Did a single purchase of gas plants, gathering systems, vehicles, equipment, contracts, and related operating assets qualify as an exempt occasional sale?

Plain-English summary

The Comptroller said the two sellers' transfers of gas-plant and gathering-system assets qualified for Texas's occasional-sale exemption.

The buyer acquired interests in seven gas plants, six in Texas, along with gathering systems, motor vehicles, office furniture, computers, contracts, and other real and personal property used to operate the facilities as an ongoing business. The assets included all operating assets of each seller in or related to the Texas Panhandle region.

Each seller kept separate books and records showing the income, expenses, and assets attributable to each plant and gathering system. That made the transferred operations identifiable business segments under Tax Code § 151.304, and the sales of their complete operating assets were exempt occasional sales.

What this means for you

Buyers and sellers of operating businesses

The exemption depended on transferring the entire operating assets of a business or separately identifiable segment, not merely a collection of equipment.

Accountants and transaction advisers

Separate books and records were crucial. They allowed the income and expenses of each sold segment to be independently ascertained before closing.

Common questions

Was the asset sale exempt? Yes.

What assets were included? Gas-plant interests, gathering systems, motor vehicles, furniture, computers, contracts, and other operating assets.

Why was each operation an identifiable segment? Its income, expenses, and assets could be separately determined from the sellers' records.

Would a change in facts matter? Yes. The letter expressly limited its conclusion to the facts presented.

Citations and references

• Texas Tax Code § 151.304(b)(2) and (c) (occasional sale of operating assets)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1152E01

Original ruling text

January 15, 1992

Dear ** :

Your letter concerning the taxability of a purchase by your
client, ** (CORPORATION A), of certain gas plants
and gathering systems from PLANT A Corporation (PLANT A) and
PLANT B Corporation (PLANT B) has been assigned to me for
review and response.

The pertinent facts as stated in your letter are as follows:

In a single transaction CORPORATION A will purchase:

-- all of PLANT A's interest in seven of its gas plants,
six of which are located in Texas.

-- gas gathering systems and related assets (including motor
vehicles) currently owned and used by PLANT B in connection
with the seven gas plants;

-- all assets, contracts, interest, and rights of any nature,
whether involving real or personal property (including motor
vehicles), which are currently used by the sellers to operate
the gas plants and related facilities as an ongoing business,
including office furniture and personal computers used by the
seller's employees who will also be employed by CORPORATION A
after closing.

PLANT A and PLANT B each maintain separate books and records
showing the income and expenses and assets attributable to
each plant and gathering system. The assets transferred will
include all of the operating assets of PLANT A and PLANT B
in or related to the Panhandle region of Texas.

Section 151.304 of the Texas Tax Code exempts the sale of a
taxable item made by way of an "occasional sale". Subsection
(b)(2) of this section defines an occasional sale to
mean the sales of the entire operating assets of a business
or of a separate division, branch, or identifiable segment of
a business. Subsection (c) stipulates that an identifiable
segment exists if before its sale the income and expenses
attributable to the separate division, branch, or segment could
be separately ascertained from the books of account or record.

Based on the facts presented in your letter, the sales between
PLANT A and CORPORATION A and PLANT B and CORPORATION A qualify
as the sale of the entire operating assets of identifiable
segments of a business under Section 151.304 of the Tax Code. Any
change in the facts presented could result in a different response.

If you have other questions or need more information, you may
call 512/463-4600, or 1-800-252-5555 from outside Austin. You
may write to Tax Administration Division.

Sincerely,

Gilbert Zamora
Tax Administration Division