When related companies move equipment between each other, is it a taxable sale — and does it matter that no money changes hands?

Plain-English summary

Browning-Ferris Industries, Inc., a publicly held Delaware parent, owns all or a majority of the stock of many New York and foreign subsidiaries (some of which own other subsidiaries). Regional operations may require one subsidiary to transfer possession and/or title of some or nearly all of its tangible personal property to another subsidiary, sometimes with several subsidiaries doing so at about the same time. The company says these transfers happen without any exchange of consideration — nothing of value passes back. It asked whether such transfers are taxable retail sales.

The Department's answer turns entirely on how each transfer is structured.

• A true capital contribution is not taxed. A "retail sale" requires a transfer of title or possession for consideration (20 NYCRR 526.7(a)(1)). The regulations exclude from "retail sale" a transfer of property to a corporation as a contribution to capital, made at a time other than the corporation's organization, without the issuance of stock or other consideration (20 NYCRR 526.6(d)(8)(ii)). So if the corporations' books document a transfer as a legitimate capital contribution with no stock and no other consideration, it is not a taxable sale.
• Possession-only is not a capital contribution. The Department cautioned that the mere transfer of possession without transfer of title will not be treated as a contribution to capital.
• A sale between related corporations is taxable. Under 20 NYCRR 526.6(d)(8)(i), a sale of property by one related corporation to another is a retail sale, taxable on the consideration paid — or on fair market value if the consideration does not reflect true value. (Example 11: Corp A transfers ten trucks worth $100,000 to subsidiary B for $40,000; the taxable sale is $100,000.)
• Simultaneous swaps are taxable barters. "Consideration" includes exchange, barter, or the rendering of any service (20 NYCRR 526.7(b)). Because several subsidiaries intend to transfer property at the same time, the Department treats these as barters or exchanges: the property each receives is consideration for the property it gives, and sales tax is due from each subsidiary on the fair market value of the property it receives (Lake Steel, Inc., TSB-A-83(47)S).
• "No paperwork" does not mean "no consideration." The Department has repeatedly found consideration even without vouchers or invoices — a block of stock issued the same day (E.J. Delmonte, TSB-H-85(34)S), an account receivable set up (Augsbury, TSB-A-81(54)S), disbursements treated as loan payments (Manufacturers Hanover, TSB-H-83(208)S), a promise to maintain rented equipment (Lake Steel), and management fees or year-end adjustments (Coyne Industrial Laundry, TSB-H-83(76)S; Central Markets, TSB-H-82(85)S; 107 Delaware Ave.).
• Rentals count too, and the burden is on the taxpayer. A "sale" includes a rental — a transfer of possession without title (§ 1101(b)(5); 20 NYCRR 526.7(c)(1)) — and § 1132(c) presumes all such receipts are taxable until the taxpayer proves otherwise.
• Watch the bulk-sale rule. If a substantial part of one related corporation's business assets is transferred to another outside the ordinary course of business, the transferee must file a "Notification of Sale, Transfer or Assignment in Bulk" at least ten days before taking possession or paying, and pay any tax determined due (Part 537).

What this means for you

Intercompany moves are not automatically tax-free. New York looks past the family relationship to whether anything of value passed. A clean capital contribution documented on the books — no stock, no reciprocal benefit — escapes tax; almost anything else can be taxable.

Simultaneous, reciprocal transfers are the trap. If Subsidiary A gives property to B while B (or another sub) gives property back around the same time, the Department reads that as a barter. Each side is taxed on the fair market value of what it receives, even though no cash moved.

"We didn't cut an invoice" is not a defense. Stock, receivables, loan repayments, services, and management fees have all been treated as consideration. Document the true nature of each transfer contemporaneously, and expect § 1132(c) to put the burden of proving non-taxability on you.

Big asset moves trigger bulk-sale filing. Transferring substantially all of a subsidiary's assets outside the ordinary course means the recipient must file the bulk-sale notification and may owe tax. Plan the timing and paperwork before the property moves.

Common questions

Q: We moved equipment between subsidiaries and no money changed hands. Is it taxable?
A: Possibly. If it is a genuine contribution to capital (title transferred, documented on the books, no stock or other consideration), it is not taxable. But a mere transfer of possession, or a reciprocal swap treated as a barter, is taxable — the latter at fair market value.

Q: What makes a transfer a "contribution to capital" instead of a sale?
A: It must be a transfer of title (not just possession) to the corporation, at a time other than its organization, recorded on the books, with no stock issued and no other consideration given or received.

Q: If two subsidiaries exchange property at the same time, how is tax computed?
A: As a barter. Each subsidiary owes sales tax on the fair market value of the property it receives, because the property received is treated as consideration for the property given.

Q: Do we have to file anything when moving most of a subsidiary's assets?
A: Yes, potentially. A transfer of a substantial part of business assets outside the ordinary course requires the transferee to file a bulk-sale notification at least ten days in advance and pay any tax due.

Citations and references

Statute:

• Tax Law § 1101(b)(4) — defines "retail sale" and excludes certain reorganization transfers (merger/consolidation for stock, liquidating dividend, transfer on organization for stock)
• Tax Law § 1101(b)(5) — defines "sale," including a rental (transfer of possession without title)
• Tax Law § 1132(c) — presumes receipts are taxable until the taxpayer proves otherwise

Regulations:

• 20 NYCRR 526.6(d)(8)(i) — a sale between related corporations is taxable on consideration, or fair market value if consideration is inadequate (Example 11)
• 20 NYCRR 526.6(d)(8)(ii) — excludes a contribution to capital, without stock or other consideration, made after organization
• 20 NYCRR 526.7 — defines sale, consideration (including barter and services), and rental
• Part 537 — bulk-sale notification requirement

Prior determinations cited:

• Lake Steel, Inc., TSB-A-83(47)S — simultaneous transfers are barters; maintenance promise is consideration
• E.J. Delmonte Corp., TSB-H-85(34)S; Augsbury Corp., TSB-A-81(54)S; Manufacturers Hanover, N.A., TSB-H-83(208)S; Coyne Industrial Laundry, TSB-H-83(76)S; Central Markets, TSB-H-82(85)S; 107 Delaware Ave. Associates, TSB-H-81(71)S — consideration found without conventional invoices

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_4s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(4)S
Sales Tax
January 9, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S841224A

On December 24, 1984 a Petition for Advisory Opinion was received from Browning-Ferris
Industries, Inc., 14701 St. Mary's Street, Houston, Texas 77079.
The issue raised is whether the transfer of tangible personal property between related
corporations constitutes a retail sale subject to sales tax where there is no exchange of consideration
and all or a majority of the stock of the transferor and transferee corporations is owned, directly or
indirectly, by a third corporation.
Petitioner, a publicly held Delaware corporation, owns all or a majority of the stock of several
New York and foreign corporations, some of which own all or a majority of the stock of other New
York and foreign corporations. Petitioner refers to the corporations of both tiers as "Subsidiaries."
Petitioner states that regional operations in New York State may require a Subsidiary to
transfer possession and/or title to some or substantially all of its tangible personal property to another
Subsidiary or other Subsidiaries. Several Subsidiaries may engage in such transfers at or about the
same time.
Petitioner claims these transfers would all be without an exchange of consideration; in no
case would the transferor Subsidiary receive, or the transferee Subsidiary pay or provide, anything
of value in exchange for the transfer of possession and/or title to the tangible personal property.
Transfers of possession would not be documented by a lease or any similar instrument. Title
transfers would be documented by bills of sale or assignment or, in the case of vehicles, as provided
under the Vehicle and Traffic Law.
Tax Law 1101(a) defines the term "person" to include a corporation. The term retail sale
(which includes rentals) is defined, in relevant part, as follows:
(4) Retail sale. (i) A sale of tangible personal property to any person
for any purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by that
person in performing the services subject to tax under paragraphs (1),
(2), (3) and (5) of subdivision (c) of section eleven hundred five. . .
Tax Law 1101(b)(4)(i).
For the purpose of rendering this Advisory Opinion it is assumed that the transactions at issue
do not involve property referred to in (A) and (B) of the foregoing paragraph, nor property the
receipts from which are exempt from the sales tax under Section 1115 of the Tax Law.

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

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TSB-A-86(4)S
Sales Tax
January 9, 1986
The Tax Law provides for the exclusion of certain specific corporate and intercorporate
transactions from the definition of "retail sale", as follows:
(A)
The transfer of tangible personal property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger or
consolidation effected under the Law of New York or any other jurisdiction.
(B)
The distribution of property by a corporation to its stockholders as a
liquidating dividend.
(D)
The transfer of property to a corporation upon its organization in
consideration for the issuance of its stock. (Tax Law 1101(b)(4)(iii)).
Since Petitioner makes no mention of a merger, consolidation, liquidating dividend or
issuance of stock upon the organization of a corporation, it is assumed for purposes of this Advisory
Opinion that the provisions of Tax Law section 1101(b)(4)(iii) are not here relevant.
The sales and use tax regulations further define the words sale, selling or purchase to mean
any transaction in which there is a transfer of title or possession, or both, of tangible personal
property for a consideration. (20 NYCRR 526.7(a)(1)). The regulations exclude from the term
"retail sale" the transfer of property to a corporation, as a contribution to capital, at a time other than
its organization, without the issuance of stock or other consideration. (20 NYCRR 526.6(d)(8)(ii)).
Accordingly, if entries on the books of the corporations involved document the transfer of
tangible personal property, as described above, as a legitimate contribution to capital without
issuance of stock or other consideration, such transfers are not subject to tax because they are
transfers without issuance of stock or other consideration and, therefore, not retail sales within the
meaning and intent of regulation sections 526.6 and 526.7. In this regard, it should be noted that the
mere transfer of possession without the transfer of title will not be considered a contribution to
capital.
The sale and use tax regulations impose special rules on certain other transactions between
corporations, as follows:
"The sale of property by one related corporation to another related corporation is a
retail sale, and taxable to the extent of the consideration paid, or the fair market
value, if the consideration paid is not an adequate indication of the true value of the
property transferred.

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TSB-A-86(4)S
Sales Tax
January 9, 1986
Example 11:

On February 1, 1976, Corporation A transfers to its subsidiary,
Corporation B, ten 1975 trucks, for a total of $40,000. The
fair market value of the trucks is $100,000. Corporation A
has made a taxable retail sale to Corporation B in the amount
of $100,000. (20 NYCRR 526.6(d)(8)(i))."

Pursuant to regulation section 526.7(b) the term consideration includes not only monetary
consideration but also exchange, barter, the rendering of any service, or any agreement therefor.
Petitioner states that several of its subsidiaries intend to make transfers of property at the same time
without an exchange of consideration. Such transactions will constitute barters or exchanges where
the property received is deemed consideration for the property given, and sales tax is due from each
subsidiary based on the fair market value of the property received. See: Lake Steel, Inc., State Tax
Commission Advisory Opinion, Nov. 2, 1983, TSB-A-83(47)S.
In the following rulings the Tax Commission found evidence of consideration, although conventional
accounting records such as vouchers, invoices or cash disbursements were not prepared.
In the Matter of E.J. Delmonte Corp., Decision of the State Tax Commission, Nov. 9, 1984,
TSB-H-85(34)S, the petitioner argued that the acquisition of certain assets from a related corporation
represented a contribution to capital. However, it was held that the issuance of a large block of
capital stock to said corporation on the same day was consideration for the property transferred. It
was further concluded that the minimal amount paid for the shares did not reflect the true taxable
value of the assets.
The establishing of an account receivable by a subsidiary from its parent was determined to
constitute consideration for the transfer of assets in the Matter of Augsbury Corporation, State Tax
Commission Advisory Opinion, Nov. 10, 1981, TSB-A-81(54)S.
In Manufacturers Hanover, N.A., Decision of the State Tax Commission, Sept. 28, 1983,
TSB-H-83(208)S, disbursements claimed to be principal and interest payments against a loan were,
absent a written agreement to that effect, held consideration paid for assets received from a related
corporation.
Tax Law section 1101(b)(5) defines a "sale" to include any "rental", which, in turn, is defined
by the sales tax regulations to mean "all transactions in which there is a transfer of possession of
tangible personal property without a transfer of title to property." (20 NYCRR 526.7(c)(1)). The
transfer of possession may be "actual or constructive" and may consist of "the right to use, or control,
or direct the use of" the transferred property. It is not essential for a transfer of possession to include
the right to move the tangible personal property which is the subject of a rental, lease or license to
use. (20 NYCRR 526.7(e)(4) and (5)). Monetary consideration for such transactions includes
assumption of liabilities, fees, rentals, royalties or any other charge that a purchaser, lessee or
licensee is required to pay. (20 NYCRR 526.7(b)).

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TSB-A-86(4)S
Sales Tax
January 9, 1986
With regard to rentals between related corporations, the Tax Commission concluded in Lake
Steel that an oral agreement by a parent corporation to provide all necessary maintenance and repair
services to equipment rented free of charge from a subsidiary constituted consideration, and that
therefore the transaction was a sale subject to tax.
In Coyne Industrial Laundry, Decision of the State Tax Commission, March 18, 1983, TSBH-83(76)S, transactions between related corporations were accomplished solely by bookkeeping
entries. It was ruled that charges described as management fees or end-of-year adjustments were in
effect consideration for supplies or services received from a subsidiary. The Tax Commission (citing
Matter of 107 Delaware Ave. Associates, Decision of the State Tax Commission, March 6, 1981,
TSB-H-81(71)S, annulled 99 AD2d 29, revd 64 NY2d 935) reached a similar conclusion in Matter
of Central Markets, Decision of the State Tax Commission, April 9, 1982, TSB-H-82(85)S.
Furthermore, Petitioner is referred to Section 1132 of the Tax Law and, specifically, to
subdivision (c) which states, in part, that "it shall be presumed that all receipts for property or
services of any type mentioned in subdivision (a), (b), (c) and (d) of section eleven hundred five, .
. .are subject to tax until the contrary is established, and the burden of proving that any receipt . . .
is not taxable hereunder shall be upon the person required to collect tax or the customer".
Finally, it should be noted that if a substantial part of the business assets of one related
corporation are transferred to another, other than in the ordinary course of business, the transferee
must at least ten days before taking possession of the property, or paying therefor, file with the Tax
Commission a "Notification of Sale, Transfer or Assignment in Bulk" and pay such taxes as may be
determined due under the Tax Law. (See: Part 537 of the Regulations of the State Tax Commission).

DATED: January 9, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.