Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 395.2070


(1) Mergers

395.2070 Merger. Corporation A owned all of the stock of Corporation B, which owned all of the stock of Corporation C. Corp. B was merged into Corp. A in a statutory merger. At the same time, A transferred about 75% of the assets formerly owned by B to C. Although A retained all the liabilities it assumed in the merger with B, an amount equal to those liabilities was treated as a loan from A to C and was set up as an intercompany payable from C to A.

The merger resulting in the demise of B is not subject to tax. The treatment of inter-company liability results in the passage of consideration from C to A for the transfer of assets from A to C. The creation of a new debt in exchange for the transfer of assets is a sale from A to C, and is subject to tax unless a specific exemption applies. In these circumstances, the possible relevant exemption is contained in section 6006.5(b), Occasional Sales. Although there may have been no substantial change in ownership of the assets transferred, the transaction fails to meet the requirements of the exemption because the assets transferred were substantially less than 80% of the assets used by A in the course of its activities requiring a seller's permit. 4/12/90.