Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
395.0000 OCCASIONAL SALES—SALE OF A BUSINESS—BUSINESS REORGANIZATION—Regulation 1595
(i) TRANSFERS AND CONTRIBUTIONS TO NEW CORPORATION OR PARTNERSHIP
395.1988 Sale of Assets to Commencing Corporation. Parent company (P) transferred certain assets and liabilities to its commencing wholly owned subsidiary (S) in exchange for 100 percent of S's stock. Nine months later, the activities of S were merged back into P. Although P remained jointly liable for the liabilities transferred to S, the transfer nevertheless constituted consideration for the assets also transferred. Since the initial transfer to S was not solely in exchange for the first issue of stock in S, the transfer of tangible personal property was a sale and taxable to the extent of the indebtedness assumed. This is consistent with the 1993 Supreme Court decision in the Beatrice Co. case which overturned a contrary 1987 decision of the Appellate Court in the Macrodyne Industries case.
Further, the subsequent absorption of S by P could not be viewed as a rescission, particularly because it did not meet the promptness requirements of section 1691 of the California Civil Code. 8/31/94.