Did a state bank's conversion to a federally chartered association require a new seller's permit and tax the asset transfer?

Plain-English summary

A redacted entity told the Board that it had converted its California articles into a federal charter effective June 19, 1995. Senior Tax Counsel Warren L. Astleford understood the conversion to follow Financial Code sections 5701–5708: filing the federal charter caused the state association to cease, immediately become a federal association outside state supervision, and vest all its property in the federal association under a new name and jurisdiction.

Counsel treated the conversion as a business transfer under the historical Regulation 1699(f). The California entity therefore had to surrender its seller's permit for cancellation, while the federal association had to obtain a new permit for its operations under Revenue and Taxation Code section 6066 and Regulation 1699.

The property transfer itself was not a taxable sale because Financial Code section 5706 made it occur by operation of law. Counsel cited Regulation 1595(b)(3) by comparison.

Counsel rejected an argument based on Financial Code section 5707. He read that section to continue ownership of the state association's property in the new federal association as though the conversion had not occurred, but not to erase the transfer of the business to a new entity for permit purposes.

The May 13 request and all implementation records are absent. The memo gives no evidence that the old permit was surrendered, the new permit was issued, any particular property was transferred, or an audit, assessment, payment or dispute followed.

Source posture and current cross-references

The live 410.0105 annotation preserves the core distinction: the conversion was a business transfer requiring the new entity to obtain a permit, while the asset transfer was nontaxable because it occurred by operation of law. It omits the June 19, 1995 conversion date, the absent request, the old entity's cancellation duty, the statutory vesting mechanism, the section 5707 argument and the absence of any implementation outcome.

Current Regulation 1699(f) addresses inactive permits. It requires a person no longer actively selling tangible personal property to notify the Department to cancel the permit and describes notice, transferee identification and possible predecessor liability. The live regulation's history records later amendments, including a 2007 rewrite of subdivision (f); those current details are cross-references, not terms supplied by the 1997 memo.

Current Regulation 1595(b)(3) says a statutory-merger transfer under the listed Corporations Code provisions or similar state laws occurs by operation of law and is not a sale. The 1997 memo cited that provision only with cf. while grounding this bank conversion in Financial Code section 5706. The current regulation does not itself identify this redacted conversion or establish its later treatment.

The official two-page PDF has a clean native text layer and no embedded image, so no OCR was required. Two fresh direct downloads and default text extractions matched exactly. The original-text section remains byte-identical to its committed version and matches the fresh default extraction after removing only terminal extractor whitespace.

What this means for you

Banks, reorganizing entities, and tax professionals

Separate permit succession from property-transfer taxability, and document both. This memo treated the federal association as a new permit holder even though statutory vesting made the property transfer nontaxable; it does not prove that the parties completed either permit step.

Common questions

Q: Did the old state association keep its permit?

A: Counsel said the California entity had to surrender it for cancellation. The source supplies no cancellation record.

Q: Did the federal association need a new permit?

A: Counsel said yes, for its operations. The source supplies no application or issued permit.

Q: Was the transferred property subject to sales tax?

A: Counsel said no. Under the Financial Code provision he applied, the property vested by operation of law.

Q: Did statutory continuity mean there was no business transfer?

A: No, in counsel's view. Section 5707's continuity did not prevent the conversion from being a transfer to a new entity for permit purposes.

Q: Does the memo establish what happened after the advice?

A: No. It supplies no permit cancellation, new permit, tax filing, audit, assessment, payment or dispute outcome.

Citations and references

• California Revenue and Taxation Code § 6066 — seller's-permit application provision quoted and applied in the source
• California Financial Code §§ 5701–5708 — conversion procedure described; sections 5705–5707 are specifically applied
• Historical California Sales and Use Tax Regulation 1699(f) — cancellation and business-transfer rule applied in the source
• Historical California Sales and Use Tax Regulation 1595(b)(3) — cited with cf. for the operation-of-law comparison
• Current California Code of Regulations, title 18, §§ 1595(b)(3) and 1699(f) — live cross-references, not substitutes for the 1997 text
• May 13 memorandum; entity identities; articles and federal charter; Secretary of State filing; property schedule and vesting records; seller's permits and applications; cancellation notice; returns; tax amounts; audit; assessment; payment; dispute and later outcome — described or implicated but not included

Verbatim support

From the official June 12, 1997 Senior Tax Counsel memorandum:

We regard the conversion of H--- from a state to a federal association as the transfer of its business pursuant to Regulation 1699(f). This transfer requires H--- (the California corporation) to deliver its permit to the board for cancellation.

The transfer of property between H--- (the corporation) and H--- --- is not, however, a taxable sale since that transfer occurs by operation of law.

This does not mean, however, that the state association did not actually transfer its business to a new entity thereby requiring the cancellation of the corporation’s permit and the issuance of a new permit to the federal association.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 410.0105
• Original supporting opinion: 410.0105 PDF
• Current cross-references: Regulation 1595 and Regulation 1699

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum

To :

Ms. Sally Carter
Compliance Planning and Evaluation Section

From :

Warren L. Astleford
Senior Tax Counsel

Subject:

410.0105

Date:

June 12, 1997

Telephone: (916) 324-2637

CalNet 454-2637

H--- S--- B--SR -- XX-XXXXXX

This is in response to your May 13, 1997 memorandum to Assistant Chief Counsel Gary Jugum asking whether H--- S--- B---, --- is required to obtain a new seller’s permit as a result of its reorganization from a California corporation to a federally chartered bank. H--- states that it converted its articles of incorporation as a California corporation into a federal charter effective June 19, 1995. As of that date, H--- S--- B--- became H--- S--- B---, ---. Revenue and Taxation Code section 6066 requires every person desiring to engage in or conduct business as a seller inside this state to file an application for a permit with this agency. The application shall be made on a form prescribed by the board and shall set forth the name under which the applicant transacts or intends to transact business, the location of the place of business, and other such information as the board may require. (Rev. & Tax. Code § 6066.) Upon discontinuing or transferring a business, a permit holder shall notify the board and deliver its permit to the board for cancellation. (Reg. 1699(f).) We understand that H--- converted to a federal association pursuant to the procedure outlined in sections 5701 through 5708 of the Financial Code. Upon the filing of its federal charter with the Secretary of State, H--- ceased to be a state association, immediately became a federal association, and was no longer supervised by this state. (Fin. Code §§ 5705, 5706.) All of H---’s property vested in the federal association under its new name and jurisdiction. (Fin. Code § 5706.) We regard the conversion of H--- from a state to a federal association as the transfer of its business pursuant to Regulation 1699(f). This transfer requires H--- (the California corporation) to deliver its permit to the board for cancellation. (Reg. 1699(f).) H---, --- is required to obtain a new seller’s permit for its operations. (Rev. & Tax. Code § 6066; Reg. 1699.) The transfer of

Ms. Sally Carter

-2-

June 12, 1997
410.0105

property between H--- (the corporation) and H--- --- is not, however, a taxable sale since that transfer occurs by operation of law. (Fin. Code §5706; cf. Reg. 1595(b)(3).) We do not believe that Financial Code section 5707 precludes this agency from requiring H--- to obtain a new permit. We interpret section 5707 to mean that the newly chartered federal association will own all the property previously owned by the state association as if the conversion did not take place. This is consistent with our finding that tax does not apply on the transfer of property from the state association to the federal association pursuant to Financial Code section 5706. This does not mean, however, that the state association did not actually transfer its business to a new entity thereby requiring the cancellation of the corporation’s permit and the issuance of a new permit to the federal association. If you have any further questions, please write again. WLA/cmm cc:

Culver City District Administrator (AS)