Did selling all operating assets of an identifiable division qualify as an occasional sale if the seller later bought or leased some assets back?

Plain-English summary

Selling all operating assets of a separate division, branch, or identifiable business segment to one buyer in one transaction qualified for the occasional-sale exemption.

The seller could later buy or lease selected assets back without losing the original exemption, but only if the later transaction was clearly separate. Tax applied to the seller's later purchase, rental, or leaseback.

A financing lease was treated as a sale, with tax due when the buyer took possession or the first payment became due, whichever occurred first. Under an operating lease, the lessor reported tax in the period when rental receipts became income under its accounting method.

Common questions

Was the original division-asset sale taxable? No, if it met the whole-segment and single-transaction conditions.

Did a later leaseback destroy that exemption? No, if clearly separate.

Was the leaseback itself taxable? Yes.

Citations and references

• Tex. Tax Code § 151.304(b)
• 34 Tex. Admin. Code Rule 3.316(d)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9001L0983C13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 31, 1990

BY FACSIMILE

Dear **:

Thank you for your letter dated January 29, 1990, concerning the
exemption from sales tax for occasional sales described in Rule
3.316 (d) and section 151.304 (b).

If Company A sells the entire operating assets of a separate
division, branch, or identifiable segment of Company A to Company
B in a single transaction, no sales tax will be due on the
transaction.

If Company A then purchases or leases certain items of tangible
personal property back from Company B in a separate transaction,
the occasional sale exemption for the original sale of the entire
operating assets will not be lost. Tax will be due on the purchase,
lease or rental of the items by Company A from Company B.

A financing lease is treated as a sale for sales tax purposes. The
tax must be collected at the time the purchaser takes possession
of the property or when the first payment is due, whichever is
earlier. Under an operating lease, tax must be reported in the
period in which the rental receipts are considered income under
the lessor's accounting method.

The transactions described above must clearly be separate in order
to preserve the occasional sale exemption.

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 me if you have any additional
questions. You may write me, call toll free 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence