Were an equal partnership's equipment sale and later sale of all remaining assets to related corporations both exempt occasional sales?

Plain-English summary

Two partners each owned 50 percent of Oakland ‘F’ Company, a partnership. In 1952 they formed two corporations and owned each corporation's stock equally. That year the partnership sold automotive equipment to the corporation for cash. The source does not identify which corporation or the equipment; its conclusion later calls the property the automobile.

In July 1953, the requester said the partnership planned to sell all its remaining assets to one of the corporations late that year. Associate Tax Counsel John H. Murray reached different results for the two steps. The 1952 transfer was not occasional because it did not include all or substantially all partnership property.

The proposed 1953 sale would appear occasional under section 6006.5(b) because all or substantially all property held in the permit-requiring activity would move and real or ultimate ownership would remain substantially similar. The source gives no completed 1953 transfer or tax outcome.

Two-step chronology, narrow legal basis, and missing record

The July 23, 1953 letter responds to a redacted requester seeking sales-tax advice. It describes the Oakland ‘F’ Company partnership, but gives no address, account number, business activity, seller's permit, partner names, or corporation names.

Each partner owned 50 percent of the partnership. The same two partners owned the stock of each corporation equally, but the source gives no stock percentages, shares, classes, outside ownership, voting rights, or timing beyond formation in 1952.

The first transaction occurred in 1952 and involved cash. The fact paragraph calls the transferred property automotive equipment; the conclusion calls it the automobile. No bill of sale, invoice, item count, description, title, value, cash amount, tax return, assessment, or payment resolves the difference or shows the tax measure. The letter says only that the transfer was not all or substantially all partnership property and therefore was not exempt occasional.

The second transaction was still planned for late 1953 when Murray wrote in July. It would sell all remaining partnership assets to one of the corporations. Counsel said the stated facts would make it a transfer of all or substantially all property held in the course of a seller-permit activity with substantially similar real or ultimate ownership. On that limited record, it would appear exempt under section 6006.5(b).

The PDF cites no other section or regulation, does not analyze how substantially all or substantially similar was measured, and supplies no asset pool, location, permit activity, ownership calculation, recipient selection, consideration, retained property, liability, agreement, allocation, business purpose, or closing evidence for the proposed sale. It also gives no return, audit, assessment, exemption claim, administrative action, payment, refund, appeal, or later outcome.

The live annotation preserves equal partnership and corporate ownership, the partial automotive-equipment sale, two corporations, the following-year remaining-asset transfer, and the different tax results. It says the automotive equipment went to the corporations, while the source uses singular the corporation and does not identify which one. It omits the 1952 formation and cash consideration; planned timing of the late-1953 step; the source's automobile wording; permit-activity and ultimate-ownership language; section 6006.5(b); all missing records; and absence of a completed second transfer or outcome.

What this means for you

Partnerships moving assets to owned corporations

Under this letter, common ownership did not exempt a partial equipment sale. A later transfer could qualify only on its own complete-property and ownership facts.

Accountants and tax professionals

Analyze each transfer separately and document the asset pool, permit activity, recipient, consideration, and ownership at that time. This source contains none of those supporting records.

Common questions

Q: How was the partnership owned?
A: Two partners held 50% each.

Q: How were the corporations owned?
A: The same two partners owned each corporation equally.

Q: Why was the automotive-equipment sale taxable?
A: It did not include all or substantially all partnership property.

Q: Why did the later sale qualify?
A: On the stated plan, it included all remaining permit-activity property and preserved substantially similar real or ultimate ownership.

Q: Was the first transfer equipment or one automobile?

A: The source uses both descriptions and supplies no asset record to resolve them.

Q: Which corporation received the first property?

A: The source says only the corporation; it identifies neither recipient.

Q: Did the late-1953 sale occur?

A: The source does not say. It was still planned when counsel wrote and no closing, return, assessment, or later outcome is included.

Citations and references

• California Revenue and Taxation Code § 6006.5(b)
• Request, entity, permit, asset, title, invoice, cash, value, recipient, stock, ownership, agreement, allocation, return, tax, administrative, and outcome records — described or implicated but not included

Verbatim support

From the official July 23, 1953 John H. Murray letter:

In 1952 automotive equipment of the partnership was sold to the corporation for cash. Late in 1953 it is planned to sell all of the remaining assets of the partnership to one of the corporations.

For this reason, that sale would appear to be an exempt occasional sale under section 6006.5(b) under the Sales and Use Tax Law.

The earlier sale of the automobile would not be an exempt occasional sale because a transfer was not of all or substantially all of the property held by the partnership.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.1340
• Original supporting opinion: 395.1340 PDF

Original ruling text

395.1340

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 23, 1953

--- --- ----- --- ----- --- --Gentlemen:
You request our advice as to the application of sales tax to the following transaction: Oakland ‘F’ Company is a partnership composed of two partners each owning a 50% interest. In 1952 two corporations were formed, the stock of each of these corporations being owned equally by the two partners of the ‘F’ Co. partnership. In 1952 automotive equipment of the partnership was sold to the corporation for cash. Late in 1953 it is planned to sell all of the remaining assets of the partnership to one of the corporations. In our opinion, the sale in 1953, under the facts which you state, would be a transfer of all or substantially all of the property held by the partnership in the course of an activity requiring a seller’s permit and after the transfer the real or ultimate ownership of the property would be substantially similar to that which existed before the transfer. For this reason, that sale would appear to be an exempt occasional sale under section 6006.5(b) under the Sales and Use Tax Law. The earlier sale of the automobile would not be an exempt occasional sale because a transfer was not of all or substantially all of the property held by the partnership. If you have any further questions, please feel free to call upon us. Very truly yours,

John H. Murray
Associate Tax Counsel

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