Did transferring seller-financed vehicle receivables through a corporate reorganization and then to a limited partnership accelerate unpaid Texas tax?

Plain-English summary

The Texas Tax Administration Division analyzed a seller-financing dealer's two-step reorganization under Texas Tax Code § 152.047(g).

Transferring all assets and liabilities, including seller-financed receivables, from the existing corporation to a newly formed corporation did not accelerate the unpaid tax.

But the new corporation's later transfer of those receivables to a limited partnership was treated as a transfer to a third party. That step required payment of all unpaid tax under § 152.047(g), even though ultimate ownership did not change.

What this means for you

Seller-financing dealers and restructuring teams

Common ownership did not prevent the partnership from being treated as a separate third party.

Corporate tax departments and accountants

The historical answer differed across the two steps; analyze each entity-to-entity transfer separately.

Common questions

Q: Did the corporation-to-corporation transfer accelerate tax?

A: No.

Q: Did the later partnership transfer accelerate tax?

A: Yes.

Citations and references

• Texas Tax Code § 152.047(g) — quoted for acceleration when payment rights are factored, assigned, or otherwise transferred.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9504L1346F07

Original ruling text

April 26,1995

Dear **:

I have received your inquiry of April 25, 1995, regarding a proposed
reorganization of a motor vehicle dealer, Texco, engaged in selling vehicles
and financing the sales itself. Under the proposal, a new out-of-state
corporation, Newco, would be formed and all the assets and liabilities
including the seller-financed sales receivables would be transferred to Newco
by Texco. Thereafter, Newco would form another corporation Genco. Then Newco
and Genco would form a limited partnership. Newco would then transfer all its
assets including the seller-financed sales receivables to the limited
partnership for a 99% interest in the partnership and Genco would transfer cash
to the partnership for a 1% interest. The ultimate ownership does not change
through any of these transactions.

Your question was whether either the transfer of assets from Texco to Newco or
the transfer of assets from Newco to the limited partnership would trigger
Subsection 152.047(g). The subsection reads as follows:

If a seller factors, assigns, or otherwise transfers the right to receive
payments, all unpaid tax is due on the total consideration not reported at
the time the agreement is factored, assigned, or otherwise transferred.
The seller shall report and submit the tax in the report period in which
the right to receive the payment is factored, assigned, or otherwise
transferred. The seller may not take a deduction in the amount of tax due
if transfer at a discount is made.

We have not specifically addressed this question. We have addressed transfers
of vehicles as a result of a merger or a reorganization and concluded tax was
not owed. We have also found that transfers of vehicles from a corporation to
a partnership were taxable.

As you know, we have a long history of recognizing entities on a stand alone
basis. Following this general principle and combining it with our past
application of the motor vehicle sales tax act, I conclude that the transfer
between Texco and Newco would not trigger subsection 152.047(g). However, the
transfer from Newco of the seller-financed sales receivables would be treated
as a transfer to a third party that would require the payment of all
transferred receivables under the subsection.

I hope this answers your question. Should you need any additional information,
please contact me.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

NOTE: Previous Accession Number 9504076L