Did Texas sales tax apply when a dissolving partnership distributed equipment to its partners, who contributed it to wholly owned professional associations?

Plain-English summary

A dissolving general partnership distributed medical-testing equipment, office equipment, and furniture to its partners. The partners then transferred the property to their respective medical practice groups.

Because the partners gave no consideration for the property distributed on dissolution, the Comptroller said no sale occurred. No additional tax was due because tax had been paid when the partnership originally bought the property.

The partners' later transfers to their wholly owned professional associations were capital contributions. The associations issued no additional shares, and the transfers involved no consideration, so they also were not taxable sales.

What this means for you

The absence of consideration controlled both steps. A property distribution and a later capital contribution were not sales under the exact facts described.

Common questions

What assets were transferred? Medical-testing equipment, office equipment, and office furniture.

Did the partners pay for the dissolution distribution? No.

Were new shares issued for the contributions? No.

Had tax already been paid? Yes, when the personal property was originally purchased.

Citations and references

• The letter did not cite a numbered statute, regulation, or case.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1113F07

Original ruling text

May 20, 1991

Dear **:

Thank you for your letter regarding the sales tax applicable to
transfer of medical testing equipment, office equipment, and
office furniture from *** (a general partnership
that is being dissolved) to its partners and the subsequent
transfer of property from the partners to their respective medical
practice groups.

There appears to be no consideration from the partners in exchange
for the personal property that is divided from ***
upon its dissolution; therefore, no sale has occurred.
No additional tax is due on the personal property since the tax
was paid on the personal property at the time of purchase.

You stated that the subsequent transfer of personal property from
the partners to their respective wholly-owned professional
associations will be treated as contributions to capital and no
additional shares will be issued to the transferring physicians
since they already own 100% of the stock in their respective
professional association. A contribution to capital for no
consideration is not a sale and the transaction is not subject to tax.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions or need additional information, you may
call toll free 1-800-252-5555 or the regular number 512/463-4600.
My extension is 3-4666. You may write to Tax Administration
Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division