Did California sales tax apply when a corporation merged into a limited partnership under the statutory merger provisions?

Plain-English summary

An unidentified requester proposed a corporation merging with and into a limited partnership under California Corporations Code sections 15678.1 through 15678.8.

The letter compared the governing provision with the general corporation-merger rule. Both made the surviving entity succeed to the disappearing entity's property without another transfer, act, or deed and assume its debts and liabilities.

Because property would pass by operation of law, Staff Counsel Sukhwinder K. Dhanda concluded the statutory merger transfer was not a sale under Revenue and Taxation Code section 6006 and no sales tax applied. The source does not establish that the merger occurred.

Statutory comparison, debt succession, publication instruction, and missing record

The March 15, 1994 request is not included. The addressee, corporation, limited partnership, owners, partners, business, property, jurisdiction, transaction purpose, and proposed effective date are redacted or absent.

Regulation 1595(b)(3) addressed tangible personal property passing from a constituent corporation to a surviving corporation under Corporations Code sections 1100 through 1305 or similar other-state laws. Dhanda explained that no sale occurred because statutory-merger property passes by operation of law.

Corporations Code section 1107(a) said a disappearing corporation ceased and the surviving corporation succeeded without other transfer to its rights and property while taking its debts and liabilities as if self-incurred. The source gives no corporate-merger agreement, board or shareholder approval, filing, certificate, property schedule, debt, liability, creditor, or effective date.

Corporations Code section 15678.6(a) similarly said disappearing limited partnerships and other business entities ceased, while the surviving limited partnership or other entity succeeded without the transfer, act or deed to real, personal and mixed property and took debts and liabilities as if self-incurred. Counsel found the provisions identical as relevant to the tax question.

The debt and liability succession was part of the statute's automatic legal effect; the opinion does not separately analyze assumed debt as bargained-for consideration. It also supplies no cash, stock, partnership interests, distributions, ownership continuity, asset values, tax measure, nonstatutory transfer, failed-merger alternative, or creditor treatment.

After the signature, the source contains an internal backcopy instruction to Joan Armenta-Roberts: Please annotate as follows, followed by the operative summary. The live annotation materially reproduces that directed text, including the corporate-merger predicate, limited-partnership extension, operation-of-law reasoning, section 6006 conclusion, and date.

The live entry and backcopy omit the quoted statutory wording that disappearing entities cease and the survivor takes all real, personal and mixed property plus debts and liabilities. They also omit the proposed posture, missing request and transaction records, visual scan limitation, and absence of a completed merger, return, audit, assessment, payment, claim, appeal, or outcome.

What this means for you

Corporations and limited partnerships

A qualifying statutory merger can move tangible personal property to the surviving limited partnership without creating a taxable sale.

Accountants and tax professionals

Confirm the current statutory-merger authority, every required approval and filing, effective time, disappearing and surviving entities, automatic property and debt succession, and absence of a separate asset sale or consideration step. Preserve the merger certificate and actual tax reporting.

Common questions

Q: Why were corporation-to-corporation statutory mergers already nontaxable?
A: Regulation 1595(b)(3) treated the property as passing by operation of law, so there was no sale under section 6006.

Q: Why did the same reasoning apply to a limited partnership?
A: The limited-partnership merger statute used materially identical succession language: the surviving entity took the property without another transfer, act, or deed.

Q: Did the surviving partnership's assumption of debts change the answer?
A: No. The statute made debt and liability succession part of the merger by operation of law.

Q: What was the final conclusion?
A: The transfer was not a sale, so no sales tax applied.

Q: Did debt succession create separately taxable consideration?

A: The opinion treated property and debts as passing automatically by statute and did not separately analyze bargained-for debt assumption.

Q: Does the source show that the merger satisfied every statutory requirement?

A: No. It supplies no merger agreement, approvals, filing, certificate, or effective date.

Q: Why does the live annotation closely track the opinion?

A: The signed source includes a backcopy instruction telling staff exactly how to annotate the result, and the live entry materially follows it.

Q: Did the proposed merger occur?

A: The source does not say.

Citations and references

• California Corporations Code §§ 1100–1305 and § 1107(a), as cited and quoted in the source
• California Corporations Code §§ 15678.1–15678.8 and § 15678.6(a), as cited and quoted in the source
• California Revenue and Taxation Code § 6006
• California Sales and Use Tax Regulation 1595(b)(3)
• March 15, 1994 request — described but not included
• Entity, ownership, partnership, merger agreement, approval, filing, certificate, property, debt, liability, consideration, effective-date, completion, return, audit, assessment, payment, claim, appeal, and outcome records — described or implicated but not included

Verbatim support

From the visually reviewed official April 18, 1994 Sukhwinder K. Dhanda opinion:

As relevant to this discussion, these provisions are identical.

We therefore conclude that a transfer of property pursuant to a merger of a corporation with and into a limited partnership under Corporations Code sections 15678.1 through 15678.8 is a transfer of property by operation of law and is not a "sale" as defined in Revenue and Taxation Code section 6006.

No sales tax applies to such a transfer.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.2055
• Original supporting opinion: 395.2055 PDF

Original ruling text

}>TATE OF CALIFORNIA
MEMBER
Flrat Dlatrfct

STATE BOARD OF EQUALIZATION
460 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001 ) 1916) 322-2976

BRAD SHERMAN
Second District, Loa Angol&1
ERNEST J . DRONENBURG, JR,
Third Olstrlct, Sen Diego

MATTHEW K. FONG
F0<6th Dist/let. Los Angotes
GRAY DAVIS
Control/f/Jr, Sactamemo

BURTON W. OLIVER

Executive Director

April 18, 1994

~

I

\ .
1-

Re:

)

TRANSFER PURSUANT TO MERGER OF
CORPORATION AND LIMITED PARTNERSHIP

I;>ear
This is in response to your letter of March 15, 1994 in which you request our opinion as to the application of tax to a transaction in which a corporation merges with and into a limited partnership pursuant to California Corporations Code section 15678.1 through 15678.8. Subdivision (b) ( 3 ) of Regulation 1595 provides that sales tax does not apply to a transfer of tangible personal property of a constituent corporation to a surviving corporation pursuant to a statutory merger under sections 1100 through 1305 of the California Corporations Code or pursuant to similar laws of other states. The reason a transfer of property pursuant to a statutory merger under sections 1100 through 1305 is not subject to sales tax is that we regard the property to be transferred by operation of law. That is, we do not regard the transfer to be a "sale" within the meaning of Revenue and Taxation Code sect ion 6006 . While the sections cited in Regul a ti o n 1595 (b l (3) are literally limited to mergers between two corporations, you note t hat a merger of a corporation with and into a limited

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Apri l 18, 1994

partnership "effectuates a transfer of assets 'by operation of law'". You believe that a transfer of property as a result of a merger of a corporation and a limited partnership should also regarded as a nontaxable transfer by operation of law . The relevant Corporations Code provision related to mergers under the general corporation law is subdivision (a) of section 1107, which states: " (a) Upon merger pursuant to this chapter the separate existence of the disappearing corporations ceases and the surviving corporation shall succeed, without other transfer, to all the rights and property of each of the disappearing corporations and shall be subject to all the debts and liabilities of each in the same manner as if the surviving corporation had itself incurred them. 11

)

The relevant Corporations Code provision related to mergers of corporations and limited partnerships is subdivision {a) of section 15678.6, which states: "(a ) Upon a merger of limited partnerships o r limited partnerships and other business entities pursuant to this chapter, the separate existence of the disappearing limited partnerships and disappearing other business entities ceases and the surviving limited partnership or surviving other business entity shall succeed, without the transfer, act or deed, to all the rights and property, whether real, personal, or mixed, of each of the disappearing limited partnerships and disappearing other bus i ness entities and shall be subject to all the debts and liabilities of each in the same manner as if the surviving limited part nership or surviving other business entity had itself incurred them." As relevan t t o this discussion, these provi sions are identical. We therefore conclude that a transfe r o f property pursuant to a merger of a corporat i on with and into a limited

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April 18, 1994

partnership under Corporations Code sections 15678.1 through 15678.8 is a transfer of property by operation of law and is not a "sale" as defined in Revenue and Taxation Code section 6006. No sales tax applies to such a transfer . If you have further questions, feel free to write again. Sincerely,

Sukhwinder K. Dhanda
Staff Counsel

SKD:plh
cc:
be:

Joan Armenta-Roberts - MIC:40
Please annotate as follows:
Transfers pursuant to statutory mergers under Corporations Code Sections 1100 through 1305 are not taxable under Regulation 1595(b) (3) because the transfers are by operation of law and are not considered "sales" under Revenue and Taxation Code section 6006. A transfer of property pursuant to a merger of a corporation with and into a limited partnership under Corporations Code sections 15678.1 through 15678.8 is also a transfer of property by operation of law that is not a "sale" as defined in Revenue and Taxation Code section 6006. Thus , such transfers are not taxable.