Could a business-operations sale qualify as an occasional sale when the seller retained vehicles, trailers, and a lawn tractor?

Plain-English summary

An occasional sale of an entire business required all operating assets to transfer in one transaction to one buyer. If the seller was disposing of its entire business but kept the three vehicles, two trailers, and lawn tractor, the exemption did not apply.

A sale of a separate division, branch, or identifiable segment could qualify if those retained items were not used in that segment but instead served the seller's general business purposes.

The buyer remained liable for motor-vehicle sales tax on any vehicles transferred.

Common questions

Could the seller retain operating assets in a whole-business sale? No.

Could a segment sale still qualify? Yes, if retained property was general business property outside the segment.

Who paid tax on transferred vehicles? The buyer.

Citations and references

• 34 Tex. Admin. Code Rule 3.316(d)(1)-(3)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0969F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

October 31, 1989

Dear **:

Thank you for your letter regarding sales tax applicable to the
following situation:

In April 1989, Corporation A, sold a 1984 suburban to a
nonemployee for $6,500. Sales tax was paid on the transac-
tion by the purchaser at the time of registration.

In October 1989, Corporation A is proposing to sell its
operations to Corporation B. Both A & B are in the business
of remanufacturing compressors. Corporation A's assets being
sold are: (1) inventory and (2) equipment. A resale certifi-
cate will be obtained for the inventory from Corporation B.
All of the equipment of Corporation A will be sold except for
three vehicles, two trailers and one law tractor. Two of
the vehicles (a 1985 and 1977 pickup) are driven by officer/
stockholders for their use and are not substantially used
in the field. The trailers are for the transportation of the
law tractor and for carrying any disabled vehicles. Corpo-
ration A will continue in existence and search for new ave-
nues of business. A home air conditioning service is a
viable option.

Corporation A is proposing to bonus the third vehicle to a
long-term employee who will be employed by Corporation B
after the sale. The long-term employee will pay sales tax on
the transfer of the vehicle. The third vehicle is a 1977
pickup with an estimated FMV of $300 and Net Book Value of
$0.

Question (a): Based on the facts above, will the October 1989
transaction comply with the Occasional Sale Rule 3.316?

Question (b): Based on the facts above, except that Corporation A
does not bonus the third vehicle, will the transaction comply with
the Occasional Sale Rule?

Answer: To qualify for an occasional sale exemption under Section
(d) of Rule 3.316, the entire operating assets of a business or a
separate division, branch, or identifiable segment of a business
must be sold in a single transaction to a single purchaser.

It appears that the entire business is being sold. If this is the
case, the sale would not qualify for the occasional sale exemption
since the entire operating assets are not being sold (the three
vehicles, two trailers and one law tractor). Rule 3.316(d)(1).

If, however, a separate division, branch or identifiable segment
of the business is being sold, the sale would qualify for
exemption as an occasional sale if the two vehicles (a 1985 and
1977 pickup) for the officer/stockholders use, the third vehicle
to be bonused to an employee, and the two trailers and law
tractor were not used in the business activities of the
identifiable segment, but were the general business purposes of
the entire business. Rule 3.316(d)(2) and (3).

Question (c) Is Corporation B liable for sales tax on the transfer
of vehicles?

Answer: The buyer is liable for motor vehicle sales tax on the
transfer of the vehicles.

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 additional information, you may
call toll free 1-800-252-5555 or the regular number 512/463-4600.
My extension is 3-4666. You may write to Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,
Jo Ann Dieck
Tax Correspondence