A business sold all its operating assets (except two officers' cars and equipment it leased from a third party under an operating lease, which it couldn't transfer). Does the sale still qualify for the occasional sale exemption?

Plain-English summary

A business asked the Comptroller whether the sale of its operating assets would still qualify for the occasional sale exemption, given two wrinkles: (1) two automobiles used by the seller's officers were not included in the sale, and (2) some tangible personal property the seller was using under a third-party operating lease couldn't be transferred to the purchaser, because the seller never owned it.

The Comptroller ruled that the sale still qualified for the occasional sale exemption:

• The excluded automobiles didn't matter. Motor vehicles actually used in business operations (the letter gives the example of a cement truck delivering cement, or a delivery truck delivering product) count as operating assets for occasional-sale purposes. But the two automobiles here were used for general business purposes, not operations — so leaving them out of the sale had no effect on the exemption.
• The leased equipment didn't matter either. The seller could not transfer title to property it leased from a third party under an operating lease, because that property belonged to the lessor, not the seller. Since the seller sold everything it actually had available to sell, its inability to transfer leased assets it never owned in the first place did not negate the occasional sale exemption.

What this means for you

Businesses selling substantially all their assets

If you're selling your business's operating assets and claiming the occasional sale exemption, you don't need to also transfer property you merely lease or rent from someone else — you can't transfer title to something you don't own, and the Comptroller treats that as outside the scope of what you're required to sell to qualify.

Businesses excluding personal-use vehicles from an asset sale

Vehicles used for general business purposes (as opposed to vehicles that are themselves operating assets, like delivery trucks) can be carved out of the sale without jeopardizing the occasional sale exemption on the rest of the assets.

Anyone relying on this letter

This opinion is based on the specific facts presented to the Comptroller. If your facts are different, the outcome could be different, and only the original requester can rely on this letter as a detrimental-reliance defense.

Common questions

Q: Does excluding a leased forklift, leased equipment, or other rented property from an asset sale break the occasional sale exemption?
A: Not by itself. Because you never owned that property, you can't transfer title to it. As long as you sell everything you do own that's available for sale, the inability to transfer leased items doesn't negate the exemption.

Q: What if I keep a company car out of the sale?
A: If the vehicle was used for general business purposes rather than in operations, keeping it out of the sale shouldn't affect the exemption. Vehicles that are themselves operating assets (delivery trucks, cement trucks, etc.) are treated differently.

Q: Can I rely on this letter for my own asset sale?
A: No. This ruling was issued to a specific taxpayer based on the facts in their January 29, 1996 letter, and STAR letters can only be relied upon by the taxpayer to whom they were issued.

Citations and references

No specific statutes or administrative rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9601940L

Original ruling text

January 31, 1996

Dear ** :

In your letter of January 29, 1996, you asked if the sale of the operating
assets, except for two automobiles used by the seller's officers and tangible
personal property leased from a third party under the terms of an operating
lease, would still qualify for the occasional sale exemption.

For your information, motor vehicles used in the operations [i.e.. cement truck
used to deliver cement for a cement plant or a delivery truck used to deliver
product] are considered as operating assets for an occasional sale. The
automobiles in your letter were used for general business purposes and would
not effect the occasional sale.

The seller could not transfer title to the purchaser items leased from the
third party lessor under the terms of an operating lease. Since the seller
sold all the assets available for sale, the fact that it could not transfer
some items used in the operation of the business [leased assets] does not
negate the occasional sale exemption.

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

You may call me toll free at 1-800-531-5441 extension 50892. The direct line is
512/475-0892. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

John J. Fitzgibbons, CPA
Tax Policy