Did a sole proprietor make a taxable sale by giving four buyers possession and control of one-fifth business interests for cash and notes?

Plain-English summary

A sole proprietor entered a December 17, 1949 agreement to sell one-fifth business interests for $6,200 each, partly in cash and partly in notes. The scan redacts the buyer names and number; the live annotation identifies four buyers.

Board junior counsel treated that January step as a sale under section 6006. It was either a transfer of title or a transfer of possession with title retained only as security for the unpaid price.

Later agreement modifications on May 1 and September 12, 1950, and apparently in March 1951 did not change the original January 1950 transaction. Junior Counsel Bill Holden proposed redetermining $720 of sales tax plus interest without adjustment. The source supplies no final Board action.

Pending petition, visible scan facts, statutory mismatch, and missing record

Holden's June 22, 1953 letter says the client's redetermination petition remained pending. After further file review, staff could not recommend reducing the $720 sales tax plus interest. The addressee, client, business name, account, petition, file, audit period, interest amount, and earlier position are redacted or absent.

The proprietor's December 17, 1949 agreement sold one-fifth interests at $6,200 apiece, with cash and notes. The live annotation says four parties; that count is not legible in the redacted scan. No agreement, buyer identity, cash amount, note principal or terms, business valuation, asset schedule, allocation, or payment record is included.

In January 1950, the agreement was carried out at least far enough to place the buyers in possession and control alongside the proprietor. The source gives no exact date, division of control, management terms, profits, losses, title instrument, inventory, tangible-property measure, or entity form after admission.

Holden treated the step as either transfer of title or transfer of possession with title retained as security for the price. Either characterization produced a sale under Revenue and Taxation Code section 6006. The live annotation instead says section 6006.5; it does not explain the mismatch. This page follows the supporting letter for the legal citation and reports the live difference.

Agreement changes on May 1 and September 12, 1950 and apparently March 1951 did not alter the January 1950 sale. None of the amendments or their terms is included.

Holden proposed redetermination without adjustment. Before scheduling final Board action, he offered a discussion with local staff in Sacramento at any time or in the Bay Area during a Hearing Officer's next visit. The source supplies no taxpayer response, discussion, hearing, Board agenda or action, final redetermination, assessment, payment, refund, appeal, or later outcome.

The live annotation preserves the sole proprietor, four one-fifth buyers, cash and notes, taxable-sale conclusion, and June 22, 1953 date. It omits the pending petition; $6,200 price per interest; December 17, 1949 agreement; January 1950 possession and control; title/security alternatives; three later modifications; $720 tax plus interest; no-adjustment recommendation; pre-Board discussion option; scanned-source limitations; statutory mismatch; missing records; and absent final outcome.

The PDF metadata identifies Adobe's Paper Capture plug-in. Visual review confirmed the date, $720 plus interest, December 17, 1949 agreement, one-fifth and $6,200 terms, January 1950 possession and control, section 6006, modification dates, recommendation, procedural offer, and Bill Holden signature. No case citation appears, so the scanned-ruling bulk citation check had no citation to submit. The original garbled text remains unchanged.

What this means for you

Sole proprietors admitting multiple buyers

Possession and control can establish a taxable sale even when the documents leave title with the seller as payment security.

Accountants and tax professionals

Document the exact point when buyers receive title, possession, control, profits and risks, plus any seller security interest and every later modification.

Common questions

Q: How much of the business did each buyer acquire?
A: One-fifth.

Q: What did each buyer pay?
A: $6,200, partly in cash and partly in notes.

Q: When did counsel find the sale occurred?
A: In January 1950, when the buyers entered possession and control.

Q: Did later agreement changes remove the tax?
A: No.

Q: Was $720 the transaction price?

A: No. It was the stated sales tax before interest. Each one-fifth interest carried a $6,200 price; the source gives no aggregate tax calculation.

Q: Why does this page cite section 6006 rather than 6006.5?

A: The supporting letter visibly cites section 6006 for its sale definition. The live annotation cites section 6006.5 without explaining the difference.

Q: Did the Board adopt counsel's recommendation?

A: The source does not say. It offers discussion before final Board action and supplies no later decision, payment, appeal, or outcome.

Citations and references

• California Revenue and Taxation Code § 6006
• December 17, 1949 agreement and May 1 and September 12, 1950 and apparent March 1951 modifications — described but not included
• File, petition, business, buyer, asset, title, possession, control, payment, note, return, tax, interest, discussion, hearing, Board, payment, appeal, and outcome records — described or implicated but not included

Verbatim support

From the official June 22, 1953 Bill Holden letter, transcribed here from the visually reviewed scan rather than its garbled OCR tail:

In January 1950 the agreement was carried out at least to the extent of putting [the buyers] in possession and control of the business along with your client.

This act is regarded for sales tax purposes either as a transfer of title or as a transfer of possession with title retained as security for the payment of the price. Accordingly, there was a “sale” within the meaning of Section 6006 of the Revenue and Taxation Code.

We propose to recommend that the Board redetermine the tax without adjustment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.1760
• Original supporting opinion: 395.1760 PDF

Original ruling text

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LEGAL FILES
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A r mr1ow or our r110~ 1nd1catos that your client's

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pc-t.1 t1 on ror ro~-:.c,torm1nat 1an or salc9 . tax of t720.0( plus 1nt.or(]St 1s still TJOnding borore this Dora.rd. Upon .f'urt:-:or ravi01~ we find that wo are uruiblo to rGcO!Jlnond nny roduct1on in the J,1ab1lltyw

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As wo unuarstand tho fncts your client on-0r~tod

an a solo i'\r cpriotor under tho nnr:10 of ' 1~ ~- - __
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eneh of t nom. ~ ono-.f1f'tl1 1ntG'Jl•cot 1n ·t11e bun:tncwa ror

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t'1o proposo to recor.miond thot the Donrd rodotor:,ino tho tax wit hout atlju.st mont. r:er.or c aohocluline t ho =-:ntt ar f,>1.', "f 1nnl no.n:rd oct1on, . we sh.all c1vo ~-au on oppo1~tun1t y, 1f
;.-ou oo de!:iro t tor a <:11neu.rision w1 th a mombor of tho l ocal stnrr. Thim con bo arroncod in !U1ernmonto at nnlr ti?:10 or 1n the Dey area on tho ne,xt visit by a ilettl'ing Officer.

Yours v017 truly,

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~um.or counsel

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$6 , 200.00, payable r,nrt1y .in cnnh n1ld pnrtly 1n notos.

In cur view the raet th:At tho p_('i.rtlos mot11r100 tho1.r acro.onmnt on Hny 1, 195'0 1 on Ocpt on1'lor 12, 1950t nnd nprarontly ·nlno 1n 1-lnrch 1951 ao os not a.ltei- tho taxab111t1 or the or1&1nal tranaoct1on or Janu:i:ry 19;0.

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In January 195D tho ar,rornnont WSL c nrr1ed cut __ n!: lo~s t to the c,ct•:nt or putt1ri.c ~·
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-.n ponsoss1on and control or the bt~.:J1nons a long -w1til. your clienit-. ~hl.• ;n-ot is regarded ror s~los tnx purposos dtht'.r .ns •· tr~tor ot tttae or a..s -a trnns ror or -ponso:ud.on vitb t1tl0 rotaina-d as flocur1ty for the p~y­
:mont or tbo prieo. .Aecord1ncly1 thoro v tHJ n "snlo" v1th.1n the mcwna or Soet!.011 6006 or tho Revonuo and Txxnt1on coae.

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