Did seven months of buyer operation create a sale when escrow could not close because the on-sale liquor-license transfer was denied?

Plain-English summary

On or about September 1, 1954, two sellers contracted with two intended purchasers to sell an on-sale liquor business. They apparently filed a joint license-transfer application and opened escrow with a redacted company. The intended purchasers operated the business for about seven months.

The license transfer was denied, so the transaction was canceled and the business returned to the sellers. Because escrow never closed, title did not pass.

Counsel also concluded that temporary possession did not independently create a sale. In counsel's analysis, the business assets could not transfer until the liquor license transferred, so the sellers had not retained title merely as purchase-price security and possession was not transferred in lieu of title. Staff recommended a $90 refund, but the source provides no Board action.

Transaction, two possession tests, and source limits

Associate Tax Counsel Warren W. Mangels wrote to sellers A--- B--- and C--- P--- on April 14, 1958. The heading identifies three redacted account or doing-business-as lines and copies a redacted administrative recipient. The underlying claim, account history, and reason for the three lines are not included.

The letter says that on or about September 1, 1954 the sellers and intended purchasers R--- W. C--- and T--- O--- contracted to sell a business at a redacted address. They apparently filed together to transfer the connected on-sale liquor license and used V--- Escrow Co. The contract, escrow instructions, application, agency file, and transaction correspondence are absent.

When the agreement was executed, the intended purchasers operated the business for approximately seven months. The license transfer was denied, the transaction was canceled, and the business was returned. The source does not give exact possession dates, explain the long interval before the 1958 letter, identify the denial ground, state when escrow was canceled, or describe the operating receipts, expenses, liabilities, payments, or return terms.

Counsel described two ways possession can create a sale without ordinary title transfer: possession found by the Board to be in lieu of title, or possession while the seller retains title only to secure the purchase price. The memorandum cites no section number for either test. It said title to the business assets could not transfer until the on-sale license transferred and found neither alternative satisfied on these facts.

Because the intended-purchaser possession produced no sale, counsel said staff would recommend that the Board grant the sellers' $90 refund claim. The PDF does not include the claim date or form, contract price or asset allocation, deposit or other consideration, tax return, assessment, payment, refund computation, audit, recommendation record, Board calendar, hearing, order, formal notice, payment, appeal, or later outcome. It does not establish that the Board granted the refund.

The live annotation preserves the on-sale liquor business, license-transfer denial, canceled escrow, returned operation and possession, lack of title transfer, two possession tests, and no-sale conclusion. It omits the 1954 contract date, sellers and intended purchasers, business address and accounts, V--- Escrow Co., joint-application qualification, seven-month operation, $90 refund recommendation, unnamed statutory sections, missing records, and absent Board action or outcome.

What this means for you

Buyers and sellers of licensed businesses

Under this letter, temporary operation before regulatory approval did not complete a sale. The license condition, escrow terms, title restrictions, consideration, and legal role of possession all matter.

Attorneys and tax professionals

Document whether title can legally pass before license approval, why possession was granted, the operating-period economics, what happens on denial, and whether the seller retains title only as security.

Common questions

Q: How long did the intended purchasers operate?

A: About seven months.

Q: Why was the transaction canceled?

A: The application to transfer the on-sale liquor license was denied.

Q: Did possession substitute for title?

A: No, under the letter's analysis.

Q: What refund was recommended?

A: $90, but the published source gives no Board order or payment outcome.

Q: What were the two possible possession-based sales?

A: A possession transfer in lieu of title, or possession while the seller retained title only to secure the purchase price. Counsel found neither here.

Q: Are the license denial and escrow terms included?

A: No. The source supplies no application, denial, contract, escrow instructions, cancellation record, or business-return instrument.

Q: Did the Board grant the refund?

A: The letter shows only staff's recommendation. No Board action or later outcome is included.

Citations and references

• California Sales and Use Tax Law possession-in-lieu-of-title and retained-title-as-security sale tests — described without section numbers
• Approximately September 1, 1954 sale contract — identified but not included
• Joint on-sale liquor-license transfer application and denial — described but not included
• V--- Escrow Co. escrow and cancellation — described but not included
• $90 refund claim — amount identified; claim, recommendation record, Board action, and payment are not included
• Contract, license, escrow, possession, operation, consideration, asset, tax, refund, administrative, and outcome records — described or implicated but not included

Verbatim support

From the official April 14, 1958 Warren W. Mangels letter:

However, due to the fact that the application to transfer the liquor license was denied, the transaction was cancelled and the business was returned to you.

Where there is an onsale liquor license held in connection with a business, the title to assets of the business cannot be transferred until the license is transferred.

Therefore we are of the opinion that the transfer of possession by you to the intended purchasers was not a transaction where you retained title only to secure payment of the purchase price, nor was it a transfer of possession in lieu of a transfer of title.

Since it appears that the transfer to the intended purchasers by you did not give rise to any sale, we shall recommend to the Board that your claim for refund in the sum of $90.00 be granted.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.1140
• Original supporting opinion: 395.1140 PDF

Original ruling text

395.1140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 14, 1958

Mrs. A--- B--- and
Mrs. C--- P--XXX – XXX East --- St.
--- --- XX, California
Ladies:

AL – XXXXX
C--- P--- and
A--- B--dba --- Lodge
AL XXXXX
R--- W. C--- and
T--- O--dba XXX C--AL XXXXX
A--- B--- and
C--- P--dba XXX C---

From the facts it appears that on or about September 1, 1954 you, as sellers, and R--- W. C--and T--- O--- as intended purchasers, entered into a contract whereunder you agreed to sell to the said named intended purchasers your business located at XXX – XXX East --- St., --- ---. Concurrent therewith you also apparently filed an application with the intended purchasers for the transfer of an on-sale liquor license connected with the said business. The agreement in question also involved an escrow opened with the V--- Escrow Co. At the time the agreement was executed, the intended purchasers operated the business for a period of approximately seven months. However, due to the fact that the application to transfer the liquor license was denied, the transaction was cancelled and the business was returned to you. The question is whether or not the above-described transaction constitutes a sale under the Sales and Use Tax Law. Since the escrow did not close, there was no transfer of title. However, under the Sales and Use Tax Law there is still a sale if (1) there is a transfer of possession which the Board finds to be in lieu of a transfer of title or (2) if the sellers retain title only to secure payment of the purchase price.

Ms. A--- B---, et. al
AL 65598, AL 67554, and
AL 69447

-2-

April 14, 1958
395.1140

Where there is an onsale liquor license held in connection with a business, the title to assets of the business cannot be transferred until the license is transferred. Therefore we are of the opinion that the transfer of possession by you to the intended purchasers was not a transaction where you retained title only to secure payment of the purchase price, nor was it a transfer of possession in lieu of a transfer of title. Since it appears that the transfer to the intended purchasers by you did not give rise to any sale, we shall recommend to the Board that your claim for refund in the sum of $90.00 be granted. Very truly yours,

Warren W. Mangels
Associate Tax Counsel

WWM:rg

cc:

--- --- – Admin.