterward.

What business had the corporation operated?

A bowling alley, restaurant and golf driving range.

Did the letter exempt every asset received in dissolution?

No. Its lease conclusion depends on tangible personal property for which sales or use tax had already been paid and that was leased in substantially the same form.

Was rent from the transferred personal property taxable?

No under the letter's stated assumptions. The prior tax-paid status carried through the qualifying occasional-sale transfer.

Did the owner need a seller's permit for these leases?

No under the described circumstances, because the owner was not deemed a seller.

Did the source prove every item was tax-paid and unchanged?

No. The requester said tax had been paid, and the opinion expressly assumed both tax payment and substantially the same leased form; the supporting records are absent.

Did the opinion decide the tax treatment of the real-property rent?

No. Its tax conclusion addresses the transferred tangible personal property.

Citations and references

• Historical California Revenue and Taxation Code section 6006(g)(5) and (g)(5)(A) — same-form lease and transferor rules
• Historical California Revenue and Taxation Code section 6006.5(b) — occasional sale and ultimate ownership
• Historical California Revenue and Taxation Code sections 6014 and 6066 — seller status and permit rules
• Live Annotation 330.4173 — stock purchase, dissolution transfer and tax-paid lease result
• Request, identities, transaction/asset records, prior tax proof, lease, returns/audit and outcome — absent

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: Annotation 330.4173
• Original supporting opinion: 330.4173 PDF

Original ruling text

330.4173

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

(916) 445-8485

July 24, 1981

--Re: XX.
--Dear Mr. ---:
This is in response to your letter of May 11, 1981 to Mr. David Barbeiro of our staff which raised a question as to whether or not you are required to obtain a seller’s permit and report tax based on certain rental receipts. Following is our understanding of the background and circumstances surrounding this matter. In the latter part of 1980 you purchased all of the stock in XX., a California corporation which owned and operated a bowling alley, restaurant, and golf driving range. Following your acquisition of the stock, you dissolved the corporation. You then leased the real and tangible personal property acquired in the dissolution to A. You indicated that sales or use tax had been paid, with respect to all the tangible personal property leased, upon acquisition of such property by XX. Whether or not you will be required to obtain a seller’s permit and report tax based on rental receipts turns on whether or not you come within the purview of Revenue and Taxation Code Sections 6006, subdivision (g)(5), 6006, subdivision (g)(5)(A), and 6006.5, subdivision (b). Those sections provide, respectively: Tangible personal property leased in substantially the same form as acquired by the lessor or leased in substantially the same form as acquired by a transferor, as to which the lessor or his transferor acquired the property in a transaction that was a retail sale with respect to which the lessor or the transferor has paid the sales tax or as to which the lessor or the transferor has paid use tax measured by the purchase price of the property. For purposes hereof, transferor shall mean the following: (A) A person from whom the lessor acquired the property in a transaction described in subdivision (b) of Section 6006.5.

(b)
“Occasional sale” includes any transfer of all or
substantially all the property held or used by a person in the course of such activities when after such transfer the real or ultimate ownership of such property is substantially similar to that which existed before such transfer. For the purposes of this section, stockholders, bondholders, partners, or other persons holding an ownership interest in a corporation or other entity are regarded as having the “real or ultimate ownership” of the property of such corporation or other entity. In our opinion, the dissolution of the corporation and simultaneous transfer of its property to you was an occasional sale within the meaning of Section 6006.5, subdivision (b), since, following the transfer, the real or ultimate ownership of the property was substantially similar to that which existed before the transfer. It follows, under Section 6006, subdivision (g)(5)(A), the corporation was a person from whom the lessor (you) acquired the property in a subdivision (b), Section 6006.5 transaction. Assuming, as you indicated, that sales or use tax due was paid with respect to the acquisition by the corporation of the tangible personal property which was transferred to you upon dissolution, and assuming that the property is being leased in substantially the same form as acquired, no additional tax is due based on your lease of the property (Rev. & Tax. Code § 6006(g)(5)). Under these circumstances, you would not be deemed a “seller” and, accordingly, would not be required to hold a seller’s permit (see Rev. & Tax. Code §§ 6014, 6066). Very truly yours,

Les Sorensen
Tax Counsel
LS:po

bc:

D. J. Hennessy
Modesto – District Adm.
LS/2
CIR