Could the sale of an identifiable production division qualify for Texas's operating-asset exemption even though the plant had been idle since 1986?

Plain-English summary

The sale of one of a corporation's three production facilities or operating divisions qualified for the exemption in Tax Code § 151.304(b)(2), even though the plant had been idle since December 1986.

The key fact was that the corporation could trace income and expenses directly to each operating division through its plant-subsidiary accounting records. The attached internal memo also noted that general overhead expenses continued for the idle plant.

Common questions

Did several idle years prevent the exemption? No.

What supported identifiable-segment treatment? Separate records tracing income and expenses to each operating division.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0994B01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 28, 1990

Dear ***:

This is in response to your letter dated March 21, 1990 concerning
an exemption from sales tax for the sale of the entire operating
assets of an identifiable segment of Corporation A.

The sale of the identifiable segment (one of the three production
facilities/operating divisions) will qualify for exemption under
section 151.304 (b)(2) although the plant has been idle since
December 1986. According to information received from you and
***, the corporation can trace income and expenses di-
rectly to each operating division through Corporation A's plant
subsidiary accounting records.

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

INTEROFFICE BOB BULLOCK
MEMORANDUM COMPTROLLER
PUBLIC ACCOUNTS

DATE: March 26, 1990

TO: Al Van Allen

FROM: Julie Pesl

SUBJECT: Occasional Sale Exemption

Al, please give me your opinion on the following situation.

I've gotten a letter from *** that pertains to the
sale of an identifiable segment of a business. The only thing
that complicates the sale is that the plant has been idle since
November 1986. When the plant was operational, they did keep
separate records of income and expenses attributable to the "three
major production facilities" that "when in operation produced a
separate product line."

I think the sale of one segment of the business will qualify for
the occasional sale exemption even though there is no income
attributable to the segment now. There are general overhead
expenses associated with the plant facility, such as security,
utilities, property taxes, etc.

*** referred me to Hearing #17,124 in which the sale of
drilling rigs that were never used qualified for the occasional
sale exemption because the seller treated other rigs that it used
as separate segments. Tom Huebner ruled that if the rigs had been
used they would have been treated like identifiable segments. In
that case, the segments never produced income.

What do you think? *** and some of the people in Tax
correspondence don't think it should qualify. I think it does
qualify. I need a response as soon as possible. Thanks.