Is a transfer of assets from a subsidiary to its parent company subject to New York sales tax when it is booked as an intercompany account receivable?

Plain-English summary

The Augsbury Corporation was a wholly owned subsidiary of The Augsbury Organization (TAO), a holding company formed in 1978. To let the subsidiary measure the profitability of its own line of business without carrying the cost of assets used in TAO's management activities, the group decided to move any assets not used directly in the subsidiary's business up to the parent. In November 1979 it transferred certain fixed assets — primarily a corporate aircraft — from the subsidiary to TAO, recording the transfer as a debit to an intercompany account receivable and a credit to the asset account.

The Department held the transfer is a taxable retail sale.

• A "sale" doesn't require cash. Section § 1101(b)(5) defines a sale as any transfer of title or possession, in any manner, for a consideration. Setting up the intercompany account receivable — the parent now owing the subsidiary for the assets — is that consideration.
• So it's a "retail sale." Because tangible personal property was transferred to the parent for consideration and not for resale, the subsidiary made a "retail sale" under § 1101(b)(4).
• Result: tax is due. A retail sale of tangible personal property is subject to State and local sales tax under § 1105(a).

What this means for you

Moving assets between related companies can trigger sales tax. New York taxes transfers of tangible personal property whenever they're made for consideration. An intercompany bookkeeping entry — an account receivable, an offset, an assumed liability — generally counts as consideration, so the transfer is a taxable sale even though no check is written and the property never leaves the corporate group.

"It was just a reorganization" is not, by itself, an exemption. If you shift equipment, vehicles, aircraft, or other tangible assets to a parent, subsidiary, or affiliate, look for a specific statutory exemption (for example, certain transfers incident to a merger or to the organization/dissolution of a corporation). Absent one, expect tax on the consideration.

Watch how the transfer is documented. Here the receivable itself supplied the consideration that made the transaction taxable. How the move is booked can determine whether the Department treats it as a sale.

Common questions

Q: We didn't charge our affiliate anything — how is this a "sale"?
A: New York's definition of a sale (§ 1101(b)(5)) turns on a transfer for consideration, not on a cash price. An intercompany receivable created to reflect what the affiliate owes is consideration, so the transfer is a sale.

Q: Does it matter that both companies are in the same corporate family?
A: No. Common ownership doesn't remove the transaction from the sales tax unless a specific exemption applies. The Department treated the subsidiary as making a retail sale to its parent.

Q: The asset was a corporate aircraft — does the type of property change the answer?
A: No. The holding rests on the transfer being a retail sale of tangible personal property for consideration; the aircraft is simply the property that was transferred.

Citations and references

Statutes:

• Tax Law § 1101(b)(5) — "sale" means any transfer of title or possession for consideration
• Tax Law § 1101(b)(4) — definition of "retail sale"
• Tax Law § 1105(a) — tax on receipts from every retail sale of tangible personal property

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_54s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(54)S
Sales Tax
November 27, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810428B

On April 28, 1981, a Petition for Advisory Opinion was received from The Augsbury
Corporation, 520 Riverside Avenue, Ogdensburg, New York 13669.
The issue raised is whether the transfer of certain fixed assets (consisting primarily of a
corporate aircraft) from Petitioner, The Augsbury Corporation (a subsidiary) to The Augsbury
Organization (TAO, the parent) is subject to State and local sales tax.
Petitioner is a wholly owned subsidiary of TAO. TAO was organized in 1978 as a holding
company. TAO holds the stock of Petitioner as well as other subsidiaries and provides certain
management services on behalf of the affiliated group. After the incorporation of TAO, it was
decided to transfer ownership of any assets not used directly in the principal business activities of
Petitioner to TAO. This would permit Petitioner to determine profitability in its particular line of
business without being burdened with the cost of an asset used in the management activities of TAO.
Certain fixed assets (consisting primarily of a corporate aircraft) were transferred from Petitioner to
TAO during November 1979. This transfer was recorded in Petitioner's accounting records as a debit
to its Intercompany Accounts Receivable/Payable Account and a corresponding credit to the
appropriate asset account. Subsequently, by resolution of its Board of Directors in December, 1979,
Petitioner declared a dividend payable January 2, 1980. The resolution authorized payment from
Petitioner's assets in a manner determined by management staff of Petitioner.
Section 1101(b) of the Tax Law provides the following definitions: "(4) Retail sales. (i) A
sale of tangible personal property to any person for any purpose . . . . (5) Sale, selling or purchase.
Any transfer of title or possession or both, exchange or barter, rental, lease or license to use of
consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration,
or any agreement therefore . . . ."
Section 1105(a) of the Tax Law imposes a tax on: "The receipts from every retail sale of
tangible personal property . . . ."
The transfer of assets in the manner described is a "sale" within the meaning and intent of
section 1101(b)(5) of the Tax Law. The establishing of the account receivable by Petitioner from its
parent constitutes "consideration" for the transfer of the assets. Thus, Petitioner has made a "retail
sale" pursuant to section 1101(b)(4).

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81(54)S
Sales Tax
November 27, 1981

Accordingly, Petitioner's retail sale of tangible personal property is subject to tax pursuant
to section 1105(a) of the Tax Law.

DATED: November 10, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau