Was transferring an Oregon corporation's operating assets to a related Texas corporation subject to Texas use tax?

Plain-English summary

Owners planned to move operating assets from an Oregon corporation within one corporate ownership structure to a Texas corporation with a different ownership mix.

The Comptroller said no Texas use tax was due if the transfer was a contribution to capital and the Texas corporation gave no consideration for the assets. Consideration could include cash, issuance of stock when ownership was less than 100%, forgiveness of debt, or assumption of debt.

The substantially similar ownership provision in Rule 3.316(e) did not appear to apply on the stated ownership facts. But if the entire operating assets were transferred in one transaction, the transfer might qualify as an occasional sale under Rule 3.316(d).

What this means for you

Businesses moving assets among related companies

Related ownership alone did not settle the tax result. Document whether the recipient corporation paid, issued stock, forgave debt, assumed debt, or provided any other consideration.

Accountants and tax professionals

Test multiple paths. A no-consideration capital contribution may be nontaxable, while a full operating-asset transfer may separately qualify under the occasional-sale rule.

Common questions

Was a pure capital contribution taxable? No, if the Texas corporation gave no consideration.

Could issuing stock count as consideration? Yes, when stock ownership was less than 100%, according to the letter.

Could debt treatment count as consideration? Yes. The letter listed debt forgiveness and assumption.

Did the related-ownership occasional-sale rule apply? It did not appear to apply, but transferring all operating assets in one transaction might qualify under a different subsection.

Citations and references

• 34 Tex. Admin. Code Rule 3.316(d) and (e) (occasional sales and substantially similar ownership)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1162D10

Original ruling text

February 13, 1992

Dear ****:

Thank you for your letter concerning the transfer of operating assets
from your * Oregon corporation to your * Texas corporation.

In our telephone conversation on January 29 you stated that you and your
partner * each own 50% of the stock in a Nevada corporation. The
Nevada corporation owns the Oregon corporation, which you plan to sell or
dissolve. You plan to transfer all or part of the Oregon corporation's
operating assets that are in good repair to the Texas corporation. You and
* each own 40% of the stock in the Texas corporation and a third
person owns 20% of the stock.

If the assets are transferred to the Texas corporation as a contribution
to capital, no Texas use tax will be due on the transfer. The transfer will be
considered a nontaxable contribution to capital rather than a sale if no
consideration is given for the assets by the Texas corporation. Consideration
may be a cash payment, issuance of stock when stock ownership is less than
100%, forgiveness or assumption of debt, etc.

The substantially similar ownership provisions in Rule 3.316 (e),
Occasional Sales, does not appear to apply to the proposed transaction based on
the facts presented. But, if the entire operating assets are transferred to
the Texas corporation in a single transaction, then it may qualify as an
occasional sale under rule 3.316 (d).

This opinion is based on the facts that you presented. If there are
additional or different facts, this opinion may change. Please feel free to
contact me if you have any additional questions about my response. You may
write me, call toll free 1-800-252-5555, ext. 34685, from anywhere in the
United States or phone (512) 463-4685.

Sincerely,

Julie Pesl
Tax Administration Division