How did Texas tax a parent's formation transfer of vehicles to a subsidiary and a later sale of all subsidiary stock?

Plain-English summary

The Texas Tax Administration Division said a parent's transfer of vehicles to a subsidiary upon initial incorporation was not taxable when the subsidiary gave no consideration other than stock.

If the subsidiary gave other consideration, including assuming a lien, motor vehicle sales or use tax was due.

The letter separately concluded that motor vehicle sales tax was due when the parent later sold all stock in the vehicle-owning subsidiary to another corporation.

What this means for you

Corporate tax departments and restructuring teams

The historical formation result was narrow and did not automatically carry into a later stock sale.

Fleet managers and accountants

Identify consideration and lien assumptions at formation and obtain current advice for stock transactions involving vehicle-owning entities.

Common questions

Q: Was stock-only formation consideration taxable?

A: No.

Q: Was lien assumption taxable?

A: Yes.

Q: What did the letter say about the later stock sale?

A: Motor vehicle sales tax was due.

Citations and references

• The letter did not identify a statute or administrative rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9109L1144C14

Original ruling text

September 11, 1991

Dear **:

Thank you for your letter regarding the tax liabilities of certain motor
vehicle transfers.

In your first question, Company A (parent corporation) transfers vehicles to a
subsidiary (Company B) upon initial incorporation of the subsidiary. As I
stated to you in our telephone conversation, no tax is due if no consideration
is paid by the subsidiary to the parent corporation other than stock. If a
consideration (including lien assumption) is paid to the parent corporation,
motor vehicle sales or use tax is due.

In your second question, the parent company (a) sells all of its stock in
Company B (including motor vehicles) to Company C. As we discussed, motor
vehicle sales tax is due on the transfer of these vehicles.

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

If you have any questions, please don't hesitate to call toll free at
1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division

August 16, 1991

Mr. John Sharp
Comptroller of Public Accounts
111 E. 17th Street
Austin, TX 78774

Dear Mr. Sharp:

I am writing to you to request the opinion of the Texas Department of Revenue
with respect to whether a certain transaction described below is exempt from
Texas Sales and Use Taxes.

The facts are as follows: Company A is a Michigan corporation with a wholly
owned subsidiary, Company B. Company B is in the business of owning motor
vehicles some of which are titled in Texas and which are then leased to the
public. Some of the lessees are Texas residents and some are out-of-state
persons.

Company A wishes to get out of the business and, therefore, decides to sell all
of its stock in its wholly owned subsidiary, Company B.

Company C is another Michigan corporation which desires to purchase all of the
stock of Company B. Company C intends to purchase Company B and then have
Company B continue its ordinary course of business of leasing the motor
vehicles to the public.

The questions that I would ask that you kindly answer with respect to your
opinion are:

1. Does the State of Texas impose a sales tax with respect to the vehicles when
   Company A creates its wholly owned subsidiary, Company B and transfers its
   motor vehicles to Company B?

2. Does the State of Texas impose a sales tax when Company A sells all of its
   stock in Company B to Company C with respect to the motor vehicles (at the
   point of the purchase and sale, or anytime thereafter)?

In view of the fact that the situation described above is the subject of a
potential imminent transaction, depending on the tax consequences thereof, I
would be most appreciative to have your opinion as soon as possible. If you
have any questions, please contact me. Thank you very much.

Very truly yours,