Did four out-of-state television-station sales count with one California sale when deciding whether the California sale was occasional?

Plain-English summary

A multistate corporation sold five television stations to five buyers during 1983 and 1984. Only one station was in California, and its fixtures and equipment produced a $7.8 million disputed tax measure for April through June 1983. The corporation argued that the four out-of-state sales should not count and that each station was an independent division.

The recommendation counted all five sales. The occasional-sale definition asks whether the selling activity would require a permit if conducted in California, so location outside the state did not remove comparable sales from the series analysis.

The corporation, not each station division, was the tax person. Because it made more than two similar retail sales within twelve months, it was treated as a retailer of television stations. Hearing Officer H. L. Cohen recommended redetermination without adjustment, leaving the $7.8 million measure unchanged at that stage.

Petition, five-sale series, authorities, recommendation, and source limits

The Decision and Recommendation concerns a redacted petition for redetermination. The petitioner filed by letter on April 22, 1985, and a preliminary hearing was held in Sacramento on October 27, 1986. The 395.0710 PDF redacts the hearing officer and petitioner's representatives but identifies Board representative E. Pedeupe, a Tax Auditor in the Petition Unit. Its signature line identifies H.L. Cohen and prints the role as Hearing Office.

The disputed liability covered April 1 through June 30, 1983 and was measured by $7.8 million of unreported fixtures-and-equipment sales. The petitioner operated television stations in several states and sold five stations to five buyers during 1983 and 1984. Only one station was in California. The PDF does not identify any station, buyer, transaction date, location other than California, or consideration beyond the California tangible-property measure.

The petitioner described the sales as part of a federally tax-free liquidation plan. It said each station was a separate operating division and the Federal Communications Commission required independent operation. It argued that the California division made only one sale, that four out-of-state transactions could not count toward California's “three sale rule,” and that the liquidation sale should be treated like an untaxed in-kind distribution. It also said the California station held a seller's permit for videotape sales and contended that, at most, only videotape-fabrication equipment could be taxed.

The petitioner cited Ontario Community Foundation, Inc. v. State Board of Equalization, 35 Cal.3d 811, and BTLG Annotation 395.0380 dated April 18, 1958. The recommendation distinguished those authorities as single-business-sale situations. It described Ontario as limiting the taxable amount for a primarily service business to property used in making tangible-property sales, and said the Board had applied that principle to single television-station sales by taxing only videotape-fabrication property. Here, staff treated the multiple-station series as the critical difference.

The analysis found no exemption for liquidation sales as such. It cited Bigsby v. Johnson, 18 Cal.2d 860, for taxing a retailer's sale of property unlike its ordinary merchandise and section 6006 for treating a title transfer for consideration as a sale. An in-kind liquidating dividend without consideration was different from selling assets and distributing the cash proceeds.

Sections 6367 and 6006.5 supplied the occasional-sale framework. The quoted definition reaches activities that would require a California permit if conducted in this state. Staff therefore counted the out-of-state station dispositions when deciding whether the California transaction belonged to a series. Section 6019 treated more than two retail sales in twelve months as retailer activity, and section 6005 included a corporation—but not a division—in the definition of a person. The recommendation accordingly treated the petitioner as a retailer of television stations and rejected separate-division treatment.

Cohen signed the January 6, 1987 recommendation to “Redetemine without adjustment,” preserving the source's misspelling. The form's Reviewed for Audit and Principal Tax Auditor date lines are blank. The PDF does not supply the April petition, assessment or audit workpapers, station identities, five sale agreements and asset schedules, buyer and location records, transaction dates and prices, liquidation plan, federal tax filings or ruling, FCC requirements, California permit and videotape-sales records, allocation of the $7.8 million measure, tax computation, Annotation 395.0380 support, hearing transcript or exhibits, post-hearing submissions, audit review, final Board decision, payment or refund, or later outcome.

The official 395.2296 supporting PDF publishes the same October 27 hearing, April 22 petition, audit period, $7.8 million measure, arguments, analysis, and recommendation with a different redaction pattern. It reveals Cohen as the hearing officer and identifies two redacted CPAs appearing for the petitioner, but it still supplies no underlying transaction records or final Board action. That companion annotation emphasizes the liquidation-sale distinction; this page follows 395.0710's five-station-series focus.

The live 395.0710 annotation preserves the one California and four out-of-state station framework, different purchasers, twelve-month period, corporation-level series, separate divisions, and application of tax to the California fixtures and equipment. It omits the petition and preliminary hearing; $7.8 million measure and audit period; federal liquidation and FCC assertions; California videotape permit and allocation argument; liquidation-sale issue; statutes and named authorities; internal recommendation and blank review line; companion source; missing records; and final-outcome gap.

What this means for you

Multistate businesses disposing of similar operations

Out-of-state asset sales can count when California tests whether an in-state disposition belongs to a regular sales activity.

Accountants and tax professionals

Count sales at the legal-entity level unless the operating units are separate tax persons, and review comparable transactions in every jurisdiction during the relevant period. Preserve the agreements and asset allocations needed to test whether each transaction is genuinely comparable.

Common questions

Q: Why did out-of-state sales count?
A: The statute tests whether the activity would require a seller's permit if conducted in California.

Q: Were the individual stations separate sellers?
A: No. The corporation was the person; its divisions were not separate persons under the cited definition.

Q: Did liquidation status create an exemption?
A: No. A liquidation sale for consideration remained a sale.

Q: Is this the same Appeals matter as Annotation 395.2296?
A: Yes. That companion source emphasizes liquidation sale versus in-kind liquidating dividend.

Q: What did the hearing officer recommend?

A: Redetermination without adjustment, meaning the $7.8 million measure was left unchanged at the recommendation stage.

Q: Was that recommendation the final Board action?

A: The source does not say. Its audit-review line is blank, and no final decision or later outcome is included.

Q: Does the source identify the five stations and five buyers?

A: No. Those identities, individual sale dates and prices, and supporting agreements are absent.

Q: What did the petitioner say about its California seller's permit?

A: It said the station held the permit to sell videotapes and argued that, at most, tax could reach only equipment used in that selling activity. The recommendation rejected that limit because this was a multiple-sale series.

Citations and references

• California Revenue and Taxation Code §§ 6005, 6006, 6006.5, 6019, 6051, and 6367
• Ontario Community Foundation, Inc. v. State Board of Equalization, 35 Cal.3d 811
• Bigsby v. Johnson, 18 Cal.2d 860
• BTLG Annotation 395.0380 (April 18, 1958) — cited; supporting material not included
• April 22, 1985 petition and October 27, 1986 preliminary hearing — identified; letter, transcript, and exhibits not included
• Official companion supporting PDF for Annotation 395.2296
• Station-sale, liquidation, federal, FCC, permit, videotape, audit, recommendation-review, and final-outcome records — described or implicated but not included

Verbatim support

From the official January 6, 1987 Decision and Recommendation:

Tax is being asserted here not because petitioner sold one television station in California, but because the sale of the television station in California was one of a series of sales of television stations sufficient in number (per Section 6019), scope and character to constitute an activity requiring the holding of a seller's permit.

Section 6005 defines person to include “corporation” but not “division.” There is no basis for treating petitioner’s television stations as separate entities.

Redetemine without adjustment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.0710
• Original supporting opinion: 395.0710 PDF

Original ruling text

STATE OF CALIFORNIA
BOARD OF EQUALIZATION

In the Matter of the Petition
for Redetermination Under the
Sales and Use Tax Laws of:

Petitioner

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395.0710
1/6/87

DECISION AND RECOMMENDATION
No. ----

The preliminary hearing on the above taxpayer's petition for redetermination was held on October 27, 1986, in Sacramento, California.

Hearing Officer:

Appearing for Petitioner:

Appearing for the Board:

Mr. E. Pedeupe
Tax Auditor
Petition Unit
Protested Item

Petitioner filed a petition for redetermination by letter dated April 22, 1985. The protested tax liability for the period April 1, 1983, through June 30, 1983 is measured by: Item

Amount

Unreported sales of fixtures and equipment

$7,800,000

Contentions
Petitioner contends that:

1. The sale in question was an exempt occasional sale.
2. The Legislature did not intend to tax liquidation sales such as the sale here.
   Summary
   Petitioner is a corporation which is engaged in operating television stations in a number of states. During 1983 and 1984, petitioner sold five stations to five purchasers. One station was

located in California. Tax was asserted on the gross receipts from the sale of the fixtures and equipment of the California station. The auditor concluded that the California sale was not an exempt occasional sale because petitioner made more than two such sales within a twelve-month period. Petitioner states that the stations were sold as part of liquidation plan which was free of federal income tax liability. Each station was a separate operating division. Petitioner states that the Federal Communications Commission requires that each station operate independently. Petitioner contends that each division should be treated separately. The California division should be regarded as a single sale by that division and exempt as an occasional sale. Petitioner cites Ontario Community Foundation, Inc. v. State Board of Equalization, 35 Cal.3d 811 as support for its position. Petitioner also cites Business Taxes Law Guide (BTLG) Annotation 395.0380 (April 18, 1958) as support. Petitioner states that the California station held a seller's permit for selling videotapes. Petitioner contends that at most tax could apply only to the equipment used in the videotape selling activity. Petitioner contends that a liquidation sale is not such a sale as was contemplated by the Legislature when it passed the Sales and Use Tax Law. The law is aimed at the privilege of operating, conducting, and maintaining a retail business, not on the "privilege" of going out of business. Petitioner points out that the Board does not regard in-kind distributions in liquidation as sales, and contends that there shouldn't be any difference when there is a liquidation sale and a cash distribution. It is unfair to deprive a taxpayer of the exemption for occasional sales when the taxpayer goes out of business. Petitioner further contends that out-of-state sales should not be considered when applying the “three sale rule". Sales tax can only apply to sale within a state; therefore, out-of-state transactions are inapplicable. Analysis and Conclusions Section 6051 of the Revenue and Taxation Code imposes the sales tax on the gross receipts from the sale of tangible personal property in this state. As petitioner notes, there is no exemption for liquidation sales as such. In the case of Bigsby v. Johnson, 18 Cal.2d 860, the court held that tax 'applies to sales by a retailer of property of a type not usually sold by the retailer. Thus, even though petitioner may not have sold television stations on a regular basis, in the circumstances here, petitioner was making taxable retail sales. Section 6006 defines sale to include the transfer of title to tangible personal property for consideration. Where property is distributed to shareholders in kind as a liquidating dividend, there is no consideration, therefore no sale, and no tax. Under the Sales and Use Tax Law, this is distinctly different from selling the property and distributing the cash proceeds as a liquidating dividend. Section 6367 exempts occasional sales from tax. Section 6006.5 defines "occasional sale" to include: "{a} A sale of property not held or used by a seller in the course of activities for which he or she is required to hold a seller's permit or permits or would be required to hold a seller's permit or permits if the activities were conducted in this state, provided the sale is not one of a series of

sales sufficient in number, scope, and character to constitute an activity for which he or she 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." (Emphasis added.) Section 6019 provides that any entity which makes more than two retail sales of tangible personal property during any twelve-month period shall be considered a retailer. Tax is being asserted here not because petitioner sold one television station in California, but because the sale of the television station in California was one of a series of sales of television stations sufficient in number (per Section 6019), scope and character to constitute an activity requiring the holding of a seller's permit. In short, petitioner is regarded as a retailer of television stations. Section 6005 defines person to include “corporation” but not “division.” There is no basis for treating petitioner’s television stations as separate entities. Petitioner’s reliance on Ontario and the cited annotation is misplaced. Those situations involve a single sale of an entire business. In Ontario, the Board has imposed the tax on the entire amount for which the tangible personal property has been sold. The court held that since the plaintiff was engaged primarily in providing services, only the sale of property utilized in the making of sales of tangible personal property could be taxed. Since Ontario, we have in fact applied this principle to single sales of television stations. Only property used to fabricate videotapes for retail sale was taxed. That is different from petitioner’s situation and the difference is of critical importance. The “three sale rule” does not come into play on single sales. Recommendation Redetemine without adjustment.

1/6/87
H.L. Cohen, Hearing Office

Date

Reviewed for Audit:

Principal Tax Auditor

Date