Did a same-owner Delaware corporation-to-LLC conversion tax its aircraft, boats, and vehicles?

Subject

Transfers of Registered Aircraft, Boats, and Motor Vehicles

Plain-English summary

The corporation-to-LLC conversion was not a taxable sale of the aircraft, boats, or motor vehicles. Delaware law treated the converted LLC as the same continuing entity, and the facts represented that only legal form changed with no transfer of ownership.

Florida compared that continuity to a corporate merger or reorganization where title moves to a surviving entity without a sale. The result was conditional on actual ownership remaining unchanged.

What this means for you

A statutory conversion can avoid sales tax when it is genuinely the same entity and ownership, but an asset or ownership transfer could produce a different result.

Common questions

Q: Did retitling the registered assets create a sale? No, on these continuity facts.

Q: Did Delaware law matter? Yes; it deemed the LLC the same entity as the corporation.

Q: Was ownership change allowed under the ruling? No; unchanged ownership was an express condition.

Citations and references

• Fla. Stat. § 212.02(15) — sale definition
• Fla. Admin. Code r. 12A-1.007(26) — corporate reorganizations and mergers
• Fla. Stat. § 608.438 — merger of other business entities into an LLC
• I.R.C. § 368(a)(1) — reorganization provision cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-049

Original ruling text

SUMMARY

QUESTION: Are the transfers of aircraft, boats, and motor
vehicles pursuant to conversion of a Delaware Corporation
to a Delaware Limited Liability Company subject to Florida
sales tax?

ANSWER - Based on Facts Below: Rule 12A-1.007(26)(a)4.,
F.A.C., provides that the transfer of title from one
corporation to the surviving corporation by reason of a
corporate consolidation or merger in accordance with
Chapters 607 or 617, F.S., or a reorganization under s.
368(a)(1) of the Internal Revenue Code solely in exchange
for stock, is not subject to sales tax, as there is no
transfer in ownership and no sale occurs. The provisions
of Delaware law (which states in part:... "When another
entity has been converted to a limited liability company
pursuant to this section, the limited liability company
shall, for all purposes of the laws of the State of
Delaware, be deemed to be the same entity as the converting
other entity."), appear to be consistent with the
department's treatment of a corporate reorganization or
merger. Therefore, the conversion of the corporation to a
limited liability company would not be considered a sale
and should not be subject to tax; provided that, as
indicated in the facts, as a result of the conversion only
the legal form of the entity is changing and no transfer of
ownership occurs.

Sep 14, 2000

Re: Technical Assistance Advisement 00A-049
Sales Tax
Transfers of Registered Aircraft, Boats, and Motor Vehicles
Section 212.02(15), Florida Statutes
Rule 12A-1.007(26), Florida Administrative Code
XXX (Taxpayer)
F.E.I. XX

Dear :

This is in response to your letter of June 13, 2000, in
which you request the issuance of a Technical Assistance
Advisement requesting a determination of the taxability of the
transfers of aircraft, boats and motor vehicles pursuant to a
conversion of a Delaware corporation to a Delaware limited
liability company. A Letter of Technical Advice was issued to
you on May 26, 2000 in response to your letter of April 3, 2000
concerning this matter.

Your letter provides the following information:

The pertinent facts are as follows. [Taxpayer] is a one
hundred percent, wholly-owned corporate subsidiary of XXX.
Both of the corporations are Delaware corporations.
[Taxpayer] owns items of tangible property, including
aircraft, boats and motor vehicles and has contacts with
the State of Florida where it maintains its general
operating activities.

[Taxpayer's] various motor vehicles, aircraft, and boats
have either previously been subjected to the sales and/or
use tax or acquired in an otherwise exempt fashion (e.g.,
exclusively for re-lease).

As part of the reorganization, [Taxpayer] will be converted
to a Delaware Limited Liability Company pursuant to the
laws of the State of Delaware. Under Delaware Law when this
conversion becomes effective "all property, real, personal
and mixed... as well as other things and causes of action
belonging to such [converting] entity, shall be vested in
the domestic limited liability company and shall thereafter
be the property of the domestic limited liability
company...."

Further, under Delaware Law, the limited liability company
is a "continuation of the existence of the converting other
entity in the form of a limited liability company" and "the
limited liability company shall for all purposes of the law

of the State of Delaware, be deemed to be the same [entity]
as the converting entity." (See Sections 18-214 Del.
Stat., attached.)

Under Delaware Law, the limited liability company is the
same entity as the converting corporation. Florida law
does, however, permit a merger of certain "other business
entities" which do include corporations into a limited
liability company. (See [s.] 608.438, F.S.) The Delaware
conversion is substantially similar to a merger. This
conversion should not be subjected to tax and is actually
not a transfer of property at all in this circumstance but,
in fact, a conversion of one entity into another which is
"deemed a continuation of the same entity".

Additionally, a copy of the Certificate of Conversion to
Limited Liability Company, as required by Delaware law, was
provided showing the conversion of [Taxpayer] as a corporation
to a limited liability corporation.

Discussion/Response

A sale, as defined in s. 212.02(15)(a), F.S., is any
transfer of title of tangible personal property for a
consideration.

Rule 12A-1.007(26)(a)4., F.A.C., provides that the transfer
of title from one corporation to the surviving corporation by
reason of a corporate consolidation or merger in accordance with
Chapters 607 or 617, F.S., or a reorganization under s.
368(a)(1) of the Internal Revenue Code solely in exchange for
stock, is not subject to sales tax, as there is no transfer in
ownership and no sale occurs.

It appears from the fact pattern presented that the mere
conversion of a corporation to a limited liability company
(where the controlling law states that the limited liability
company shall for all purposes be deemed the same entity as the
converting entity) is similar to a corporate reorganization,
which, as provided under the Florida administrative rule, is
exempt from taxation. Based on our reading of the Delaware law

(which states in part:... "When another entity has been
converted to a limited liability company pursuant to this
section, the limited liability company shall, for all purposes
of the laws of the State of Delaware, be deemed to be the same
entity as the converting other entity."), the provisions appear
to be consistent with the department's treatment of a corporate
reorganization or merger. Therefore, the department concurs
that, based on your representations, the conversion of the
corporation to a limited liability company would not be
considered a sale and should not be subject to tax; provided
that, as indicated in the facts, as a result of the conversion
only the legal form of the entity is changing and no transfer of
ownership occurs.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Bonnie Everton
Senior Tax Specialist

Technical Assistance and Dispute Resolution

/e
Cont. #41685