Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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495.0000 SALE

Annotation 495.0012


495.0012 Approval for Assumption of Loan—Condition of Sale. A taxpayer entered into a purchase agreement to sell its business. The agreement was signed by the shareholders of the taxpayer on February 13, 1989. The agreement provided that: (1) the buyers would take possession immediately; (2) the seller's lease of the business premises would be assigned to the buyers; (3) the buyers would assume a loan on the business made by a financial institution in the amount of $62,758.75; and (4) the buyers were to provide business insurance effective February 14, 1989. No down payment was required.

The buyers did take possession of the business premises immediately and the lessor of the premises accepted the assignment of the lease to the buyers. However, the financial institution did not agree to the assumption of the loan by the buyer. The buyers made no payments on the loan and the financial institution foreclosed on the collateral for the loan that had been put up by some of the taxpayer's shareholders. The buyers filed for bankruptcy and did not list the fixtures and equipment of the business as assets in their bankruptcy proceedings.

The contract of sale was conditioned on the approval by the financial institution of the buyers' assumption of taxpayer's note. This did not occur. Since a condition precedent to the sale did not occur, there was no sale. The fact that the buyers did not claim an ownership interest in the fixtures and equipment in their bankruptcy is consistent with the conclusion that no sale occurred. However, the buyers did take possession of the property. Thus, since title did not pass to the buyers because of the failure of the condition precedent to the sale, taxpayer must be regarded as leasing such property to the buyers. Since the consideration to be paid, the assumption of liabilities, was never paid, there were no rentals paid. There is therefore no tax liability on the leases. (Regulation 1660(c)(1).) 4/24/91.