Ezel / Tax Rulings / TX
TX 9004L1018B13 Sales and/or Use Tax (State,Local,MTA) 1990-04-18

Did excluding an employment and noncompetition agreement from a one-buyer sale of a business's operating assets defeat Texas's occasional-sale exemption?

Short answer: No. The sale still qualified as an occasional sale of the entire operating assets because the excluded employment and noncompetition agreement was intangible property, and Rule 3.316 excluded intangibles and real property from operating assets.

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This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
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 Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
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

A seller planned to transfer all of its business's operating assets to one buyer except for an employment and noncompetition agreement with a prior owner.

The exclusion did not defeat the occasional-sale exemption for selling the entire operating assets to a single purchaser in one transaction. Rule 3.316(d)(4) excluded intangible property and real property from the definition of operating assets, and the omitted agreement was intangible.

Common questions

Did the omitted noncompetition agreement ruin the exemption? No.

Why not? It was intangible property, which Rule 3.316 excluded from operating assets.

What transaction did the letter address? A sale of the entire operating assets of a business to one purchaser in one transaction.

Source

Original ruling text

April 18, 1990

Dear ***:

Thank you for your letter dated April 17, 1990, concerning the sale
of the operating assets of Company S's business to Buyer B.

You stated that S will transfer all of the operating assets to B with
the exception of an "Employment and Noncompetition Agreement" that
exists between S and a previous owner of the business.

This will not result in the loss of the occasional sale exemption for
the sale of the entire operating assets of a business to a single
purchaser in a single transaction. Please refer to section (d)(4) of
the enclosed Rule 3.316 on occasional sales. Intangibles and real
property are excluded from "operating assets" for the purposes of this
rule.

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

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