Could one transfer of substantially all working assets to three affiliated corporations qualify as occasional despite multiple transferees?

Plain-English summary

San Diego audit staff asked whether A--- Corporation's single transfer of substantially all working assets to three separate affiliates with substantially the same ownership could be occasional. The transferor had made at least two other qualifying retail sales during the preceding twelve months.

Headquarters Tax Counsel, initials WEB, said the Board had discarded a one-transferee requirement since 1957 when the transfers formed one transaction and substantially-similar-ownership requirements otherwise were met.

The transfer therefore could qualify under section 6006.5 and Ruling 81, provided substantially all property moved in the single transaction and real or ultimate ownership in the transferee corporations remained substantially similar to the transferor. The source does not show whether those conditions were verified or the transaction occurred.

Conditional facts, prior practice, conflicting supplement entry, and missing record

The May 17, 1962 memorandum answers a May 7 inquiry from San Diego Auditing, initials JHM, concerning A--- Corporation. The source gives no account, business, assets, transferee names, tax period, or procedural posture.

The district described substantially all working assets moving to three separate affiliated corporations in a single transaction. Each transferee reportedly had substantially the same ownership as A---. The source provides no asset list or value, retained property, allocation among transferees, agreements, consideration, share classes, capitalization, holder names, percentages, values, or before-and-after ownership schedule.

A--- had also made at least two other qualifying sales at retail during the preceding twelve months. The memorandum does not identify the sales, explain what qualifying modifies, or state the dates, property, buyers, prices, exemptions, or effect on seller status apart from the presented question.

Counsel said that since 1957 the Board had discarded a single-transferee requirement when multiple transfers occurred as one transaction and substantially similar ownership otherwise existed. The source gives no 1957 decision, policy document, ruling history, or example supporting that statement.

The answer used qualified can qualify language. It required substantially all property to move in one transaction and real or ultimate ownership of the three transferee corporations to be substantially similar to A---'s ownership. The letter cites section 6006.5 and Ruling 81 but does not reproduce the ruling or calculate any property or ownership percentage.

A closing copy note to E. H. Stetson says that, if he agreed with the opinion, the annotation at supplement page 3522 titled Sale to several corporations should be removed because it conflicted. The source gives no copy of that annotation, Stetson response, agreement, removal, replacement text, or later history.

The live annotation preserves the corporate transferor, substantially-all working assets, one transaction, three affiliates, substantially same ownership, conditional exemption, section 6006.5(b), and May 17, 1962 date. It omits the May 7 audit request and internal initials; at least two other recent retail sales; since-1957 policy statement; Ruling 81; missing facts and calculations; Stetson concurrence condition; conflicting page-3522 supplement entry; and absence of verification, completion, tax, or outcome.

The PDF supplies no response, source facts, asset or ownership evidence, transfer documents, return, audit, determination, assessment, tax measure or amount, payment, refund, administrative action, appeal, or later result.

What this means for you

Businesses dividing assets among affiliates

Under this memorandum, multiple recipients did not automatically defeat exemption when the transfers were integrated, substantially all property moved, and ownership continuity held in each affiliate.

Accountants and tax professionals

Document every asset and retained item, consideration and allocation, transaction integration, and before-and-after owners, percentages, classes, and values for each transferee.

Common questions

Q: How many transferee corporations were involved?
A: Three affiliated corporations.

Q: Did counsel require a single transferee?
A: No. The memorandum said that requirement had been discarded for single transactions meeting the ownership conditions.

Q: Did the seller have other recent retail sales?
A: Yes, at least two qualifying sales in the prior 12 months.

Q: What conditions controlled the favorable opinion?
A: One transaction, substantially all property transferred, and substantially similar ultimate ownership.

Q: What were the seller's other recent sales?

A: The source says only that there were at least two other qualifying retail sales in the preceding twelve months. It gives no dates, items, buyers, prices, or treatment.

Q: What did Board Ruling 81 say?

A: The memorandum cites it for the conditional result but does not reproduce or summarize the ruling separately.

Q: Was the conflicting page-3522 annotation removed?

A: The source does not establish that. Counsel proposed removal only if E. H. Stetson agreed, and no concurrence or publication action is included.

Q: Did the transfer occur or produce a tax determination?

A: The source does not say. It supplies no agreement, closing, return, audit, assessment, payment, appeal, or later outcome.

Citations and references

• California Revenue and Taxation Code § 6006.5
• Board Ruling 81
• Supplement annotation at page 3522, Sale to several corporations — identified as conflicting and proposed for removal if E. H. Stetson agreed; source and disposition absent
• May 7, 1962 San Diego audit inquiry — identified but not included
• Asset, valuation, allocation, affiliate, ownership, capitalization, transfer, retail-sale, return, tax, audit, assessment, payment, appeal, and outcome records — described or implicated but not included

Verbatim support

From the official May 17, 1962 Headquarters Tax Counsel memorandum:

Since 1957, we have discarded the requirement of a single transferee where the transfers occurred as a single transaction and the requirements of substantially similar ownership are otherwise met.

It is our opinion that the transfer can qualify as an occasional sale under Section 6006.5 and the provisions of Ruling 81 provided substantially all of the property is transferred in a single transaction and the real or ultimate ownership of the transferee corporations are substantially similar in ownership to that of the transferor corporation.

If you agree with the opinion expressed in my letter, then I believe the annotation at page 3522 “Sale to several corporations” should be removed from the supplement as it conflicts with this opinion.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.1700
• Original supporting opinion: 395.1700 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

To:

San Diego – Auditing (JHM)

From:

Headquarters – Tax Counsel (WEB)

Subject:

A--- Corporation
XXXX --- Street
---, California

395.1700
Sacramento
May 17, 1962

In your letter of May 7, you inquire if a sale by a corporation would be exempt as an occasional sale under Section 6006.5 where substantially all of its working assets are transferred in a single transaction to three separate affiliated corporations having substantially the same ownership as the transferor which has made at least two other qualifying sales at retail in the preceding twelve-month period. Since 1957, we have discarded the requirement of a single transferee where the transfers occurred as a single transaction and the requirements of substantially similar ownership are otherwise met. It is our opinion that the transfer can qualify as an occasional sale under Section 6006.5 and the provisions of Ruling 81 provided substantially all of the property is transferred in a single transaction and the real or ultimate ownership of the transferee corporations are substantially similar in ownership to that of the transferor corporation.

WEB:ac

cc:

Mr. E. H. Stetson – If you agree with the opinion expressed in my letter, then I believe the annotation at page 3522 “Sale to several corporations” should be removed from the supplement as it conflicts with this opinion.