Which vehicle transfers in a multistep corporate, partnership, and LLC restructuring were exempt from Texas motor vehicle tax?

Plain-English summary

The Texas Comptroller analyzed a four-step restructuring under 34 Tex. Admin. Code § 3.64(b), whose stated purpose was to avoid a taxable vehicle sale when a business merely adopted a new form without an ownership change and received no consideration beyond an interest in the new entity.

Step 1: Liquidations into two surviving corporations

No motor vehicle tax was due if the transfers resulted from statutory mergers or consolidations and every vehicle was previously titled in Texas. In that qualifying merger setting, assuming liens on the transferred vehicles was not consideration.

If the transfers were not statutory mergers or consolidations—for example, a dissolution into a corporate shareholder—any transfer for consideration was taxable. In that non-merger setting, assumed vehicle debt was consideration and tax was based on the debt assumed.

Step 2: Assets contributed to a newly formed corporation

Transfers to a new corporation for no consideration other than its stock were exempt if the new corporation continued the same business as the liquidating corporations. An assumed vehicle lien was consideration and triggered tax based on the debt.

Step 3: Assets contributed to a newly formed limited partnership

Transfers from the corporation to a new limited partnership solely for a partnership interest were exempt if the partnership continued the same business. Again, assumed vehicle debt was taxable consideration.

Step 4: Partnership interest contributed to a new single-member LLC

The corporation's exchange of its limited-partnership interest for ownership of the LLC was not taxable because it exchanged intangible property rather than a motor vehicle or other taxable item.

What this means for you

Corporate tax departments

The legal form of each step mattered. A statutory merger received different lien treatment from a dissolution or formation-stage contribution.

Transaction attorneys

The exemptions depended on no consideration other than stock or a partnership interest, continued operation of the same business, and—in the merger step—prior Texas vehicle titles.

Fleet managers

Build a vehicle-level schedule showing Texas title history and lien balances before the restructuring closes.

Common questions

Q: Were lien assumptions consideration in a statutory merger?

A: No, under the letter's qualifying Step 1 merger.

Q: Were lien assumptions consideration in the corporation and partnership formation steps?

A: Yes.

Q: Did a non-merger dissolution receive the merger exemption?

A: No. A transfer for consideration was taxable.

Q: Why was the LLC step not taxed?

A: It exchanged intangible ownership interests, not vehicles.

Citations and references

• 34 Tex. Admin. Code § 3.64(b), including (b)(1), (b)(2), and (b)(5)
• Texas Tax Code Chapter 152

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/9905454L

Original ruling text

May 26, 1999

Dear **:

This is in response to your letter of May 19, 1999 concerning the tax
consequences of transferring motor vehicles owned by various affiliated
entities due to a proposed restructuring of the entities whereby a limited
partnership will be formed to hold all assets and operations of the affiliated
entities.

The intent of 34 Tex. Admin. Code Section 3.64(b) is that there be no taxable
sale when vehicles are transferred in connection with the adoption of a new
form of doing business without a change in ownership and with no consideration
other than an interest in the newly formed entity.

Step 1: Corporation 1 adopts a plan of liquidation and distributes all assets,
liabilities, and employees into Corporation A. Concurrently, Corporations 2, 3,
4, 5, and 6 adopts a plan of liquidation and distributed all assets into
Corporation B.

Motor vehicle sales and use tax is not due upon the transfer of title to a
motor vehicle into the name of a surviving corporation when such transfer is
made pursuant to a statutory merger or consolidation of two or more
corporations. 34 Tex. Admin. Code Section 3.64(b)(5).

Therefore, no motor vehicle sales tax will be due in step 1 provided the
transfers are the result of a statutory merger or consolidation, and all of
the motor vehicles were previously titled in Texas. Any assumptions of liens
attached to motor vehicles being transferred as a result of a statutory merger
or consolidation are not deemed to be consideration under Chapter 152 of the
Texas Tax Code.

If the motor vehicle transfers in step 1 are not the results of a statutory
merger or consolidation, (i. e. for example the dissolution of corporation 1
where corporation A is the shareholder in Corporation 1) then the transfer of
any motor vehicles for consideration will be taxable. The assumption of a lien
attached to a motor vehicle being transferred is consideration and tax will be
due on such transfers based on the amount of the debt being assumed.

Step 2: Corporation A and Corporation B contribute all their assets into newly
formed Corporation D in exchange for stock in the corporation.

Motor vehicle sales and use tax is not due on the transfer of a motor vehicle
from a liquidating corporation or corporations to a newly formed corporation
for no consideration other than stock in the new corporation, provided the
newly formed corporation is to carry on the same business as the liquidating
corporation or corporations. The assumption of a lien attached to a motor
vehicle being transferred is consideration and tax will be due on such
transfers based on the amount of the debt being assumed. 34 Tex. Admin. Code
Section 3.64(b)(1)(2).

Step 3: Corporation D contributes all of its assets to a newly formed Texas
Limited Partnership in exchange for a 99% limited partnership interest.

The transfer of motor vehicles from corporation D to a limited partnership in
exchange for no consideration other than an interest in the partnership is not
subject to motor vehicle taxes, provided the limited partnership is a newly
formed partnership organized to continue the same business as corporation D.
The assumption of a lien attached to a motor vehicle being transferred is
consideration and tax will be due on such transfers based on the amount of the
debt being assumed. 34 Tex. Admin. Code Section 3.64(b)(1)(2).

Step 4:Corporation D contributes its limited partnership interest to a newly
formed single member LLC in exchange for ownership of the LLC.

Corporation D's acquisition of the LLC in exchange for its interest in the
limited partnership is not taxable, since the transaction is an exchange of
intangibles not subject to sales tax.

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

If you have any questions or need additional information, do not hesitate to
call toll free
1-800-531-5441, extension 3-4986, or write to the Comptroller of Public
Accounts, Tax Policy Division, Austin, TX 78774.

Sincerely,

Ken Koch
Tax Policy Division