Were invoiced equipment transfers between wholly owned subsidiaries taxable despite their common parent?

Plain-English summary

A parent company had several wholly owned subsidiaries in the same area. When equipment purchased by one organization was needed by another, the group issued an invoice from one company to the other to track the fixed asset.

California concluded that related-company status did not prevent tax if the transfer was a sale. On these facts, the invoices indicated actual transfers of title between the separate corporations, so tax applied to the invoiced prices.

The opinion expressly assumed that none of the transfers qualified as occasional sales under former Ruling 81.

Common questions

Did common ownership eliminate the sale?

No. The entities were treated as separate corporations.

Why did the invoices matter?

The Board viewed them as evidence of actual title transfers.

Did the opinion rule out an occasional-sale exception?

No. It assumed the transfers did not qualify under former Ruling 81.

Citations and references

• California Revenue and Taxation Code section 6006
• Former California Sales and Use Tax Ruling 81

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/495-0760.pdf

Original ruling text

495.0760

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 25, 1963
--- --- ----- --- ----- --- --Gentlemen:
This is in reply to your letter of October 8 regarding the tax liability in connection with the transfer of assets between your related companies. We understand that [A] Company has several wholly-owned subsidiaries occupying various buildings in the Santa Monica area, where the parent company also is located. Sometimes it is found that pieces of equipment purchased by one organization are needed in one of the other operations. In order to keep track of the fixed assets, you issue an invoice from one company to another at the time such equipment is transferred. If the transfer of the equipment constitutes a sale as defined in section 6006 of the Sales and Use Tax Law, the sale is taxable even though it may occur between related corporations. The sections defines a “sale,” in part, as follows: “Any transfer of title or possession, exchange, barter, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. ‘Transfer of possession,’ ‘lease,’ or ‘rental’ includes only transactions found by the board to be in lieu of a transfer of title, exchange or barter.” The fact that an invoice is issued whenever one of the corporations in question transfers equipment to another corporation indicates that there is an actual transfer of title. Thus, on the basis of the facts presented in your letter, it is our opinion that the tax applies to the invoiced price. We assume that none of the transfers constitute “occasional sales” under ruling 81, copy enclosed. Very truly yours,

E. H. Stetson
Tax Counsel
By_________
Patricia McKinney