Was a parent corporation's sale of taxable items to its subsidiary exempt as a joint-ownership transfer, or offset by tax the parent paid on its original purchase?

Plain-English summary

A sale of taxable items from a parent corporation to its subsidiary was taxable. Rule 3.331's joint-ownership transfer exemption excluded related corporations when their only common ownership was the ultimate ownership of corporate stock.

If the parent used the items before selling them, tax was due when the parent bought them and again when it sold them to the subsidiary.

If the parent made no use before resale, it could treat the original purchase as a resale purchase by seeking a supplier refund, amending returns, or taking a credit for tax paid in error. Even then, the later sale to the subsidiary remained taxable. The subsidiary owed tax at the applicable rate with no offset for tax the parent had paid.

Common questions

Did common corporate ownership make the transfer exempt? No.

Could tax paid by the parent offset the subsidiary's tax? No.

What if the parent never used the property before resale? It could recover tax paid on its own purchase, but still had to collect tax on the subsidiary sale.

Citations and references

• Comptroller Rule 3.331.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1042A04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 13, 1990

Dear *****:

I am writing in response to your letter of August 11, 1989,
in which you requested information about intercorporate
transfers of taxable items. Proposed changes to the rule
governing intercorporate sales are under consideration, but
right now the law remains unchanged.

Under current law, the sale of taxable items from a parent
corporation to a subsidiary corporation is a taxable sale.
The joint ownership transfer exemption provided for in Rule
3.331 specifically excludes "sales between related corpora-
tions or other entities where the only joint ownership is
the ultimate ownership of the corporation stock."

The fact that the parent company already paid sales tax does
not change the outcome. If the parent company made use of
the taxable items before selling them to the subsidiary, then
sales tax was due and payable at the time of purchase. Sales
tax is also due on the subsequent sale to the subsidiary. If,
however, the parent company made no use of the taxable items
before resale, it may present a resale certificate and tax re-
fund request to the supplier, file amended sales tax returns,
or take a credit on future returns for tax paid to the suppli-
er in error. In this situation the sale to the subsidiary is
still subject to tax.

The subsidiary must pay tax at the applicable rate, regardless
of the amount of tax paid by the parent corporation on the ori-
ginal purchase. There is no offset.

Finally, the Comptroller's office will not be granting refunds
to taxpayers who have paid tax on such transactions, because
the tax was due and payable.

These opinions are based on the facts presented. Different
facts may result in a different answer. If you have further
questions, feel free to write or call me toll-free at
1-800-531-5441, ext. 3-3889.

Sincerely,
John Christian
Taxability Section
Legal Services Division