Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
395.0000 OCCASIONAL SALES—SALE OF A BUSINESS—BUSINESS REORGANIZATION—Regulation 1595
(j) MERGERS AND REORGANIZATIONS
395.2162 Corporate Reorganization. Corporation A is engaged in several endeavors including the leasing of tangible personal property. It has three wholly owned subsidiaries, B, C, and D. Corporation B owns four inactive subsidiaries (IX, X, XI, and XII). Corporation C owns one active subsidiary (V) and three inactive subsidiaries (VI, VII, and VIII). Corporation D owns one active subsidiary (I) and three inactive subsidiaries (II, III and IV). Corporation D also is the parent of Corporations E and F.
In order to simplify its operations, Corporation A proposes the following action:
(1) Corporation B will distribute to Corporation A all of its stock in subsidiary IX as a dividend.
(2) Immediately thereafter, Corporation A will contribute all of its stock in Corporation B to subsidiary IX. Corporation A will not receive consideration for the transfer.
(3) Corporations C and D and Subsidiaries I and V will be merged into Corporation B. The outstanding stock of Corporations C and D will be exchanged for stock in Subsidiary IV. The outstanding stock in Subsidiaries I and V will be canceled.
Steps 1 and 2 are not subject to tax since they involve the sale of stock, an intangible.
If step 3 is a statutory merger, no tax would apply. Also, if it is a statutory merger, no tax would apply to any subsequent leases of property by the surviving corporation if the property had been acquired tax paid by the predecessor corporations. If acquired ex-tax by the predecessors, tax would continue to apply to rental receipts. 11/6/84.