Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 395.2015


395.2015 MTE—Transfer to Commencing Corporation. The transfer of Mobile Transportation Equipment (MTE) to a commencing corporation solely in exchange for the original issue of stock is not a sale, even though less than 80% of the assets of the transferor were transferred. The transaction is nontaxable under Regulation 1595(b)(4). The lease of MTE is never a sale or purchase for purposes of sales and use tax; rather, the lessor is regarded as using the MTE by leasing it. The rentals of MTE are taxable only if the lessor made a timely election to pay its own use tax liability measured by fair rental value. When a person such as the commencing corporation here acquires MTE in a transfer which is not a purchase, the person does not owe tax on its use of the MTE. Since the person may use the MTE tax free, it does not owe use tax with respect to the lease of the MTE.

On the other hand, the lease of nonMTE tangible personal property is a use by the lessor, and not a continuing sale, only if leased in substantially the same form as acquired and the lessor has paid tax or tax reimbursement on the purchase price. Thus, if a person acquires nonMTE in a nontaxable transfer such as here, it may use the property itself tax free, but its leases of such property would be taxable continuing sales.

If the vehicles in the above transaction are one-way rental trucks, they are treated as any other nonMTE property the lease of which is a continuing sale unless leased in the same form as acquired and the lessor has paid sales or use tax on their acquisition. Since less than 80% of the assets were transferred, the transfer does not come under section 6006.5(b), and the tax-paid status of the equipment in the hands of the transferor is not obtained by the transferee. Accordingly, the rental of the equipment is a continuing sale subject to use tax measured by rental receipts. 1/7/91.