Did transferring every asset of one nonselling division to a wholly owned corporation qualify for the vehicle ownership-continuity exemption?

Plain-English summary

A corporation operated through several divisions. Some divisions conducted selling activities requiring a seller's permit; others did not. One nonselling division proposed transferring all its assets, including every vehicle, to an existing corporation wholly owned by the same parent.

Staff concluded that section 6281 did not exempt the vehicle transfers. The statute required substantially all property held or used in the person's business activities to move as part of the reorganization.

The phrase "business activities" was broader than only seller-permit activities and broader than one operating division. The exemption applied only when the person's business activities were reorganized in their entirety.

What this means for you

Companies moving one division into a subsidiary

Common ownership and a complete division-level transfer did not satisfy the historical rule. The asset-scope test looked at the legal person's business as a whole.

Accountants and tax professionals

Define the transferor correctly and inventory property across all divisions. Do not test substantially all assets at a narrower divisional level unless current law expressly permits it.

Common questions

Q: Did the division transfer all its vehicles?

A: Yes, along with all its other assets.

Q: Was the recipient wholly owned by the transferor?

A: Yes.

Q: Why did the exemption still fail?

A: The transfer covered only one division rather than substantially all property used in the company's overall business activities.

Q: Did only seller-permit activities count?

A: No. Staff said "business activities" was broader than permit-requiring activities.

Citations and references

• California Revenue and Taxation Code § 6281

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 585.0394
• Original supporting opinion: 585.0394 PDF

Original ruling text

State of California

Board of Equalization

Memorandum

585.0394

To:

John H. Murray

From:

Gary J. Jugum

Subject:

Revenue Taxation Code Section 6281 – Transfers of Vehicles

Date:

September 14, 1984

On September 13, 1984, we discussed the interpretation to be made of Section 6281 as it might apply in a situation where a taxpayer does business through several separate divisions. Some of the divisions may be engaged in selling activities requiring the holding of a seller’s permit. Other divisions may be engaged in activities not requiring the holding of a permit. We considered the questions as to whether tax would apply to transfers of vehicles if one of the nonselling divisions transferred all of its assets (including all of its vehicles) to an existing corporation wholly owned by the corporation owning the division. We concluded that the Section 6281 exemption would not apply even though all of the assets of the one division might be transferred because Section 6281 requires that substantially all of the property held or used in the course of “business activities” of the person selling the property be transferred for the exemption to apply. The phrase “business activities” is broader than the mere permit requiring activities of the person conducting multiple business activities. In other words, the Section 6281 exemption will apply only where the business activities of a person are reorganized in their entirety.