Did sales tax apply when tangible personal property passed through a statutory merger of nonprofit public-benefit corporations?

Plain-English summary

A redacted requester asked whether the no-sales-tax treatment in Regulation 1595(b)(3) for general-corporation statutory mergers also applied to nonprofit public-benefit corporations merging under Corporations Code sections 6010 through 6022.

Senior Tax Counsel David H. Levine compared section 1107(a) for general corporations with section 6020(a) for nonprofit corporations. Both provisions made the disappearing corporation cease and the survivor succeed to its rights and property without another transfer while taking its debts and liabilities. The nonprofit provision also referred to trust obligations on the disappearing corporation's property.

Levine found the provisions identical for the issue presented. Because the nonprofit corporation's property passed by operation of law, he concluded that the transfer was not a sale under Revenue and Taxation Code section 6006 and no sales tax applied.

Statutory comparison, liability succession, source defects, and missing transaction

The opinion responds to a July 27, 1992 letter that is not included. It quotes the requester's understanding that Regulation 1595(b)(3) covered general-corporation mergers under sections 1100 through 1305 or similar laws of other states, then asks whether the same result covered nonprofit public-benefit corporation mergers under sections 6010 through 6022. The source supplies no corporation, nonprofit qualification, transaction, property, merger agreement, approval, filing, or tax record.

The stated reason for general-corporation treatment was operation of law, not an exemption from an otherwise completed sale. Levine said the Board did not regard the succession as a sale under section 6006. The source does not reproduce section 6006 or Regulation 1595, explain another kind of merger or asset conveyance, or address consideration outside statutory succession.

Section 1107(a), as quoted, made the separate existence of each disappearing general corporation cease. The survivor succeeded without other transfer to all rights and property and became subject to all debts and liabilities as though it had incurred them. No constituent, survivor, right, property, debt, liability, creditor, payment, or separate consideration record is included.

Section 6020(a), as quoted, did the same for nonprofit corporations and additionally referred to trust obligations on a disappearing corporation's property. Levine called the provisions identical as relevant to this discussion; he did not decide any trust restriction, charitable-asset issue, creditor claim, or liability allocation. The source provides no trust instrument, restricted asset, obligation, beneficiary, enforcement, release, or payment record.

The official PDF opens with Error! Bookmark not defined. beneath the state heading. Its section 6020 quotation prints ecistence, disppearing, and prooperty. Those apparent publication errors remain verbatim in the preserved source text; this page does not silently repair the official quotation.

The live annotation preserves sections 6010 through 6022, operation-of-law succession, the section 6006 no-sale conclusion, no-sales-tax result, and September 16, 1992 date. It omits the July 27 request; Regulation 1595(b)(3); the comparison to general-corporation sections 1100–1305 and section 1107(a); the quoted cessation, rights, property, debts, liabilities, and trust-obligation terms; Levine and the San Diego District copy; source errors; missing records; and lack of an actual merger or tax outcome.

The opinion gives no evidence that any merger was approved, filed, effective, or completed. It reports no asset value, return, claimed treatment, tax calculation, audit, assessment, payment, claim, appeal, or later outcome.

What this means for you

Nonprofit public-benefit corporations

This opinion's no-sale result depends on property passing through the statutory merger itself, without another transfer. It does not decide a separate asset sale or conveyance.

Accountants and tax professionals

Preserve nonprofit status, the governing statutes, merger agreement and approvals, filing and effective time, disappearing and surviving entities, property and rights, every debt, liability and trust obligation, any separate consideration or conveyance, and actual tax reporting.

Common questions

Q: Why were general-corporation mergers nontaxable?
A: Property passed to the surviving corporation by operation of law rather than by sale.

Q: Why did the same rule cover nonprofits?
A: For this issue, section 6020(a) used the same cessation and without-other-transfer succession structure as section 1107(a).

Q: Did assumed debts change the result?
A: The quoted statutes made the survivor take debts and liabilities as part of succession. The opinion did not analyze a separate negotiated debt assumption or other consideration.

Q: Did the nonprofit provision contain any additional language?

A: Yes. Its quoted succession clause also covered trust obligations on a disappearing corporation's property, but the opinion did not analyze such an obligation.

Q: What was the conclusion?
A: No sales tax applied to the statutory nonprofit merger transfer.

Q: Was Regulation 1595(b)(3) itself reproduced?

A: No. The opinion describes its general-corporation merger rule but does not include the regulation text.

Q: Did the opinion decide an actual nonprofit merger?

A: No identified corporations, property, agreement, filing, consideration, tax amount, or outcome are supplied.

Q: Are the spelling defects in the section 6020 quotation corrected below?

A: No. They are preserved exactly as the Department published them and disclosed here.

Citations and references

• California Sales and Use Tax Regulation 1595(b)(3)
• California Corporations Code §§ 1100–1305 and § 1107(a)
• California Corporations Code §§ 6010–6022 and § 6020(a)
• California Revenue and Taxation Code § 6006
• July 27, 1992 requester letter — summarized but not included
• Corporation, nonprofit-status, merger agreement, approval, filing, effective-time, property, rights, debts, liabilities, trust obligations, consideration, return, tax measure, audit, assessment, payment, claim, appeal, and outcome records — described or implicated but not included

Verbatim support

From the official September 16, 1992 David H. Levine opinion:

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.

As relevant to this discussion, these provisions are identical.

We therefore conclude that a transfer of property pursuant to a merger under Corporations Code sections 6010 through 6022, as specified in subdivision (a) of section 6020, 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 395.2130
• Original supporting opinion: 395.2130 PDF

Original ruling text

395.2130

STATE OF CALIFORNIA
Error! Bookmark not defined.

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

WILLIAM M. BENNETT
First District, Kentfield
BRAD SHERMAN
Second District, Los Angeles
ERNEST J. DRONENBURG, JR.
Third District, San Diego
MATTHEW K. FONG
Fourth District, Los Angeles

September 16, 1992

GRAY DAVIS
Controller, Sacramento

BURTON W. OLIVER
Executive Director

--Dear Mr. ---:
This is in response to your letter dated July 27, 1992 regarding the application of sales tax to transfers of tangible personal property pursuant to certain statutory mergers. 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. You note that the sections cited in this provision relate to mergers between general corporations. You note further that Corporations Code sections 6010 through 6022 provide similar rules which are applicable to mergers between nonprofit public benefit corporations. You state that the effect of the merger provisions applicable to general corporations is the same as those applicable to nonprofit corporations. You ask whether transfers of tangible personal property pursuant to a statutory merger under sections 6010 through 6022 is subject to sales tax. 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 section 6006. 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." The relevant Corporations Code provision related to mergers under the nonprofit

Mr. ---

-2-

September 16, 1992
395.2130

corporation law is subdivision (a) of section 6020, which states: "(a) Upon merger pursuant to this chapter the separate ecistence of the disppearing corporations ceases and the surviving corporation shall succeed, without other transfer, to all the rights and prooperty of each of the disappearing corporations and shall be subject to all the debts and liabilities of each and trust obligations upon the property of a disappearing corporation in the same manner as if the surviving corporation had itself incurred them." As relevant to this discussion, these provisions are identical. We therefore conclude that a transfer of property pursuant to a merger under Corporations Code sections 6010 through 6022, as specified in subdivision (a) of section 6020, 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,

David H. Levine
Senior Tax Counsel
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San Diego District Administrator