Was a parent's sale of used equipment at book value to its wholly owned subsidiary an exempt occasional sale?

Plain-English summary

A corporation proposed transferring unidentified used equipment to its wholly owned subsidiary for depreciated book value. Associate Tax Counsel Bill Holden assumed the transferor sold tangible personal property, held a seller's permit under section 6068 and used the equipment in that selling activity.

On those assumptions, the transfer was a taxable retail sale. It did not qualify under section 6006.5(b) because it was not all or substantially all property the transferor held or used in the selling activity. The taxable measure was the price charged even though that price was below fair market value.

Counsel distinguished a sale from continued-use arrangements. If the parent had bought the equipment tax-paid, lending or renting it to the subsidiary would create no stated liability regardless of what, if anything, the subsidiary paid for use. The source supplies no purchase, tax-payment, loan, lease or completed-transaction evidence.

Proposed transfer, express assumptions, missing Ruling 81, and alternatives

The one-page letter answers a February 14 request after apologizing for delay caused by correspondence volume. It does not identify the requester, provide the request year, reproduce the request or supply attachments.

The requester asked whether sales tax applied when a corporation transferred used equipment to a wholly owned subsidiary at depreciated book value. The source uses future tense for the price and does not say the transfer occurred. No equipment, quantity, original cost, depreciation, book value, fair-market value, agreement, invoice, payment, title passage, possession or transfer date is supplied.

Holden's taxable answer rests on three express assumptions: the transferor was in the business of selling tangible personal property; it held a seller's permit issued under section 6068; and the equipment was used in that selling activity. The source proves none of them and supplies no business, permit, sales, use or accounting record.

The letter directs the requester to Ruling 81, copy enclosed. Neither Ruling 81 nor the enclosure appears in the official PDF, and no formal title, date or source URL is given. This page therefore records the missing authority without importing its unknown content.

On the assumptions, the proposed transfer was a taxable retail sale. The letter cites Bigsby v. Johnson, 18 Cal.2d 860, for sales tax on a printer's sale of a used press. Legal-research verification resolved the reporter to the named 1941 California Supreme Court case, and visual inspection confirmed that spelling in the scan.

Section 6006.5(b) did not apply because the transaction was not a transfer of all or substantially all property held or used in the transferor's tangible-personal-property selling activity. The source supplies no asset base, transferred share or retained property. It gives no other reason for exemption failure.

The tax measure was the proposed price charged—depreciated book value—even though below fair-market value. Neither value, the gap between them, rate nor resulting tax is supplied.

As an alternative, if the parent had purchased the equipment tax-paid, its loan or rental to the subsidiary would create no stated liability, and the subsidiary's use payment would be immaterial. The source does not say the parent actually bought this equipment tax-paid, retained title, loaned or rented it, or entered that alternative arrangement.

The live 395.2560 annotation preserves the depreciated-book-value transfer, wholly owned subsidiary, all-or-substantially-all limitation and tax-paid loan-or-rental alternative. It omits the assumed business, permit and equipment use; Ruling 81; Bigsby; price-below-market measure; missing records; and absence of a completed transaction or outcome.

The official PDF is a one-page raster scan with an embedded OCR layer. Visual inspection confirmed control number 395.2560, the May 16, 1955 date, February 14 request, assumptions, Ruling 81 reference, taxable result, Bigsby citation, section 6006.5(b), price measure, tax-paid loan/rental alternative, author and title. The original OCR tail remains byte-identical and preserves recognition errors such as Bigsb 4 v. John3on and 6006.S(b); those errors are not silently used as source facts. The sole scanned case citation, 18 Cal.2d 860, resolved in explicit-list mode.

What this means for you

Parent companies moving used equipment

Wholly owned status and a book-value price did not make this proposed equipment sale exempt. The result depended on assumed permit activity, equipment use and failure to transfer all or substantially all relevant property.

Accountants and tax professionals

Separate a title transfer for a price from a loan or rental of property demonstrably bought tax-paid. Document the permit activity, equipment use, all-or-substantially-all base, retained property, book value, fair value and chosen arrangement.

Common questions

Q: Why was the equipment sale taxable?
A: On counsel's assumptions, the transferor used it in a tangible-personal-property selling business requiring a permit and did not transfer all or substantially all property used in that activity.

Q: Did depreciated book value reduce the taxable measure further?
A: No. Counsel used the price charged even though it was below fair-market value. Neither value is supplied.

Q: Did complete ownership of the subsidiary create an exemption?
A: No. Wholly owned status did not overcome the failure to meet the all-or-substantially-all requirement.

Q: What if the parent kept ownership and rented the equipment?
A: Counsel said a loan or rental of equipment the parent bought tax-paid would create no stated liability, regardless of the subsidiary's use payment.

Q: Did the source prove the parent bought this equipment tax-paid?

A: No. That fact appears only as a condition for the loan-or-rental alternative.

Q: What was Ruling 81?

A: The letter says a copy was enclosed but gives no title or date, and the official PDF does not include it.

Q: Did the transfer occur or was tax assessed?

A: The source describes a proposed price and supplies no closing, return, audit, assessment, payment, claim, appeal or outcome.

Citations and references

• California Revenue and Taxation Code §§ 6006.5(b) and 6068
• Bigsby v. Johnson, 18 Cal. 2d 860 (1941)
• Ruling 81 — referenced as enclosed but not included or otherwise identified
• February 14 request; parties and ownership; equipment; seller's permit and business records; purchase and tax-paid evidence; transfer, title, possession, loan and rental documents; book and fair values; tax measure and rate; return; audit; assessment; payment; claim; appeal; and outcome — described, assumed or implicated but not included

Verbatim support

From the official May 16, 1955 scanned letter:

Based on these assumptions, the transfer is a retail sale and is subject to tax.

The sale is not exempt under Section 6006.5(b) because it is not a “transfer of all or substantially all the property held or used” by the transferor in the course of the activity of selling tangible personal property.

The measure of tax is the price charged even though that price is less than the fair market value of the property transferred.

If the parent corporation purchased the equipment tax paid, no tax liability is incurred by the loan or rental of the equipment to the subsidiary, and it is immaterial how much, if any, the subsidiary pays for the right to use the equipment.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 395.2560
• Original supporting opinion: 395.2560 PDF

Original ruling text

395.2560
May 16, 1955

"R"

This is in reply to your letter of February 14. We regret the long delay, but find that the volume of correspondence we handle prevents our more prompt reply . You ask if sales tax applies to a transfer of used equip­ ment from a corporation to a wholly owned subsidiary. The price will be the depreciated book value. We assume that the transferor is engaged in the business of selling tangible personal property and has a seller's permit issued under Section 6068 of the Revenue and Taxa­ tion Code and that the equipment transferred was used in the course of the activity of selling tangible personal property. See Ruling 81, cop y enclosed. Based on these assumptions, the transfer is a retail sale and is subject to tax. The case of Bigsb 4 v. John3on , 18 Cal. 2d 860, held that sales tax applies to a sale of a used press by a printer. The sale is not exempt under Section 6006.S(b) because it is not a "transfer of all or substantially all the prop­ erty held or used" by the transferor in the course of the activity of selling tangible personal property. The mea­ sure of tax is the price charged even though that price is less than the fair market value of the property trans­ ferred. If the parent corporation purchased the equipment tax paid, no tax liability is incurred by the loan or rental of the equipment to the subsidiary, and it is immaterial how much, if any, the subsidiary pays for the right to use the equipment. Very truly yours,

Bill Holden
Associate Tax Counsel
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