Were vehicle transfers taxable when a subsidiary paid them as a dividend to its parent, which then contributed them to other subsidiaries?

Plain-English summary

A wholly owned subsidiary planned to transfer several vehicles to its parent as a dividend. The parent would then contribute the vehicles to two other wholly owned subsidiaries. The corporations represented that none would pay or receive consideration.

California concluded that neither stage was a sale or purchase. The dividend was nontaxable because the transferring subsidiary received no consideration and no debt was assumed on its behalf. The later capital contributions likewise involved no consideration or assumption of indebtedness.

Because no sale or purchase occurred, the opinion found no sales or use tax on either set of transfers. The conclusion was expressly based on the stated facts and assumptions.

Common questions

Did affiliate status alone remove the tax?

No. The analysis turned on the absence of consideration, including assumed debt.

Were both the dividend and capital contributions covered?

Yes. The letter separately analyzed the subsidiary-to-parent dividend and the parent's later transfers to the other subsidiaries.

Would taking over an encumbered vehicle change the analysis?

It could. The opinion repeatedly assumed that nobody would assume indebtedness in connection with the transfers.

Citations and references

• California Revenue and Taxation Code sections 6006 and 6010
• California Revenue and Taxation Code sections 6051 and 6201

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0497.pdf

Original ruling text

495.0497

STATE OF CALIFORNIA

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

March 7, 1988

Mr. W--- D. S--S---, L---, G--- & G--Certified Public Accountants XXXXX --- Blvd., Suite XXX
--- ---, CA XXXXX
Re:

S--- E---, Inc. – SR -- XX-XXXXXX
S--- F--- of Companies – No permit
S--- E---[2] – No permit
S--- D--- – No permit

Dear Mr. S---:
This is in response to your letter dated January 28, 1988 regarding the application of sales and use tax to the transfer of vehicles. You state: “S--- E---, Inc., a wholly owned subsidiary of S--- F--- of Companies, intends to transfer the following vehicles to S--- F--- of Companies, as a dividend. 1984 Chevrolet El Camino 1978 Ditch Witch Trailer 1974 Fruhauf Trailer 1961 Ford Tractor Cement Mixer Trailer 1961 Trailmobile Van 1928 Rolls Royce 1976 Mercedes 450SLC 1988 Lincoln Town Car “S--- F--- of Companies will then transfer as a contribution to capital all of the vehicles except the Landall Trailer to S--- E---[2], a wholly owned subsidiary of S--- F--- of Companies. The Landall Trailer will be transferred as a contribution to capital to S--- D---, another wholly owned subsidiary of S--- F--- of Companies. No consideration will be paid to or received by any of the corporations as a result of the transfer.”

Mr. W--- D. S---

-2-

March 7, 1988
495.0497

The transfer of property from a corporation to a sole shareholder which is shown on the books of both entities as a dividend is not a sale if the corporation declaring the dividend does not receive any consideration (which would include an assumption of indebtedness) for the property transferred. (Rev. & Tax. Code § 6006, Business Taxes Law Guide Annot. 495.0725 (7/22/76).) No sales or use tax would be due on such a transfer. (Rev. & Tax. Code §§ 6051, 6201.) We assume that no indebtedness will be assumed on behalf of S--- E---, Inc. for its transfer as a dividend to S--- F--- of Companies, and that it will receive no other consideration for the transfer. Based on this assumption, we conclude that the transfer will not be a sale and will not be subject to sales or use tax. S--- F--- of Companies will then transfer all vehicles transferred to it from S--- E--- to its wholly owned subsidiaries, either S--- E---[2] or S--- D---. You state that no consideration will be paid or received by any of the corporations as a result of the transfer. We assume this also means that there will be no assumption of indebtedness by anyone with respect to these transfers. Since a sale and purchase is a transfer of tangible personal property for a consideration and these transfers will not be for a consideration, there will be no sale or purchase. (Rev. & Tax Code §§ 6006, 6010.) Since there will be no sale or purchase, there will be no sales or use tax. (Rev. & Tax. Code §§ 6051, 6201.) This opinion is based on the specific facts and assumptions set forth herein. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Tax Counsel

DHL:ss