Ezel / Tax Rulings / TX
TX 9109L1132F03 Sales and/or Use Tax (State,Local,MTA) 1991-09-27

Was transferring property to a newly uncapitalized corporation for 100% of its stock a taxable Texas sale?

Short answer: No. The Comptroller concluded that an initial property contribution for all stock of an uncapitalized corporation was not a taxable sale, but later stock-for-asset trades were taxable.

Apply this to your situation

This page answers the general question as of 1991. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1991
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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

The Comptroller concluded that transferring property to an uncapitalized corporation in exchange for 100% of its stock was not a taxable sale. The letter cited Texas Attorney General Opinion H-273 (1974) in support.

The treatment changed after capitalization. A later trade of stock for assets was taxable: if the stock had a determinable value, the tax base was the number of shares transferred multiplied by the per-share value; if not, the base was the value of the property received for the stock.

What this means for you

The letter distinguished an initial capitalization from a later asset acquisition using stock. It did not treat every transfer involving corporate stock as nontaxable.

Common questions

Was the initial contribution taxable? No, where property went to an uncapitalized corporation for all of its stock.

Was a later stock-for-assets exchange taxable? Yes.

How was the tax base measured? By the stock's determinable value, or otherwise by the value of the property received.

Citations and references

  • Texas Attorney General Opinion H-273 (1974)

Source

Original ruling text

September 27, 1991

Dear **:

Some time ago, you asked a theoretical question concerning the
taxability of property transferred to a non-capitalized corporation
in exchange for 100% of the stock of the corporation. Quite frankly,
this is not a simple question because of the statutory provisions
involved. After substantial consideration, we have concluded the
legislature did not intend to tax this type transaction as a taxable
sale. In support of this proposition see Attorney General's Opinion
H-273 (1974).

After a corporation has been capitalized, this office has considered
the trading of stock for assets a taxable transaction. If the stock
has a determinable value, the number of shares given for the property
multiplied by the share value is the base for tax purposes. If
the stock has no determinable value, the base is the value of the
property received for the stock.

I hope this satisfactorily answers your inquiry.

Sincerely,

Wade Anderson
Assistant Director of Tax Administration

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