Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2013
Sales and Use Tax Annotations
395.0000 OCCASIONAL SALES—SALE OF A BUSINESS—BUSINESS REORGANIZATION—Regulation 1595
(g) "SUBSTANTIALLY ALL THE PROPERTY"—TRANSFER OF
395.1530 Transfer of Assets to Related Corporation. Corporation A transferred assets to a wholly owned subsidiary, Corporation B. Corporation A's directors had voted approval for the transfer as a contribution to Corporation B's capital, and both A and B recorded the transfer as an "investment". Corporation B immediately contributed the assets to Joint Venture C, in exchange for a 50% interest in C. Four days after obtaining the assets, Joint Venture C obtained a loan and distributed the cash back to Corporation B, pursuant to the joint venture agreement. On that same day, B issued a check in the same amount to Corporation A. Both A and B recorded the check amounts as a reduction in A's investment in B.
The payment from B to A is construed as consideration for the assets transferred, rather than a dividend. The original asset transfer from A to B was not an investment, a contribution to capital, or any other transaction devoid of consideration. The final result of this scheme was that A had cash and B had the assets. Therefore, the asset transfer was a sale subject to tax, measured by the price allocable to the noninventory tangible personal property. 9/16/91.