How did Texas's 48-month aggregate method treat equipment sold, traded in, scrapped, or abandoned, and did one rock crusher qualify as an occasional sale?

Plain-English summary

Under the 48-month aggregate method, sold equipment was removed from the formula on the sale date. That included an equipment transfer to a subsidiary for subsidiary stock of comparable value, and tax had to be collected unless an exemption applied.

Equipment traded in, scrapped, or abandoned remained in the formula for the full 48 months. The occasional-sale exemption did not depend on whether tax had originally been paid when the asset was acquired.

A single rock crusher did not qualify as an occasional sale of an identifiable business segment because it was only one asset among interdependent construction equipment. The entire operating assets and separately established income and expenses of the segment were required.

Common questions

When did sold equipment leave the aggregate formula? On the sale date.

What happened to traded, scrapped, or abandoned equipment? It stayed in the formula for the full 48 months.

Did selling one rock crusher qualify as an occasional sale? No under the stated business facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0935D11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

November 1, 1988

Dear ***:

Thank you for your questions regarding the aggregate method of accounting
for
equipment purchases and occasional sales.

The following is our position regarding the disposal of equipment prior
to
the expiration of 48 months under the aggregate method:

1) If a piece of equipment is sold, then it should be removed
from the formula calculations as of the sale date. This would
include the sale of equipment to a subsidiary in exchange for
shares of the subsidiary's stock of comparable value. Tax
must be collected on the sale of the equipment unless an
exemption applies.

2) If a piece of equipment is traded in, scrapped or abandoned,
then you should continue to include the equipment in the formula
calculations for the entire 48 months.

Regarding your questions on occasional sales, the occasional sale
exemption
is not contingent upon tax having been paid on the purchase of the item.
Therefore, assets acquired by an occasional sale or by any other
legitimate
tax exempt method could possibly qualify as an occasional sale when sold.

To qualify as an occasional sale, the rock crusher must be the entire
operating assets of an identifiable segment of the business. "Operating
assets" means those assets used exclusively by an enterprise in providing
the
product or service but does not mean assets maintained and used for
general
business purposes in addition to use by the specific enterprise. Also,
the
income and expenses attributable to the identifiable segment must be
separately established from the books of account or record prior to the
sale.
A construction business is comprised of varied yet interdependent
operating
assets. For example, the rock crusher would be dependent on loaders or
cranes to supply it with rock, while other equipment might be needed to
spread or deliver the crushed rock.

Based on the facts presented, the rock crusher is construction equipment
and
a single asset among other operating assets of the construction business.
Since the rock crusher is not the entire operating assets of the
construction
business, the sale to the subsidiary would not qualify as an occasional
sale.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call our
toll-free
number 1-800-252-5555. The regular number is 512/463-4600. You may
write me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Julie Peel
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 31, 1988

Dear ***:

Our Tax Policy group in Austin arrived at a decision on your question
concerning the transfer of the crusher plant to a subsidiary corporation.
They came across a similar instance and their written response to another
taxpayer. Basically, they have taken the position that the capital
donation
is the same as scrap, and *** would continue to accrue tax on
the
crusher using the aggregate method for the remainder of the four year
depreciation period. If ***** chooses to sell the equipment to
the sub, it
would be a taxable transfer.

I have enclosed a copy of the correspondence given in the earlier
response.

Sincerely,
Tim J. Wilson
Abilene Audit Manager