Were partial vehicle transfers by two companies to their joint-venture LLC exempt isolated or occasional sales?

Plain-English summary

The vehicle transfers could be exempt only if each company received solely membership interests in the joint-venture LLC; the exemption for transferring all assets did not apply.

Company A and Company B planned to transfer vehicles and some—but not all—of their assets to LLC C, a joint venture between them. The vehicles would be titled to LLC C.

K.S.A. 79-3603(o) generally taxed an isolated or occasional motor-vehicle sale but provided two relevant exceptions:

1. A person could transfer vehicles to a corporation or LLC solely in exchange for stock, securities, or membership interests.
2. A corporation or LLC could transfer vehicles to another corporation or LLC when it transferred all of its assets.

The request did not disclose what Company A and Company B would receive for the vehicles. If each received only membership interests in LLC C, the first exception could apply. If either received something else, it would not.

The second exception clearly did not apply because neither company transferred all its assets.

What this means for you

Businesses contributing vehicles to a new LLC

Document the consideration. The transfer must be solely for membership interests to fit the first exception described here.

Partial asset restructurings

Do not use the all-assets exception when the transferor keeps part of its assets. Vehicle title moving with only selected assets was not enough.

Common questions

Q: Are isolated motor-vehicle sales generally taxable in Kansas?
A: Yes, subject to statutory exceptions.

Q: Was this transfer definitely exempt?
A: No. The Department lacked information about what the companies received.

Q: What consideration would support the first exception?
A: Solely membership interests in the LLC.

Q: Why did the all-assets exception fail?
A: Each company transferred only part of its assets.

Citations and references

• K.S.A. 79-3603(o) — isolated or occasional vehicle sales and exceptions
• K.S.A. 79-3602(z) — entities included in “person”

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2004-042

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 28, 2004

XXXX
XXXX
XXXX

Re: Private Letter Ruling Request Dated July 21, 2004

Dear XXXX:

You indicate that Company A and Company B will be transferring vehicles to LLC C, a joint venture between these two entities. The vehicles will be titled in the name of LLC C. It appears that both of these entities will be transferring part, but not all, of their assets to LLC C. You ask whether the above transfers would be considered isolated or occasional motor vehicle sales subject to sales tax.

Pursuant to K.S.A. 2003 Supp. 79-3603(o), the isolated or occasional sale of a motor vehicle is subject to sales tax. This statute contains the following two exceptions:

(1) The transfer of motor vehicles or trailers by a person to a corporation or limited liability company solely in exchange for stock securities or membership interest in such corporation or limited liability company; or (2) the transfer of motor vehicles or trailers by one corporation or limited liability company to another when all of the assets of such corporation or limited liability company are transferred to such other corporation or limited liability company.

The definition of “persons” at K.S.A. 2003 Supp. 79-3602(z) includes any individual, firm, copartnership, association, or corporation (among other types of entities).

Your letter does not indicate what Company A and Company B will be receiving from LLC C in exchange for the motor vehicle transfers. Without that information, we cannot determine for certain whether the first exception in K.S.A. 2003 Supp. 79-3603(o) would apply. Under that exception, if Company A and Company B, each being corporations, transferred motor vehicles to LLC C, a limited liability company, solely in exchange for membership interests in such limited liability company, such transfers would not be subject to sales tax. However, if Company A and Company B are receiving something other than membership interests in LLC C, the transfer would not fit within that first exception. Given that neither Company A nor Company B are transferring all of their assets to LLC C, the second exception does not apply.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance to you, please contact me at (785) 296-8042.

Very truly yours,

Richard L. Cram

Date Composed: 07/30/2004 Date Modified: 07/30/2004

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