Did a complex corporate reorganization create a taxable sale when motor vehicles transferred with the other business assets?

Plain-English summary

The Texas Attorney General found no taxable motor vehicle sale in the described corporate reorganization.

The plan transferred nearly all of one corporation's assets, including vehicles, to a wholly owned subsidiary of another corporation. In exchange, the transferor received 137,083 shares of the parent, which assumed disclosed liabilities. The transferor then changed its name, distributed the shares to its stockholders, and dissolved; up to $15,000 could be retained for liquidation expenses.

Although the structure was more complicated than Attorney General Opinion S-22, the response considered the ultimate result the same: a merger did not convert the asset transfer into a taxable vehicle sale under former article 7047k.

What this means for you

The opinion depended on the complete reorganization sequence and merger characterization. It should not be read as exempting every transfer between affiliated corporations, especially when facts or consideration differ.

Common questions

Q: Did the opinion treat the vehicle transfer as a sale?
A: No.

Q: Was this a simple two-company merger?
A: No. Four corporations and a stock-and-asset reorganization were involved.

Q: Does it create a blanket related-party exemption?
A: No.

Citations and references

• Article 7047k, Vernon's Civil Statutes
• Texas Attorney General Opinion No. S-22
• Jones v. Noble Drilling Company, Incorporated, 1325 Fed. 2d 721, as printed in the opinion

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=MVT
• Opinion: https://star.comptroller.texas.gov/view/5611L2003E10

Original ruling text

THE ATTORNEY GENERAL
OF TEXAS
Austin 11, Texas

November 9, 1956

Honorable Robert S. Calvert
Comptroller of Public Accounts
Capitol Station
Austin, Texas

Dear Sir:

You request to be advised whether under the facts presented
in the letter of ***, Attorneys at Law, Fort Worth,
Texas, addressed to you on October 10, 1956, the motor vehicle
sales tax which is imposed by Article 7047k, Vernon's Civil
Statutes, is applicable.

This depends upon whether there has been a sale of motor vehicles
within the purview of this statute. A brief analysis of the trans-
action is necessary. It is essentially this: Four corporations
are involved (1) CORP A; (2)CORP B; (3)CORP C; and (4)CORP D. In
the plan of reorganization or merger the name of CORP A is to be
changed to CORP C which is to be dissolved when it has served its
purpose in the plan. All these corporations are engaged in closely
allied services in the oil industry in Texas and several other States.
A detailed statement of these activities is not essential. It is
sufficient to say they embrace one or more of the services that have
become prevalent and essential in the oil industry.

The plan of reorganization or merger is expressed in the Fourth para-
graph of the letter of ***, as follows:

"The plan, briefly, provides for the CORP A to transfer
all of its property and assets, including its name,
business and goodwill, but excluding an amount to cover
expenses of liquidation not exceed Fifteen Thousand Dol-
lars ($15,000), to CORP D, a Delaware corporation with
its principal office and place of business at ***,
Long Beach, California, such corporation being a wholly-
owned subsidiary of CORP B, in exchange for 137,083 shares
of CORP B common stock, CORP B assuming all disclosed lia-
bilities of CORP A. Following such exchange, the name of
CORP A is to change, under and in accordance with the laws
of the State of Ohio, to CORP C, which company shall exchange
the CORP B shares received under the plan with the stock-
holders of "CORP A " on the basis of 2.4 shares of CORP A
stock for each 1 share of CORP B stock. Following such dis-
tribution and transfer, CORP C will be dissolved."

The real principals in this transaction are CORP A and CORP B.
CORP D is a wholly-owned subsidiary of CORP B and it merely be-
comes the focus point of the title to all of the property of
CORP A, both real and personal, including the motor vehicles,
the subject of this inquiry.

The plan of reorganization or merger involved here is more in-
volved and complicated than was the case in Opinion No. S-22, a
copy of which you have, in which we held:

"We are of the opinion that under the conceded facts this trans-
action does not constitute a taxable sale of motor vehicles under
the provisions of Article 7047k, V.C.S. There is no case in this
State or in any other jurisdiction which our research has revealed
exactly in point. In the case of Jones, Collector of Internal
Revenue, v. Noble Drilling Company, Incorporated, 1325 Fed. 2d 721,
involving facts somewhat similar, the court said:

" "The merger agreement was without consideration.
There was a statutory merger, not a mere sale of assets."

"It appears that if there be a merger of two corporations,
either by contract or by operation of law, without considera-
tion moving to the liquidated corporation, it does not have
the effect of converting the transfer of assets of the
liquidated corporation to the surviving corporation into a
sale of the assets."

We believe, however, that the ultimate result is the same;
hence, our answer is the same. You are therefore advised that
under the facts here presented no taxable sale of the motor vehicles
occurs under Article 7047k, V.C.S.

Yours very truly,
L. P. Lollar
Assistant Attorney General