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
(k) DISSOLUTION; LIQUIDATION; DISTRIBUTION OF ASSETS
395.2473 "Step Transactions." A partnership forms a wholly owned corporation. Five other corporations are merged into the new corporation in a statutory merger. The shareholders of the five other corporations receive cash or a promissory note in cancellation of their shares. The new corporation is then dissolved into the partnership with the partnership receiving all the assets in a complete liquidating distribution.
If each step were analyzed separately, no sales or use taxes would be applicable to any of the separate steps. However, it appears that the only reason for the step transaction was for the partnership to acquire, for cash and/or promissory notes, the tangible personal property of the five corporations without incurring sales or use tax liability. If such is the case, the intervening steps would be ignored and the only relevant factors would be that cash or promissory notes were paid by the partnership for the acquisition of the tangible personal property. See also Commission v. Court Holding Co. (1944) 324 U.S. 331,334. 4/9/93.