Ezel / Tax Rulings / TX
TX 8511003L Sales and/or Use Tax (State,Local,MTA) 1985-11-05

Was property contributed by two companies to capitalize a new partnership subject to Texas sales and use tax?

Short answer: No. The transfers were nontaxable when ownership interests substantially matched contributed values and no consideration other than those interests was received.

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This page answers the general question as of 1985. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1985
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official 1985 Texas Comptroller taxpayer-response letter based on two companies forming a partnership, contributing tangible personal property, receiving substantially proportionate ownership interests, and receiving no other consideration. It expressly says different facts could change the opinion. Current entity-formation, partnership, contribution, consideration, valuation, and sales-and-use-tax rules may differ, and STAR documents may no longer represent current policy even when not marked superseded. Letters on STAR can support detrimental reliance only for the taxpayer to whom the letter was directly issued under 34 Tex. Admin. Code Rules 3.1 and 3.10. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Two companies planned to form a partnership and contribute tangible personal property. Their partnership interests would be substantially proportionate to the relative values of their contributions, and neither company would receive consideration other than its ownership interest.

The Comptroller confirmed that the described transfers were not subject to Texas sales and use tax.

Common questions

Were the contributions taxable? No.

Did proportional ownership matter? Yes. The facts specified interests substantially proportionate to contributed values.

Did either contributor receive cash or other consideration? No, only partnership ownership interests.

Citations and references

The reproduced letter cites no numbered statute or rule.

Source

Original ruling text

November 5, 1985

Dear ***:

Thank you for your letter of October 29, 1985, concerning the taxability

of the following transaction:

Company A and Company B are forming a partnership into which both companies

will contribute tangible personal property. Company A's and Company B's

ownership interests in the partnership will be substantially in proportion

to the relative value of the tangible personal property contributed by

Company A and Company B. Company A and Company B will receive no consideration,

other than their ownership interests in the partnership, for the transfer of

personal property to the partnership.

Your understanding is correct, the above transfer is not subject to Texas sales

and use tax.

This opinion is based upon the facts you presented. If there are additional

or different facts, this opinion may change.

Please feel free to contact us if you have additional questions. You may write

us, call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section

Tax Administration Division

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