Could a cable-franchise asset sale qualify as an occasional sale when the seller kept land, its office, cash, its name and logo, and some billing computers?

Plain-English summary

The seller operated 25 cable television franchises and could separately account for each location's income and expenses. It proposed selling the assets used to provide cable service while retaining its land and executive office building, cash and securities, name and logo, and certain computer terminals and printers at nine locations.

The Comptroller said the transaction could still qualify for the occasional-sale exemption. Real property, cash and securities, and the seller's name and logo were not operating assets, so keeping them did not cause a problem. The retained computers transmitted billing information to and from the main office and were comparable to general-purpose business computers discussed in Hearing No. 26,443.

The answer was limited: retaining the computers did not by itself negate the exemption. If the computers had been used exclusively to provide cable television service, the Comptroller said the result would be different.

What this means for you

An asset excluded from a business-segment sale does not necessarily destroy occasional-sale treatment. The key question in this letter was whether the retained item was truly an operating asset used to provide the segment's product or instead served a broader administrative function.

Common questions

Could the seller keep its land and office building? Yes. The letter treated real property as outside the operating assets required for the exemption.

Could it also keep cash, securities, its name, and its logo? Yes. The Comptroller likewise treated those as non-operating assets.

Why did the billing computers not defeat the exemption? They transmitted billing information to and from the main office and were treated like general business-system computers rather than equipment used exclusively to deliver cable service.

Would exclusively service-related computers be different? Yes. The letter expressly said the answer would change if the computers and printers were used exclusively to provide cable television service.

Citations and references

• Texas Comptroller Hearing No. 26,443 (1990) — general-purpose computers not sold with a convenience-store franchise

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1105B10

Original ruling text

April 25, 1991

Dear ****:

Thank you for your recent letter, and your phone call of today. As I
understand it, you request our opinion that a sale of assets from *
(taxpayer number *) to * (taxpayer number ***)
is exempt as an occasional sale of the entire operating assets of an
identifiable segment of the seller's business.

According to the facts provided, the seller operates 25 cable television
franchises statewide. The seller can account separately for income and
expenses attributable to each franchise location. Included in the sale are
"all of its assets used in its operations to provide the cable television
services from each of the 25 different franchise locations". Excluded from
sale, however, are the seller's land and executive office building; cash and
cash equivalents, including marketable securities; seller's name and logo; and
certain of seller's computer terminals and printers at nine of the locations.

At question is whether the exclusion of the listed items disallows the
occasional sale exemption. We have long held that the following are not
operating assets, and so may be excluded from a sale without forfeiture of the
occasional sale exemption: real property, cash and securities, and the
seller's name and logo. These present no problem here.

This leaves the computer terminals and printers. In a recent hearing, an
administrative law judge held that the petitioner demonstrated by a
preponderance of the evidence that certain computers that were not sold with a
convenience store franchise were not "operating assets" because they were used
for general business purposes, and not exclusively to provide the product in
question. Hearing No. 26,443 (1990) (edited copy enclosed).

According to the facts you provided, the computers and printers that are
being withheld from sale are used for "transmitting billing information to and
from the main office". In the cited Hearing, the computers in question were
part of a company-wide system, and were used to accumulate accounting, payroll
and inventory data and to transmit it from the stores to the administrative
offices, in addition to being used by the specific enterprise for ordering
purposes.

I can see no difference of any legal significance between your fact
situation and the situation described in the Hearing. Therefore, the exclusion
of computers and printers that are used as you describe does not, by itself,
negate the occasional sale exemption in this transaction. If the computers and
printers were used by the cable television service provider to provide cable
television services exclusively, this answer would be different.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further questions, fee
free to write or call 1-800-252-5555. My direct extension is 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration