Is transferring a company vehicle from the individual officers who financed it into the corporation's name subject to Kansas sales tax?

Plain-English summary

Corporate officers bought a 1994 Chevrolet pickup and titled it in their own names because the company "had no credit history at that time." In substance, though, the company owned it: it made "[t]he initial down payment, all monthly payments and all license and insurance expenses," and it depreciated the vehicle. The officers wanted to remove their names from the title to limit their personal liability, with "no stock . . . issued or transferred, nor other compensation paid to anyone." They asked whether that transfer would trigger Kansas sales tax.

The general rule — taxable. The Department advised the transfer is subject to sales tax. "The transfer of a vehicle from an individual, sole proprietorship or partnership to a corporation is considered to be an 'isolated or occasional sale.'" K.S.A. 79-3603(o) imposes sales tax on "the gross receipts received from the isolated or occasional sale of motor vehicles or trailers," subject to listed exceptions.

Exception 1 — stock for the vehicle. The statute does not tax "[t]he transfer of motor vehicles or trailers by a person to a corporation solely in exchange for stock or securities in such corporation." So if "the corporation holds a meeting and votes to issue stock to the individuals whose name appears on the title, the transaction would not be subject to sales tax." (This is the opposite of the taxpayers' plan, which was to transfer with no stock issued.)

Exception 2 — pay and claim a refund for a titling error. Alternatively, the taxpayers could pay the tax and then "request a refund on grounds that the manner in which the vehicle was originally titled was in error." If they can document that the company paid for the truck and handled its expenses, insurance, and depreciation, "the Department could determine the vehicle was, in fact, the property of the company from the time it was purchased," in which case no tax would be due and any tax paid could be refunded.

Bottom line: a bare re-titling of a vehicle from individuals into their corporation is a taxable occasional sale — but issuing stock in exchange, or proving the company owned it all along, can eliminate the tax.

What this means for you

Businesses re-titling vehicles into the company name

A plain transfer of a vehicle from owners or officers to the corporation is a taxable occasional sale under K.S.A. 79-3603(o). Plan the transaction: either transfer the vehicle in exchange for stock, or be ready to document that the company was the true owner from the outset.

Owners who financed company assets personally

If you bought a vehicle in your own name only because the business lacked credit — but the business paid for it and depreciated it — keep the payment, insurance, and depreciation records. They are the proof you would need to support a refund claim that the original titling was an error.

Vehicle sellers and county treasurers' offices

Transfers between related parties are not automatically exempt. Watch for the statute's specific carve-outs (transfer solely for stock, certain corporate reorganizations, and immediate-family transfers of vehicles taxed under the motor-vehicle tax) before treating a transfer as nontaxable.

Common questions

Q: Is moving a vehicle from individuals into their own corporation taxable in Kansas?
A: Yes. It is treated as an "isolated or occasional sale" of a motor vehicle and is subject to sales tax under K.S.A. 79-3603(o) unless a specific exception applies.

Q: How can the transfer be made tax-free?
A: Transfer the vehicle "solely in exchange for stock or securities" in the corporation. The statute expressly excludes that from tax, so the corporation can vote to issue stock to the title holders.

Q: What if the company really owned the vehicle all along?
A: You can pay the tax and request a refund, showing the original titling was an error. If you document that the company paid for and depreciated the vehicle, the Department may find it was company property from the start and refund the tax.

Citations and references

• K.S.A. 79-3603(o) — imposes sales tax on the gross receipts from the isolated or occasional sale of motor vehicles or trailers, and lists exceptions, including transfers to a corporation solely in exchange for stock or securities; the basis for taxing the transfer and for the stock-exchange escape route.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-239

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 28, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of October 21, 1999, has been referred to me for response. Thank you for your inquiry.

By your letter you inquire whether the transfer of a motor vehicle to a corporation is subject to sales tax. Your letter states, in pertinent part:

XXXXX XXXXX XXXXX purchased a 1994 Chevrolet pickup truck in February 1994 and licensed it as:

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXX

The individuals were corporate officers using there [sic] name and credit to finance the vehicle as the company had no credit history at that time. The initial down payment, all monthly payments and all license and insurance expenses have been paid by the company. Further, the vehicle has been depreciated by the company.

We would like to remove the individual names from the title to eliminate their personal liability exposure above the limits of our insurance. In the process, no stock will be issued or transferred, nor other compensation paid to anyone.

In response to your inquiry, please be advised the transaction described in your letter is subject to Kansas sales tax. The transfer of a vehicle from an individual, sole proprietorship or partnership to a corporation is considered to be an “isolated or occasional sale.” Kansas law, [K.S.A. 79-3603(o)] imposes sales tax 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 solely in exchange for stock or securities in such corporation; or (2) the transfer of motor vehicles or trailers by one corporation to another when all of the assets of such corporation are transferred to such other corporation; 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 purposes of clause (3), immediate family members means lineal ascendants or descendants, and their spouses. 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;

Assuming you do not wish to pay the tax which would be due on this transaction there are two alternatives you may wish to pursue. First, you will note the statute makes an exception from taxation for, “(1) The transfer of motor vehicles or trailers by a person to a corporation solely in exchange for stock or securities in such corporation.” If the corporation holds a meeting and votes to issue stock to the individuals whose name appears on the title, the transaction would not be subject to sales tax.

Second, you can pay the tax and then request a refund on grounds that the manner in which the vehicle was originally titled was in error. If, as part of the refund process, you are able to document the assertions made in your letter about the manner in which the vehicle was purchased and how expenses, insurance and depreciation were handled it is possible the Department could determine the vehicle was, in fact, the property of the company from the time it was purchased. In that case, no tax would be due and any tax paid could be refunded.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Date Composed: 11/01/1999 Date Modified: 10/11/2001

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