Could a multistate retailer's sale of store assets qualify as an occasional sale when it retained computers, software, and teleconference equipment?

Plain-English summary

A multistate retailer planned to sell all operating assets of its Texas and two other states' outlets while keeping another state's outlets. It excluded certain computer and teleconference equipment and proprietary software from the sale.

The Comptroller could not give a final occasional-sale answer without knowing how those retained assets were used. Computers held for general business purposes could be left out of the operating assets, but computers, software, or teleconference equipment used exclusively to provide the retail outlet's product or service would cause the occasional-sale exemption to be lost. The seller had to document each asset's purpose.

Equipment and software transferred to the parent as a dividend would not be taxable if title and possession passed without consideration. If any consideration existed—including cash, debt assumption or forgiveness, certain stock issuance, or tax advantages—the transfer was taxable, and no occasional-sale exemption was available because the subsidiary was a retailer.

What this means for you

Calling property a shared or general-business asset was not enough. Its documented function determined whether excluding it prevented a sale from covering an identifiable segment's entire operating assets.

Common questions

Did the proposed store-asset sale definitely qualify? No final conclusion was given because the use of the retained equipment and software was unclear.

Could general-business computers be retained? Yes, the letter said such computers may be excluded from operating assets for occasional-sale purposes.

Was the dividend transfer taxable? Not without consideration. With consideration, it was taxable and did not qualify for the occasional-sale exemption.

Citations and references

The letter cited an edited prior administrative hearing but gave no identifying citation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1162G04

Original ruling text

March 26, 1992

Dear ****:

Thank you for your letter of March 9, 1992, regarding the tax
implications of a client's sale of its Texas retail stores.

The facts as I understand them are as follows:

The client is a foreign corporation with retail outlets in Texas and
states X, Y, and Z.

Each outlet is a distinct and identifiable segment as evidenced by the
books and records kept.

The client is selling all operating assets of the retail outlets in
Texas and states X and Y to an unrelated third party, but will retain
the outlets in state Z.

The sale of the operating assets does not include certain computer
equipment and teleconference equipment. Some of this equipment has been
installed in the Texas retail outlets, some has been received but not
installed, and some has been ordered but not received. Also, certain
proprietary software is not included in the transaction.

Prior to the closing of the sale transaction part of the computer
equipment used in the Texas retail outlets will be transferred for use in
the outlets located in state Z. The rest of the computer and teleconference
equipment and the proprietary software will be transferred to the parent
corporation via a dividend.

You question whether this transaction will qualify as an occasional sale.

First, we must consider whether the entire operating assets of the
identifiable segment are being transferred since the seller maintains the
computer hardware and proprietary software and the teleconference equipment.

In a previous administrative hearing, the administrative law judge held
that computers held for general business purposes may be excluded from the
operating assets for the purposes of an occasional sale. If the computers,
proprietary software, and the teleconference equipment are used exclusively
to provide the product or service of the retail outlet, the occasional sale
exemption would be lost. It is unclear from the statement of facts whether
the computer equipment is for general business purposes or a specific business
related activity. The seller must be able to substantiate and document the
purposes of the computers, software, and teleconference equipment. I have
enclosed edited copies of previous hearings for your review regarding these
matters.

Next, we must consider whether the equipment transfer via a dividend
involves consideration. Consideration may take many different forms
including, cash, assumption or forgiveness of debt, issuance of stock when
stock ownership in the subsidiary is less than 100% or tax advantages. If
the transfer of title and possession occurs without an exchange of
consideration, the transaction is not taxable. Should the dividend transfer
involve any consideration, the transaction would be subject to tax and no
occasional sale exemption is available as the subsidiary is a retailer.

This opinion is based on the facts presented. If there are any 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 Austin number is 512-463-4600. You may
also write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division