Did Texas tax vehicle transfers to a new subsidiary for stock and then to a new limited partnership for partnership interests?

Plain-English summary

The Texas Comptroller approved a two-level formation structure without motor vehicle sales tax under Chapter 152.

Corporation A would transfer 99% of its assets, including vehicles, to newly formed Subsidiary B for all of B's stock. Those assets would then move to a new limited partnership for a 99% partnership interest, while Corporation A transferred its remaining 1% directly for the remaining partnership interest.

No tax was due as long as neither the subsidiary nor the partnership provided consideration other than stock or partnership interests. The letter expressly treated assumed debt as consideration.

The limited partnership would later lease the vehicles to Corporation A or another entity. A transfer of exclusive vehicle use for longer than 180 days was a lease rather than a rental and was not a taxable transaction under the letter.

What this means for you

Corporate tax departments and partnerships

The historical exemption depended on formation-stage transfers and consideration limited to entity ownership interests.

Transaction attorneys

Debt assumption was not neutral. It was consideration that could create motor vehicle tax.

Fleet managers

Track which entity transfers each vehicle, what it receives, and the term of any later lease.

Common questions

Q: Was the stock-for-assets transfer taxable?

A: No, if stock was the only consideration.

Q: Was the partnership-interest transfer taxable?

A: No, if the partnership interest was the only consideration.

Q: Was assumed debt consideration?

A: Yes.

Q: Was the later long-term lease taxable?

A: No, under the letter's over-180-day definition.

Citations and references

• Texas Tax Code Chapter 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/9804508L

Original ruling text

April 29, 1998

Dear **:

Tom Soto asked me to respond to your letter concerning the transfer of motor
vehicles to a newly formed subsidiary and then to a new limited partnership.

The situation is Corporation A transfers 99% interest in all assets, including
motor vehicles, to newly formed subsidiary B in exchange for 100% of B's stock.
Corporation B will then transfer those assets to a newly formed limited
partnership (you state that A will actually transfer those assets to the
limited partnership on behalf of B) in exchange for 99% interest in the limited
partnership. Corporation A will transfer the remaining 1% of it's assets,
including motor vehicles, to the limited partnership in exchange for 1% of the
interest in the limited partnership.

The motor vehicles will then be leased by the limited partnership to A or
another entity.

I agree with your analysis that no motor vehicle sales tax imposed under
Chapter 152 of the Tax Code is due on these transactions so long as no
consideration is provided by B to A or then by the limited partnership to A or
B other than stock or interest in the partnership. The assumption of debt is
consideration. The lease of the motor vehicles is not a taxable transaction.
A lease is defined as an agreement, other than a rental, by an owner of a motor
vehicle to give for longer than 180 days exclusive use of the vehicle to
another for consideration.

This opinion is based on the information presented. If there is additional
information, the opinion could change.

If you have any questions, please contact me by calling 1-800-531-5441,
extension 3-4684, toll free. You may also write to the Tax Policy Division.

Sincerely,

Curt Swenson
Tax Policy Division