When a bankruptcy trustee sells a debtor's vessel, gaming equipment, inventory, and other assets by sealed bid, does Texas sales tax apply, or is the sale an exempt 'occasional sale'?

Subject

Bankruptcy Sales — Title To Assets Vested In Trustee — Not An Occasional Sale

Plain-English summary

A bankruptcy trustee asked the Comptroller whether the court-ordered sale of a debtor's assets — including a docked vessel, gaming equipment, liquor inventory, gift shop inventory, cabin furnishings, and onshore vehicles and equipment — could qualify for Texas's "occasional sale" exemption from limited sales tax, and whether the vessel and any vehicles would escape Texas motor vehicle or boat sales tax.

The Comptroller's answer was mostly no. On the narrow question of the vessel, it ruled the ship did not meet the statutory definition of a "boat" under Section 160.001, so the sale of the vessel itself was not taxable under Chapter 160 (the boat and boat motor sales tax chapter). But any actual motor vehicles among the "vehicles on shore" were still subject to Texas motor vehicle sales tax — there is no occasional-sale carve-out for motor vehicles, even when the rest of the transaction is otherwise exempt.

On the main issue — Texas limited sales/use tax on everything else — the Comptroller walked through Rule 3.316's occasional-sale tests and found none of them satisfied:

• The estates already sold taxable items (liquor, gift shop goods) in the ordinary course and needed a sales tax permit, so the basic occasional-sale exemption in subsection (b) didn't apply.
• Once a seller holds a permit, subsection (c) requires tax to be collected on all taxable items sold, not just items similar to their regular inventory — so piecemeal sales of everything, similar or not, would be taxable.
• The "sale of a business or identifiable segment of a business" exemption in subsection (d) requires the sale to be made by the business owner, not a trustee or lienholder acting on the owner's behalf — so that didn't apply either.
• The "no change in ownership" exemption in subsection (e) requires the same owner before and after the sale. But under bankruptcy law, title to the estate's property vests in the trustee the moment the case is filed. That breaks the ownership continuity test even if the winning bidder turned out to be one of the original owners.

Because none of the exemption paths worked, the sale — whether done piecemeal to multiple bidders or in bulk to one buyer — was ruled subject to both Texas limited sales/use tax and (for actual vehicles) motor vehicle sales tax. The Comptroller also flagged that sales made through an auctioneer are generally taxable unless the auctioneer is functioning purely as a hired "bid caller" (essentially an employee of the seller), and noted that some items sold piecemeal might still separately qualify for other Chapter 151 exemptions, such as the ship and ship equipment exemption in Section 151.329.

What this means for you

Bankruptcy trustees and estate administrators

Don't assume a court-ordered liquidation sale is automatically tax-exempt. Because bankruptcy law vests title in the trustee, the "no change in ownership" occasional-sale test almost never survives a trustee sale, even if a former owner ends up buying the assets back. If the debtor's estate already held (or should have held) a sales tax permit for its regular business, expect the sale to be treated like any other taxable sale of the permit holder's assets, not a casual, tax-free liquidation.

Auctioneers and liquidation agents

If you're running the sale, check your role: acting as a true auctioneer conducting the sale generally makes the sale taxable, but serving strictly as a hired "bid caller" for the actual seller can change the analysis. Also separate out any real property from ships/vessels and vehicles — different tax regimes (limited sales tax, boat tax, motor vehicle sales tax) can apply to different pieces of the same liquidation.

Buyers at bankruptcy or liquidation sales

Expect sales tax to be added on most items purchased at a trustee or estate sale, and expect motor vehicle sales tax to apply separately on any titled vehicles regardless of how the rest of the deal is taxed. A vessel that doesn't meet the statutory "boat" definition may escape boat tax, but that doesn't mean the rest of the transaction is tax-free.

Common questions

Q: Is a bankruptcy trustee's liquidation sale automatically an exempt "occasional sale"?
A: No. Texas's occasional sale exemption under Section 151.304 and Rule 3.316 has several specific tests (permit status, business-sale-by-owner, and no-change-in-ownership), and a trustee sale typically fails all of them — mainly because bankruptcy law vests title in the trustee, breaking the ownership-continuity requirement.

Q: Was the vessel itself taxed?
A: No — the Comptroller found the vessel did not meet the statutory definition of a "boat" under Section 160.001, so its sale wasn't taxable under the Boat and Boat Motor Sales and Use Tax chapter (Chapter 160). It could still be subject to limited sales tax as part of the estate's taxable assets, however.

Q: What about vehicles included in the sale?
A: Motor vehicles are taxed separately under the motor vehicle sales tax and have no occasional-sale exemption at all — the purchaser owes motor vehicle sales tax even if the rest of the transaction qualifies for another exemption.

Q: Does it matter whether the assets are sold piecemeal to many buyers or in bulk to one buyer?
A: Not for the bottom line here — the ruling found the sale taxable either way, because the exemption failures (permit status and vested title in the trustee) applied regardless of how the sale was structured.

Q: Are auctioneers responsible for collecting the tax?
A: Generally, sales of taxable items made through an auctioneer are taxable, and the auctioneer's role matters. If the auctioneer is truly just a hired "bid caller" working for the seller (essentially an employee), that's treated differently than an auctioneer independently conducting the sale.

Citations and references

• Tex. Tax Code § 151.304 (occasional sale exemption)
• 34 Tex. Admin. Code Rule 3.316 (occasional sale exemption — subsections (b) permit holders, (c) tax on all taxable items sold, (d) sale of a business by its owner, (e) no change in ownership)
• Tex. Tax Code § 160.001 (definition of "boat")
• Tex. Tax Code Chapter 160 (Boat and Boat Motor Sales and Use Tax)
• Tex. Tax Code Chapter 151 (Limited Sales, Excise, and Use Tax)
• Tex. Tax Code § 151.329 (exemption for certain ships and ship equipment)
• Title 11 U.S.C., Chapter 7 (federal bankruptcy — voluntary liquidation petition)
• Comptroller Hearing No. 12,338
• Comptroller Hearing No. 12,380
• Comptroller Hearing No. 16,489
• Comptroller Hearing No. 20,947

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1195B03

Original ruling text

August 20, 1992

Dear *****:

Mr. Koenig asked me to respond to your fax transmittal regarding the sale of
the "Assets" of the bankruptcy estates of COMPANY A, a Bahamian corporation and
COMPANY B.

You explained that both estates filed a voluntary petition under Chapter 7 of
Title 11 U.S.C. As a result, the Bankruptcy Court ordered the Trustee,
INDIVIDUAL, to sell the following property of the estates ("Assets") free and
clear of all liens, claims, and encumbrances:

a. The vessel, COMPANY A (which is currently docked at the LOCATION, Texas),
and its contents;

b. All gaming equipment including slot machines, card cabinets, game tables,
related chairs and stools, slot machine and pit boss desks;

c. Bonded liquor inventory;

d. Texas liquor inventory;

e. Inventory and furnishing of both gift shops;

f. Removable furnishings in the cabins (not permanently affixed);

g. Removal items in the kitchen, bakery and laundry areas (not permanently
affixed);

h. Lifeboats, rafts, removable safety equipment and mooring ropes;

i. All other removable items on board such as nightclub furnishings and
equipment; dining room furnishings; employee recreation room contents; ship
office contents; hospital and sick bay contents; change booth equipment;
purser's office contents; surveillance room contents; reception, deck, veranda
and gangway entry furnishings; and all repair and maintenance equipment;
machine shop contents, tools and power conveyor;

j. Vehicles and shipping container on shore; and

k. Onshore office equipment and furniture.

You explained that the sale is being handled through sealed bids via an
auctioneer, COMPANY C. Bids were solicited for a piecemeal sale of Assets to
various bidders and for the sale of the Assets in bulk. You further explained
that although both the bankruptcy estates regularly engage in the retail sales
of bonded liquor inventory, Texas liquor inventory, or inventory of the gift
shops neither estate engages in the business of selling taxable items similar
to any of the other Assets.

The Trustee regularly serves as a trustee for other independent bankruptcy
estates, and as a part of his responsibilities as a trustee for the respective
bankruptcy estates, the Trustee regularly engages in the sale and liquidation
of assets of other bankruptcy estates. The Trustee does not hold any Texas
sales tax license on behalf of either of the debtors or their bankruptcy
estates.

You asked that determinations for reliance by the Trustee that (i) the sale of
the Assets constitutes an occasional sale, as defined in Sec. 151.304 and is
exempted from taxes imposed by Chapter 151; (ii) the vessel does not constitute
a "boat" within the meaning of Sec. 160.001 and the sale of the vessel is not
taxable under Chapter 160; and (iii) neither the Trustee nor COMPANY C., is
required to collect any sales tax or use tax (State or Local) on the sale of
the Assets.

The following paragraphs provide my response to your specific questions.I have
included some additional information that may prove beneficial in this situation.

First of all, the vessel, COMPANY A, is not a "boat" within the meaning of
Section 160.001; therefore, the sale is not taxable under Chapter 160.

Secondly, item "j" listed above refers to "vehicles and shipping container on shore."
Presumably, the vehicles include either cars, trucks, or truck-tractors and trailers.
If so, these are motor vehicles; there is no occasional sale provision under "motor
vehicle sales" tax for motor vehicles sold even when sold as part of a transaction
exempt from "limited sales" tax via the occasional sale exemption. The purchaser must
pay the motor vehicle sales tax due.

The third tax at issue is limited sales tax. You asked whether the sale would
qualify as an occasional sale. I have enclosed Rule 3.316 regarding the
occasional sale exemption. The estates in question sell taxable items and are
required to have a sales or use tax permit. Therefore, subsection (b) of this
rule does not apply to the transaction(s) whether sold via piecemeal bids to
different purchasers or via a bid for sale of Assets in bulk to one purchaser.

Subsection (c) requires persons holding permits to collect tax on all taxable
items sold whether the items being sold are similar to items sold in the permit
holders regular course of business or whether the items being sold are
different than those sold in the permit holders regular course of business.
Therefore, if the items are sold via piecemeal bids by the owner, the sale must
be taxed.

Subsection (d) provides an exemption for the sale of a business or an
identifiable segment of a business. In order for this exemption to apply, the
sale of a business or an identifiable segment of a business must be made by the
business owner and not by any other party including the sale by a bankruptcy
trustee or lien holder. The transaction you referenced is being sold by action
of the bankruptcy trustee through an auctioneer and does not qualify for this
exemption.

The last occasional sale exemption occurs when there is a transfer without
change in ownership. Subsection (e) of Rule 3.316 imposes a ownership test
both "before" and "after" the sale. This test cannot be met when the sale (of
the property in question) is made via a bankruptcy trustee because title (to
the property in question) vests in the trustee when the bankrupt estate files
in federal bankruptcy court. Therefore, this exemption cannot apply in this
situation even if the acceptable sealed bid came from one or both of the
previous owners.

The above explanation of the occasional sale exemption is based upon Sec.
151.304 of the tax code, Rule 3.316, and several administrative hearings. The
primary hearing numbers are Hearing 12,338, Hearing 12,380, Hearing 16,489, and
Hearing 20,947. These hearings discuss court cases dealing with sales made
through the bankruptcy court which uphold the position that the fact that the
Capitalization Transaction is performed by a trustee in bankruptcy does not
shield the transfer from imposition of state or local sales taxes.

Also, notwithstanding the previous discussion, sales of taxable items made by
an auctioneer are taxed. The only exception to this is when an auctioneer is
strictly hired/contracted as a bid caller. In this situation, the auctioneer
is merely an "employee" of his customer.

Based upon the information you presented and the research of the exemptions
applicable to the situation at hand, the sale of the Assets of the bankrupt
estates are subject to Texas Limited Sales or Use Tax and the Texas Motor
Vehicle Sales Tax. These taxes are due whether the sale is made via bids for
piecemeal sale of Assets and sold to more than one purchaser or whether the
sale is made via a bid for sale of the Assets in bulk.

If the sale is made on a piecemeal basis, some of the items may qualify for
other exemptions available under Chapter 151 of the tax code even though the
occasional sale exemption does not apply. For example, exemptions for certain
ships and ship equipment can be found in Sec. 151.329.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may also write to Tax Administration Division, Comptroller of Public Accounts.

Sincerely,

Tax Administration Division