Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 395.1783


395.1783 Vessel Distributed to Individual Partners and Then Transferred to a Corporation. A partnership rents a houseboat, its only asset, and pays use tax on the rental receipts. The houseboat is distributed to the individual partners, each receiving their same prorata share as their partnership interest. This distribution is a transfer of all property without a change in ultimate ownership since each partner will own the same percentage of ownership in the houseboat after the transfer as that partner owned in the partnership. Thus, this distribution is a transfer of all property without a change in ownership as set forth under Regulation 1595 and exempt from tax under section 6281.

Upon the transfer of the houseboat by the individual partners to the corporation, if the individual partners receive no consideration other than the first issue of stock of that corporation, there would be no sales or use tax applicable to the transfer under Regulation 1595. If however, there is some consideration received by the partners such as an assumption of the corporation's liabilities, then that consideration will form the measure of tax unless the transfer qualifies for the exemption under section 6281.

Assuming the transfer to the corporation is part of a transfer of at least 80% of the tangible personal property held or used by each of the individual partners in the course of their business activities and assuming that the stock they receive in the corporation is proportionate to the ownership interest each held in the houseboat, the transfer would qualify for the exemption under section 6281. 11/18/88.