Is the sale of a retiring business's equipment exempt as an occasional sale if the assets are sold in pieces to more than one buyer?

Plain-English summary

A business owner who repaired and sold electrical equipment decided to retire and sell off the company's equipment, machinery, materials, supplies, and other assets. The sale happened in pieces: some machinery and equipment went to COMPANY A on February 1, 2000, more went to COMPANY A on June 30, 2000, and the rest went to other buyers. On one invoice (42881), the owner correctly taxed the equipment/machinery charge but left the materials/supplies charge, a "Good Will" charge, and a "Consulting Retainer" charge untaxed.

The Comptroller ruled all three untaxed items should have been taxed. The materials/supplies charge is straightforwardly taxable tangible personal property. The "Good Will" charge was taxable because you can't sell good will as a nontaxable item unless you're selling the entire operating assets of the business to a single purchaser who is going to continue operating it — and neither was true here (over $[redacted] in equipment went to buyers other than COMPANY A). The "Consulting Retainer" charge was taxable because it was directly related to the taxable sale of tangible personal property and so couldn't be carved out of the sales price. Separately, the letter explains why the sale didn't qualify for Rule 3.316's occasional-sale exemption at all: that exemption requires the entire operating assets of a business (or an identifiable division/branch) to be sold in a single transaction to a single purchaser — selling assets across several transactions to several purchasers doesn't qualify, regardless of what the invoice claims. The letter also flagged a separate invoice (42880) where the state-and-local sales tax was calculated incorrectly for a 7.75% combined rate.

What this means for you

Business owners selling out or retiring

If you want your asset sale to qualify as an exempt occasional sale under Rule 3.316, the ENTIRE operating assets of the business (or a genuinely identifiable division/branch) must go to ONE purchaser in ONE transaction. Splitting the sale across multiple buyers — even if most of the value goes to one of them — forfeits the exemption for the whole sale, and simply writing "entire operating assets" on the invoice doesn't make it so.

Sellers charging for "good will" or consulting alongside an asset sale

A good will charge is only defensible as nontaxable when it accompanies a true single-purchaser sale of the entire operating assets to a buyer who continues the business. A consulting retainer tied to the equipment sale rides along as part of the taxable sales price and can't be separately excluded.

Accountants and tax professionals

Double-check the sales tax rate math on any large asset-sale invoice — this letter caught a calculation error on a companion invoice, a reminder that rate errors surface even in sophisticated multi-invoice transactions.

Common questions

Q: Does selling most of a business's assets to one buyer, with the remainder to others, qualify for the occasional sale exemption?
A: No. Rule 3.316 requires the entire operating assets to be sold in a single transaction to a single purchaser — any split across multiple buyers disqualifies the whole sale.

Q: Is a "good will" charge ever nontaxable?
A: Only when it's part of a genuine single-purchaser sale of the entire operating assets to a buyer continuing the business. Otherwise it's taxable along with the rest of the sale.

Q: Is a consulting retainer charge tied to an equipment sale taxable?
A: Yes, if it's directly related to the taxable sale of tangible personal property, it's part of the taxable sales price and can't be excluded.

Q: Can other business sellers rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own transaction structure with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.316 (Occasional Sales and Other Tax Free Sales)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200009723L

Original ruling text

September 21, 2000

Dear **:

Thank you for your recent letter regarding selling the assets of your business
and Texas sales tax.

You stated that your company repaired and sold electrical equipment. You
decided to retire and sell your company's equipment, machinery, materials,
supplies and all other assets to buyers.

Further, you stated that you sold some of your company's machinery and
equipment to COMPANY A on February 1, 2000 and then sold some additional pieces
of machinery and equipment to COMPANY A on June 30, 2000. The remainder of
your company's machinery and equipment was sold to other buyers.

On invoice 42881, you taxed the $** charge for equipment and
machinery, yet did not tax the $** charge for materials and
supplies. Additionally, you charged $** for "Good Will" and
$** for a "Consulting Retainer" and did not tax those charges. The
total of the invoice ($**) is subject to Texas State and local
sales tax of $**. The $** charge for "good will" is
taxable due to the fact that you cannot sell "good will" when you are not
selling the entire operating assets to a single purchaser, nor is the purchaser
of the majority of your inventory going to continue to operate as "COMPANY B"
The $** charge for a consulting retainer is directly related to the
taxable sale of tangible personal property, so it cannot be excluded from the
sales price of the tangible personal property.

Your company did not sell its entire operating assets to a single purchaser,
regardless of the statement to that effect on invoice 42881. Your company sold
over $** worth of equipment to someone other than COMPANY A. In
order for the sale to be exempt under Rule 3.316 "Occasional Sales and Other
Tax Free Sales," the entire operating assets of the business or of the
division, branch or identifiable segment of the business must be sold in a
single transaction to a single purchaser. The sale of the entire operating
assets through several transactions to several purchasers will not qualify as
an occasional sale.

The state and local sales tax on Invoice 42880 are also calculated incorrectly
if the combined state and local sales tax is 7.75% at your place of business.
Based on your business location, Texas State and local sales tax on
$** is $**.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division