Was an individual's one-time sale of personally owned equipment used by his corporation occasional despite his separate retail business?

Plain-English summary

An individual owned more than 80 percent of a corporation and personally owned shelves, fixtures, and equipment used in the corporation's retail business. The individual also operated a separate retail business in another city. The parties, equipment, sale, and other business were not identified.

Tax Counsel advised that the individual would not owe sales tax on the one disposition and that it appeared occasional under section 6006.5(a) because the equipment was not held or used in the separate business. That answer depended on the individual's only other individual-capacity sales during the preceding twelve months being normal stock-in-trade sales in the other business.

The response was expressly hypothetical because the parties were unnamed. Counsel wanted their names to check both businesses' records and reserved the answer for any factual difference found in those files.

Hypothetical request, strict conditions, related referral, and source limits

Tax Counsel E. H. Stetson wrote to unidentified addressees on January 20, 1965 in reply to their January 15 letter. The source does not state the request's year, reproduce it, identify the parties, or say who the addressees represented. Stetson repeatedly described the question as hypothetical and said the Board lacked knowledge of the actual case.

On the stated facts, an individual owned more than 80 percent of a corporation's stock. The individual separately owned shelves, fixtures, and equipment used in that corporation's retail business and also operated an individual retail business in another city. The equipment at issue was not held or used in that other business.

Stetson advised that the individual would not be liable for sales tax on the one equipment sale. He treated it as within section 6006.5(a)'s occasional-sale definition if the only other sales the individual had made in an individual capacity during the preceding twelve months were normal sales of stock in trade from the separately operated retail business. The letter does not say there were no other transactions; it makes the conclusion conditional on that being the complete individual sales history.

The more-than-80-percent stock interest described the relationship but did not merge the corporation's retail activity with the individual's separate retail business. The analysis turned on individual ownership of the assets, their use in the corporation rather than in the individual's other business, one equipment sale, and the stated limit on every other individual-capacity sale during the lookback period.

Because the corporation and individual were unnamed, Stetson asked for their names so the Board could check its records concerning each business's operations. He expressly made the answer subject to factual differences found on that review. The PDF contains no later identification, file review, revised advice, audit, assessment, return, claim, appeal, or other outcome.

The final paragraph identifies another January 15 letter concerning automobile use tax and says it was referred to legal-staff member Robert H. Anderson. That separate request, Anderson's response, the automobiles, and any outcome are not included, so this page draws no conclusion from that cross-reference.

The source also omits the January 15 hypothetical request; individual and corporation names; corporate records and stock ledger; evidence of the ownership percentage; equipment purchase, title, payment, use, and depreciation records; sale date, buyer, price, contract, invoice, delivery, and reporting; other individual sales; separate-business books, inventory, permit, returns, and stock-in-trade records; Board files; and later correspondence or outcome.

The live annotation accurately presents the narrow proposition that a stockholder's sale of individually owned fixtures and equipment used by the corporation may be occasional if it is not one of a series made in the stockholder's individual capacity. It omits the more-than-80-percent interest; shelves; separate retail business and different city; nonuse of the equipment in that business; normal-stock-in-trade and twelve-month conditions; section 6006.5(a); hypothetical posture; unnamed parties; requested records check and express factual reservation; separate automobile letter and Robert H. Anderson referral; missing records; and absence of a later outcome.

What this means for you

Shareholders owning corporate-use assets personally

Separate ownership and use can matter, but common ownership does not make a hypothetical answer conclusive. Document the individual's complete sales history and the distinct operations of the individual and corporation.

Accountants and tax professionals

Document who owns the equipment, which business uses it, the owner's other sales, and whether any related dispositions occurred within the relevant period. Confirm that “normal stock in trade” accurately describes every other sale if that condition is part of the analysis.

Common questions

Q: Did the individual's separate retail business automatically make the equipment sale taxable?
A: No. The equipment was not held or used in that business.

Q: Did normal stock-in-trade sales create a series with the equipment sale?
A: No under the hypothetical facts stated in the letter.

Q: Did ownership of more than 80 percent of the corporation itself decide the issue?
A: The result instead focused on the individual's ownership and use of the equipment and separate sales history.

Q: Was the answer final for an identified taxpayer?
A: No. The letter reserved changes based on review of actual files.

Q: Did the letter establish that the stated facts were accurate?

A: No. Counsel said the parties were unnamed, the actual case was unknown, and the answer was subject to differences found in their files.

Q: What precise condition applied to the individual's other sales?

A: During the preceding twelve months, the only other individual-capacity sales had to be normal stock-in-trade sales made in the individual's separate retail business.

Q: Does the source decide the separate automobile use-tax question?

A: No. It only says a same-date letter on that subject was referred to Robert H. Anderson.

Q: Does the source establish that an identified equipment sale occurred?

A: No. The question was hypothetical and the parties were unnamed; the source provides no sale documents, tax reporting, later record review, or outcome.

Citations and references

• California Revenue and Taxation Code § 6006.5(a)
• January 15 hypothetical request — identified but not included; year not stated
• Corporation and individual business files — requested for review but not included
• Same-date automobile use-tax request and Robert H. Anderson response — referral identified; documents not included
• Ownership, equipment, sale, other-sales, business, tax, review, and outcome records — described or implicated but not included

Verbatim support

From the official January 20, 1965 Tax Counsel letter:

It will not be considered one of a series of sales if the only other sales which the individual has made in his individual capacity over the preceding 12 months are normal sales of stock-in-trade made in the business which the individual operates in another city.

It should be understood that we have answered your hypothetical question without knowledge of the actual case because you do not name the parties involved.

Our answer herein is, of course, subject to any differences in the actual facts that might be ascertained upon reviewing the files of the businesses concerned.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.0700
• Original supporting opinion: 395.0700 PDF

Original ruling text

395.0700

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

January 20, 1965

Gentlemen:
In reply to your letter of January 15, we advise that under the facts stated in your letter the individual will not be liable for sales tax on the one sale of the shelves, fixtures and equipment used in the retail business of a corporation in which the individual owns more than 80 percent of the stock. This is because although the individual operates a separate retail business in another city the equipment in question was not held or used in that business. In this case the sale in question appears to fall within the definition of an "occasional sale" as defined in Section 6006.5(a) of the Sales and Use Tax Law. It will not be considered one of a series of sales if the only other sales which the individual has made in his individual capacity over the preceding 12 months are normal sales of stockin-trade made in the business which the individual operates in another city. It should be understood that we have answered your hypothetical question without knowledge of the actual case because you do not name the parties involved. We would prefer that you give us the name of the corporation and the individual so that we could check our records relative to the business operations of each. Our answer herein is, of course, subject to any differences in the actual facts that might be ascertained upon reviewing the files of the businesses concerned. Your other letter of the same date concerning the use tax with respect to automobiles has been referred for reply to Mr. Robert H. Anderson of our legal staff.

Very truly yours,

E. H. Stetson
Tax Counsel

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