Does the Kansas motor-vehicle and trailer exception for an entity's transfer of all assets apply when only its Kansas assets are transferred?

Plain-English summary

A correspondent asked whether the exception in K.S.A. 79-3603(o)(2) covered a corporation or limited liability company's transfer of all assets located in Kansas to another corporation or LLC.

The Department answered no. The provision excluded an isolated or occasional transfer of motor vehicles or trailers only when all of the transferor entity's assets were transferred to the other corporation or LLC. “All” included assets in Kansas and in other states.

Kansas strictly construed sales-tax exemptions and exceptions in favor of taxation. The Department relied on In re Atchison, Topeka & Santa Fe Railway Co. and Director of Taxation v. Kansas Krude Oil Reclaiming Co. for the rule that exemptions should not be extended by implication beyond their plain terms.

The Department compared K.S.A. 79-3606, where the legislature expressly limited various exemptions to Kansas entities, organizations, facilities, or activities. Because K.S.A. 79-3603(o)(2) did not contain similar Kansas-only language, the Department would not rewrite “all of the assets” to mean “all of the Kansas assets.”

What this means for you

Corporations and LLCs restructuring assets

Transferring every Kansas asset does not satisfy this motor-vehicle and trailer exception if the transferor keeps assets elsewhere.

Transaction planners

Confirm the scope of the entire entity-level transfer, not merely the assets located or titled in Kansas.

Tax professionals

The opinion interprets a narrow exception for isolated or occasional vehicle and trailer transfers. It does not create a general exemption for all property moved between related entities.

Common questions

Q: Is transferring all Kansas assets enough?
A: No. The Department required all assets of the entity, including out-of-state assets, to be transferred.

Q: What property did the cited exception address?
A: Motor vehicles and trailers transferred from one corporation or LLC to another.

Q: Why did the Department reject a Kansas-only reading?
A: The statute said “all of the assets,” and Kansas tax exceptions were not extended beyond their plain terms.

Q: Does the opinion exempt every related-company asset transfer?
A: No. It addresses the specific vehicle-and-trailer exception in K.S.A. 79-3603(o)(2).

Citations and references

• K.S.A. 79-3603(o)(2) — all-assets exception for entity transfers of motor vehicles and trailers
• K.S.A. 79-3606 — examples of exemptions expressly limited to Kansas entities or activities
• In re Atchison, Topeka & Santa Fe Railway Co., 17 Kan. App. 2d 794 (1993) — strict construction cited by the Department
• Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984) — no extension by implication

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2005-003

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

August 31, 2005

XXXX
XXXX
XXXX

RE: Your e-mail received on August 10, 2005

Dear XXXX:

Thank you for your recent e-mail. You ask how one of the exceptions in K.S.A. 79-3603)(o) applies. Under this section, Kansas sales tax is imposed on:

(o) the gross receipts received from the isolated or occasional sale of motor vehicles or trailers but not including: (1) The transfer of motor vehicles or trailers by a person to a corporation or limited liability company solely in exchange for stock securities or membership interest in such corporation or limited liability company; or (2) the transfer of motor vehicles or trailers by one corporation or limited liability company to another when all of the assets of such corporation or limited liability company are transferred to such other corporation or limited liability company; or (3) the sale of motor vehicles or trailers which are subject to taxation pursuant to the provisions of K.S.A. 79-5101 et seq., and amendments thereto, by an immediate family member to another immediate family member. For the purposes of clause (3), immediate family member means lineal ascendants or descendants, and their spouses. The base for computing the tax shall be the stated selling price of the motor vehicle or trailer or the value pursuant to subsections (a), (b)(1) and (b)(2) of K.S.A. 79-5105, and amendments thereto, whichever amount is higher. The actual selling price shall be the base for computing the tax on the isolated or occasional sale of wrecked or damaged vehicles. In determining the base for computing the tax on such isolated or occasional sale, the fair market value of any motor vehicle or trailer traded in by the purchaser to the seller may be deducted from the selling price;

You ask if subsection (2) applies to a transaction where all of assets of a corporation or LLC that are in Kansas are transferred to another corporation or LLC. The answer is no. This exception applies only if all of the assets, including those in Kansas and in other states, are transferred.

Under Kansas law, sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption. In re Atchison, Topeka & Santa Fe Ry Co., 17 Kan. App. 2d 794 (1993). It is a fundamental rule of statutory construction that sales tax exemption statutes will not be extended by implication and should not be read to include things that are not readily found within their plain terms. Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984). There is nothing in this exception that indicates that it applies when only Kansas assets are transferred.

K.S.A. 79-3606 catalogues over fifty Kansas sales tax exemptions. These exemptions reflect that the Kansas legislature has not hesitated to limit exemptions to Kansas entities and not to those of other states. For example, K.S.A. 79-3606(b) and K.S.A. 79-3606(d) apply to only those political subdivisions that are in Kansas, K.S.A. 79-3606(s) is limited to groundwater districts organized under Kansas law; K.S.A. 79-3606(z) is limited to port authorities organized under Kansas law; K.S.A. 79-3606(ll) is limited to mental health organization organized under Kansas law; K.S.A. 79-3606(kk) is limited to manufacturing facilities "in this state"; K.S.A. 79-3606(tt) is generally limited to Kansas chapters of the listed national organization; and K.S.A. 79-3606(fff) is limited to warehouses and distribution facilities "in this state."

Had the legislature intended the exception in K.S.A. 79-3603(o)(2) to apply to transfers that involved the sale of all of the Kansas assets of a corporation, it would have enacted limiting language as it did in the various subsections in K.S.A. 79-3606. As noted, tax exemptions and exceptions should not be read to include things that are not readily found within their plain terms. This includes reading "all of the assets of such corporation" to mean "all of the Kansas assets of such corporation" in K.S.A. 79-3603(o)(2).

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 09/01/2005 Date Modified: 09/01/2005

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