Does Texas motor vehicle tax apply when a limited partnership converts into an LLC under an approved statutory conversion plan?

Plain-English summary

The Texas Comptroller ruled that a limited partnership's statutory conversion into a limited liability company did not trigger motor vehicle sales or use tax.

Under the Texas Business Organizations Code, the converting domestic entity continued in a different organizational form. Its owners generally continued as owners of the converted entity, and § 10.106 provided that the entity's property remained owned by the converted entity without a transfer or assignment.

Because no sale or property transfer occurred, changing the vehicle titles and registrations from the limited partnership's name to the LLC's name did not create Chapter 152 tax.

What this means for you

Businesses changing entity form

The favorable result depended on an approved statutory plan of conversion and the continuity rules in the Business Organizations Code. A separate asset transfer, contribution, merger structure, or ownership cash-out may require a different analysis.

Fleet and title teams

Retitling after a qualifying statutory conversion is not necessarily a taxable vehicle sale. Keep the filed certificate and approved plan showing the same entity continued in its new form.

Common questions

Q: Did the vehicles move to a newly separate buyer?

A: No. The converted entity continued to own them in its new organizational form.

Q: Did existing liens disappear?

A: No. The cited continuity rule kept property subject to existing liens and encumbrances.

Q: Does this answer cover every LP-to-LLC asset transfer?

A: No. It covers an approved statutory conversion under the cited Texas Business Organizations Code provisions.

Citations and references

• Tex. Bus. Orgs. Code §§ 1.002, 10.101, 10.106, 10.107, 10.154
• Tex. Tax Code ch. 152

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/200901499L

Original ruling text

January 20, 2009

Subject: 08350070-Motor Vehicle Tax Pursuant To A Statutory Conversion

Dear ***:

This is in response to your e-mail question concerning whether there will be
any motor vehicle sales tax on the motor vehicles owned by a limited
partnership when the limited partnership converts into a limited liability
company when there is no change in the ultimate ownership.

Response: No Texas motor vehicle sales or use tax pursuant to Chapter 152 of
the Texas Tax Code will be due upon the motor vehicles owned by a limited
partnership when the limited partnership converts to a limited liability
company as the result of an approved statutory plan of conversion pursuant to
the Texas Business Organizations Code.

A domestic (Texas) entity may convert into (continue as) a different type of
domestic (Texas ) entity or a non-code organization by adopting an approved
plan of conversion and filing a certificate of conversion with the Texas
Secretary of State in the manner prescribed by the Texas Business Organizations
Code. At the time a conversion takes effect, each owner of the converting
entity (limited partnership), other than those who receive payment of their
ownership or membership interest under any applicable provisions of the Texas
Business Organizations Code relating to dissent and appraisal, has, unless
otherwise agreed to by that owner or member, an ownership or membership
interest in, and is the owner or member of, the converted entity (limited
liability company). See Texas Business Organizations Code Sections 1.002,
10.101, 10.107 and 10.154.

Furthermore, Section 10.106 of the Texas Business Organizations Code provides
that property owned by the converting entity (limited partnership) continues to
be owned, subject to any existing liens or other encumbrances on the property,
by the converted entity (limited liability company) in the new organizational
form without any transfer or assignment having occurred.

Therefore, since there is no transfer/sale of property (motor vehicles) as the
results of a statutory conversion, motor vehicle sales or use tax pursuant to
Chapter 152 of the Texas Tax Code is not due upon the change of title and/or
registration of motor vehicles from a limited partnership to a limited
liability company as the result of an approved statutory plan of conversion of
a limited partnership into a limited liability company pursuant to The
provisions of the Texas Business Organizations Code.

For online access to the sections of the Tax and Business Organization Codes
noted above, go to: www.window.state.tx.us/taxinfo/sales/index.html. Scroll
down to “External Links” and then down to "Statutes".

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results. I hope this information helps. If you have further
questions, please e-mail them to [email protected], or you may reach me
by phone at (800) 531-5441, ext. 3-4986.

Our goal is to provide you with prompt, professional service. Please take a
moment to complete our on-line survey at
http://aixtcp.cpa.state.tx.us/surveys/tpsurv2/index.html

Sincerely,

Ken Koch
Tax Policy Division
Comptroller of Public Accounts