Was one partner's sale of her ice-cream business share, including fixtures and equipment, an exempt occasional sale?

Plain-English summary

A and B were general partners in an ice-cream business, and their partnership held a seller's permit. B sold her business share, consisting of fixtures and equipment, to C. C then replaced B as A's general partner. The source does not establish whether B or the A-B partnership was the legal seller.

Board counsel said the tax result depended primarily on who made the sale. If B sold the property in her individual capacity and had made no other individual tangible-personal-property sales within twelve months, sections 6006.5(a) and 6367 would treat it as an exempt occasional sale by a nonretailer on the stated facts.

If the A-B partnership was the seller, the transfer was taxable because the property had been held or used by a seller in a permit-requiring activity. Section 6006.5(b) also would not exempt a partnership sale because replacing B with C substantially changed ultimate ownership. Counsel treated the letter as a refund claim and requested the contract, date, amount, and other details before resolving the facts.

Refund claim, alternative sellers, ownership change, and source limits

Tax Counsel W. W. Mangels sent the letter to a fully redacted addressee on December 16, 1952. It was copied to the San Jose Tax Administrator and George R. Reilly. The source does not reproduce the incoming request, identify the claimant or businesses, state when the inquiry arrived, or explain their relationship to the transaction.

The stated facts were sparse. A and B were general partners in an ice-cream business, and the A-B partnership held a seller's permit. B sold her share of the business, consisting of fixtures and equipment, to C. C then became A's general partner in an A-C partnership. Nothing in the published letter identifies the property, legal title, seller shown on the agreement, buyer capacity, sale date, price, payment, transfer mechanics, or tax paid.

Mangels framed two alternatives. If B—not the partnership—made the sale, section 6006.5(a) covered property not held or used by the seller in a permit-requiring activity so long as the disposition was not part of a sufficient series. He said B's sale would be exempt under section 6367 if she had made no other tangible-personal-property sales in an individual capacity during a twelve-month period. The letter does not narrow that condition to taxable sales.

If the A-B partnership made the sale, the property had been held or used in the permitted partnership's activity and the transaction was taxable. Mangels also said section 6006.5(b) would not exempt a partnership sale because replacing the A-B owners with A and C created a substantial change in ultimate ownership. The source does not quantify either partner's percentage or explain the transaction form beyond the stated replacement.

Mangels construed the inquiry as a refund claim. To process it, he requested complete transaction details, including the sale date, amount, written contract, and other documents showing the exact nature of the transaction. The published PDF includes none of that follow-up and does not establish which seller alternative applied. It also omits the original letter, refund amount and filing date, permit, partnership agreements, capital accounts, property and depreciation records, asset title, sales history, contract, invoice, payment and delivery, return, audit, tax payment, agency follow-up, claim determination, appeal, or other outcome.

The live annotation preserves the conditional distinction between a partner's individual sale and a partnership sale. It says the individual must not otherwise have made “a series of taxable sales,” while the supporting letter states the stricter factual condition that B had made no other tangible-personal-property sales in an individual capacity during twelve months. The live text omits the ice-cream business; A, B, and C; partnership seller's permit; fixtures and equipment; sections 6006.5(a), 6006.5(b), and 6367; substantial change from A-B to A-C ultimate ownership; refund-claim treatment; requested contract, date, amount, and details; copy recipients; missing records; unresolved legal seller; and absent outcome.

What this means for you

Partners buying and selling ownership interests

The legal seller matters. An individual partner's isolated asset sale can differ from a sale by the operating partnership.

Accountants and tax professionals

Use contracts, invoices, payment records, title documents, partnership agreements, and capital records to identify the seller. Also check every individual tangible-property sale during the twelve-month window; the supporting letter does not limit that historical condition to taxable sales.

Common questions

Q: What property did B's share include?
A: Fixtures and equipment.

Q: When could B's sale be exempt?
A: If B sold individually and had made no other tangible-personal-property sales in an individual capacity within twelve months.

Q: Why would a partnership sale be taxable?
A: The partnership held the seller's permit and ultimate ownership changed from A-B to A-C.

Q: Did the letter decide who actually sold the property?
A: No. It requested more documents and details.

Q: Did the letter and live annotation describe B's other-sales condition identically?

A: No. The letter says no other individual tangible-property sales during twelve months; the annotation says no series of taxable sales.

Q: Why did section 6006.5(b) not help if the partnership sold?

A: Staff treated the replacement of B by C—changing ultimate ownership from A-B to A-C—as substantial.

Q: What did the Board request before processing the refund claim?

A: The complete transaction details, including its date, amount, written contract, and other documents showing its exact nature.

Q: Does the source show whether a refund was allowed?

A: No. It supplies no follow-up documents, claim determination, or later outcome.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(a), 6006.5(b), and 6367
• Incoming refund request — not included
• Sale date, amount, written contract, and other transaction details — requested but not included
• Partnership, ownership, property, sales-history, permit, payment, tax, refund, and final-outcome records — described or implicated but not included
• San Jose Tax Administrator and George R. Reilly — copy recipients

Verbatim support

From the official December 16, 1952 W. W. Mangels letter:

The application of the sales tax depends primarily upon whether the sale was made by B to C or by the A-B partnership to C.

If the sale was made by B and B has not made other sales of tangible personal property in an individual capacity within a twelve-month period, the sale would then be an exempt occasional sale of a non-retailer (Section 6367 of the Code).

We are construing your letter as a claim for refund. In order that we may properly process the claim we would appreciate it if you would furnish us with the complete details relating to this transaction, including the date of the sale, the amount involved, together with any written contract, or other documents which would indicate the exact nature of the transaction.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.0800
• Original supporting opinion: 395.0800 PDF

Original ruling text

395.0800

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 16, 1952
--- --- ----- --- ----- --- --You state that A and B were general partners in an ice cream business and that the partnership of A and B holds a seller’s permit. B sold her share of the business to C who then became a general partner in the partnership of A and C. The share of the business sold by B consisted of fixtures and equipment. You inquire as to the application of the sales tax to this transaction. The application of the sales tax depends primarily upon whether the sale was made by B to C or by the A-B partnership to C. Section 6006.5(a) of the California Revenue and Taxation Code provides that an occasional sale includes a sale of property not held or used by a seller in the course of an activity for which he is required to hold a seller’s permit, provided such sale is not one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller’s permit. If the sale was made by B and B has not made other sales of tangible personal property in an individual capacity within a twelve-month period, the sale would then be an exempt occasional sale of a non-retailer (Section 6367 of the Code). On the other hand, if the transaction took the form of a sale by the A-B partnership, it would be subject to the tax as a sale of property held or used by the seller in an activity requiring the holding of a seller’s permit. If the sale was by the partnership, Section 6006.5(b) would also not result in an exemption inasmuch as there is a substantial change in the ultimate ownership by virtue of the fact that A and C have replaced A and B as ultimate owners. We are construing your letter as a claim for refund. In order that we may properly process the claim we would appreciate it if you would furnish us with the complete details relating to this transaction, including the date of the sale, the amount involved, together with any written contract, or other documents which would indicate the exact nature of the transaction. Very truly yours,

W. W. Mangels
Tax Counsel
WWM:ja
cc:

San Jose – Tax Administrator
George R. Reilly