Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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G

295.0000 GROSS RECEIPTS

Annotation 295.0770

(b) ASSUMPTION OR CANCELLATION OF INDEBTEDNESS

295.0770 Formal Title Transfer. A husband and wife transferred realty in exchange for a trust deed and a motor home. The equity in the motor home was applied to the purchase price of the realty and the couple agreed to assume the loan on the motor home. After the close of escrow on the transaction, the couple failed to re-register the motor home in their own names or to formally assume the loan balance, although they did make loan payments as scheduled. The registered owner of the motor home attempted to persuade the couple to re-register the vehicle and to formally assume the loan, but they refused to take either action. Finally, to settle the dispute, the couple returned the vehicle to the registered owner and agreed to waive reimbursement for the loan payments which they had made. The registered owner also agreed to be responsible for the loan.

The transaction is viewed as a sale despite the absence of a formal change of title. The amount subject to tax is the sum of the loan assumed plus the equity allowed as part of the purchase price of the realty. A formal assumption of the loan is not necessary to establish an assumption of the debt. The acknowledgment of the debt by the purchaser through the payments and notation on the checks is sufficient in this circumstance. The return of the vehicle to the registered owner is regarded as a rescission which is not subject to tax. 4/20/94.