Was a permitted charitable hospital's same-day sale of unrelated business equipment received by bequest an exempt occasional sale?

Plain-English summary

A charitable corporation operated hospital and care facilities and held a seller's permit for its hospital operations. It inherited an unrelated business and planned to sell it on the same day the probate court issued the decree of distribution.

The total proposed price was $30,075,130, tentatively allocated between $20,930,000 for land and buildings and $9,145,130 for equipment.

The opinion concluded that the proposed equipment transfer would be exempt as an occasional sale under sections 6006.5 and 6367. The hospital never conducted the inherited business, would own it only briefly on the transfer day, and was not regularly engaged in equipment sales. Its separate permitted hospital activity did not make the inherited equipment part of an activity requiring a seller's permit.

Proposed transaction, authority, and source limits

Staff Counsel Mary C. Armstrong answered an August 4, 1980 letter from attorney R--- J. V--- that had been referred by Gary Jugum. Under the described will, a person who died in July 1976 had devised and bequeathed an unrelated business to the charitable corporation. The estate's executor advised the corporation in April 1979 that it could expect an early distribution, and the corporation's trustees decided the business must be sold.

The corporation and buyer entered an agreement of sale on July 2 and 3, 1980, respectively. The closing was scheduled for September 1, three days after this opinion. On that day, the Probate Court was expected to issue a decree of distribution; the corporation would receive the inherited assets and transfer them to the buyer through deeds, bills of sale, vehicle-title pink slips, and assignments of leases. The $30,075,130 tentative allocation was $20,930,000 to land and buildings and $9,145,130 to equipment.

Section 6006.5(a), as quoted in the letter, defined an occasional sale to include property not held or used in the seller's permit-requiring activities, provided the sale was not part of a series sufficient in number, scope, and character to require a permit. Section 6367, also quoted, exempted gross receipts and use from an occasional transfer of tangible personal property. Counsel applied those provisions because the hospital would receive and resell the inherited business on the same day, had never operated and would never operate that business, and did not regularly sell equipment.

The PDF does not include the August 4 request, will, estate records, trustee resolution, July sale agreement, asset schedule, deeds, bills of sale, vehicle titles, leases or assignments, Probate Court record or decree, closing record, final price or allocation, appraisal, seller's permit, return, audit, assessment, payment, refund claim, protest, appeal, or later outcome. It does not establish that the scheduled decree, closing, or transfers occurred.

The live annotation preserves the hospital seller's permit, inherited unrelated-business equipment, same-day distribution and sale, occasional-sale result, two stated reasons, and August 29, 1980 date. It omits the prospective posture, charitable-corporation status and care operations, decedent and estate history, trustee decision, buyer and agreement dates, scheduled September 1 closing, described transfer documents, $30,075,130 tentative allocation, sections 6006.5 and 6367, request and referral, missing records, and absent transaction and tax outcome.

What this means for you

Charities and permitted service organizations

Holding a seller's permit for one activity did not automatically make a one-time sale of unrelated inherited assets taxable on these facts.

Estate and tax professionals

Preserve evidence showing when distribution and resale occur, whether the beneficiary ever operated the inherited business, and whether it regularly sells the type of property transferred.

Common questions

Q: Did the hospital's existing seller's permit make the equipment sale taxable?
A: No. The inherited equipment was not held or used in the hospital activity for which the permit was required.

Q: Did the hospital operate the inherited business before selling it?
A: No. The opinion said it never had and never would engage in that business.

Q: How long would the hospital own the inherited business?
A: Only for a short time on the day of distribution and transfer.

Q: What equipment value was tentatively allocated in the agreement?
A: $9,145,130 of the $30,075,130 total purchase price.

Q: Had the scheduled sale already closed when counsel wrote?

A: No. The opinion was dated August 29, 1980, while the decree, distribution, and closing were scheduled for September 1. The source contains no later record showing that they occurred.

Q: What transfer documents did the planned closing contemplate?

A: Deeds, bills of sale, vehicle-title pink slips, and assignments of certain leases, together with the Probate Court's distribution decree.

Citations and references

• California Revenue and Taxation Code section 6006.5(a)
• California Revenue and Taxation Code section 6367
• August 4, 1980 request to the Board — described but not included
• Will of F--- G---, estate and trustee records, July 2 and 3 agreement of sale, Probate Court decree, transfer instruments, tax records, and outcome materials — described or implicated but not included

Verbatim support

From the official August 29, 1980 Staff Counsel letter:

You wish to know whether the proposed sale of equipment in conjunction with the sale of [S] is an occasional sale under the Sales and Use Tax Law.

We are of the opinion that the sale of [S] by F---, which will occur after the distribution of the [S] to the F---, by virtue of the Final Decree of Distribution, is an exempt occasional sale under Revenue and Taxation Code Section 6367.

This is true notwithstanding the fact that the F--- does operate a business which requires the holding of seller's permit, the hospital,, since the assets of [S] which will be distributed to the F--- and then sold the same day are not held by the F--- “in the course of activities for which (it) is required to hold a seller's permit.”

The F--- has never engaged and will never engage in any business of the [S] which would require it to hold a seller's permit since it will only own the [S] for a short time on the day of transfer.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 395.0130
• Original supporting opinion: 395.0130 PDF

Original ruling text

395.0130

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-3237

August 29, 1980

Mr. R--- J. V--Attorney at Law
--- --- --- Building, XXXth Floor
XXXXX --- --- Boulevard
--- ---, CA 90067
Dear Mr. V---:
RE:

M--- P--- and T--- F---,
A California Charitable Corporation
SX -- XX XXXXXX

Your letter of August 4, 1980 to Mr. Gary Jugum has been referred to the undersigned for reply. You have requested an opinion from this office concerning the following transaction. Background The M--- P--- and T--- F--- (“F---”) is a charitable and [exempt---] corporation. It operates an acute hospital, skilled nursing facilities, long-term care facilities, retirement care facilities, and two outpatient clinics in Southern California. Social services are also provided. As a result of its hospital operations, the F--- holds a Seller’s Permit. Under the terms of the Will of F--- G---, a limited partner in the [S], the business of the [S] was devised and bequeathed to the F---. Mrs. G--- died in July of 1976. In April of 1979, the F--was advised by the executor of the estate of F--- G--- that the F--- could anticipate an early distribution of the [S] assets. At that time, the Board of Trustees determined that the [S] must be sold. An agreement of sale was entered into between the F--- and [W], on July 2 and 3, 1980, respectively. Under the terms of that agreement of sale, a closing is now scheduled for September 1, 1980. A Decree of Distribution will issue from the Probate Court on the day provided for closing of the sale. On that day, the F--- will receive, and, in turn will deliver to the title

Mr. Robert J. Vallier

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August 29, 1980
395.0130

company for recordation, the Decree of Distribution, together with a deed from the F--- in favor of
[W]. At that time, the assets to be sold will be transferred, and such transfers will be evidenced by deeds, bills of sale, transfer of pink slips, and assignments of certain leases. Under the terms of the Sales’ Agreement, the total purchase pirce will be $30,075,130.00 and the purchase price is tentatively allocated as follows: Land and buildings Equipment

$20,930,000.00
9,145,130.00

Question Presented
You wish to know whether the proposed sale of equipment in conjunction with the sale of
[S] is an occasional sale under the Sales and Use Tax Law.
Analysis
An “occasional sale” is defined in Revenue and Taxation Code Section 6006.5 as: “(a) A sale of property not held or used by a seller in the course of activities for which he is required to hold a seller’s permit or permits if the activities were conducted in this state, provided such sale is not one of a series of sales sufficient in number, scope and character to constitute an activity for which he is required to hold a seller’s permit or would be required to hold a seller’s permit if the activity were conducted in this state, …” Section 6367 provides that: “There are exempted from the taxes imposed by this part the gross receipts from occasional sales of tangible personal property and the storage, use, or other consumption in this state of tangible personal property, the transfer of which to the purchaser is an occasional sale….” We are of the opinion that the sale of [S] by F---, which will occur after the distribution of the [S] to the F---, by virtue of the Final Decree of Distribution, is an exempt occasional sale under Revenue and Taxation Code Section 6367. This is true notwithstanding the fact that the F--- does operate a business which requires the holding of seller’s permit, the hospital,, since the assets of [S] which will be distributed to the F--- and then sold the same day are not held by the F--- “in the course of activities for which (it) is required to hold a seller’s permit.” The F--- has never engaged and will never engage in any business of the [S] which would require it to hold a seller’s permit since it will only own the [S] for a short time on the day of transfer. In addition, it is not regularly in the business of making sales of equipment, the type of property it is selling in this instance. As such, tax will not apply to the F---’s sale of tangible personal property which is a part of the sale of the [S].

Mr. Robert J. Vallier

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August 29, 1980
395.0130

If you have further questions concerning this matter, please write this office again. Very truly yours,

Mary C. Armstrong
Staff Counsel

MCA:ba