Were formation-stage vehicle transfers from a parent to a subsidiary and then to a partnership subject to Texas tax?

Plain-English summary

The Texas Tax Administration Division described tax-free formation-stage transfers when the parent had paid the correct original vehicle tax.

The parent's transfer to a newly incorporated subsidiary was not taxable if the subsidiary gave no consideration other than stock. The subsidiary's later transfer to a newly formed partnership was not taxable if it received only a partnership interest.

Additional consideration at either step—including assumption of a lien—made that vehicle transfer subject to sales or use tax.

What this means for you

Corporate tax departments and restructuring teams

The historical result depended on initial formation and strictly limited consideration.

Fleet managers and accountants

Verify prior vehicle tax and identify every assumed liability or other item of value.

Common questions

Q: Was subsidiary stock taxable consideration?

A: Not by itself in the formation transfer described.

Q: Was a partnership interest taxable consideration?

A: Not by itself in the formation transfer described.

Q: Did lien assumption change the result?

A: Yes.

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/9401L1282G04

Original ruling text

January 6, 1994

Dear **:

This is in response to your letter dated December 8, 1993, regarding
motor vehicle tax as it applies to the transfer of motor vehicles from
a parent corporation to a newly formed subsidiary and then transferred
to a newly formed partnership.

FACTS: A Texas corporation (Parent) owns 100% of the stock of two
newly-formed subsidiaries that are incorporated in Delaware, Subsidiary
A and Subsidiary B. Parent transferred certain assets, including certain
motor vehicles, to Subsidiary A and other assets (no vehicles) to
Subsidiary B solely in exchange for 100% of the stock of each subsidiary.
Each subsidiary intends to transfer the assets received from Parent to a
newly-created Texas partnership solely in exchange for an interest in the
new partnership. The motor vehicles to be transferred by Subsidiary A are
not subject to liens of any kind.

Presuming that the Parent corporation paid the correct amount of motor
vehicle sales tax on their original purchase price of the vehicles, the
following will apply.

RESPONSE A: When a motor vehicle is transferred from an existing
corporation to a subsidiary corporation upon the initial incorporation of
the subsidiary, the following guidelines apply:

If no consideration is paid by the subsidiary to the parent corporation
other than stock, no sales tax is due.

If a consideration (including a lien assumption) is paid to the parent
corporation, motor vehicle sales or use tax is due.

RESPONSE B: When a motor vehicle is transferred from a partner to a
partnership upon initial formation of the partnership, the following
guidelines apply:

If no consideration is paid to the partner other than an interest in
the partnership, no tax is due.

If a consideration (including a lien assumption) is paid to the partner,
motor vehicle sales or use tax is due.

This opinion is based on the facts presented. Different facts, though
similar, may result in different answers. If you have any questions or
need more information, please write or call me toll free at
1-800-531-5441, extension 5-0330, or 512/463-4600.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9402036L.3 and/or 9402036L