Case Information
*1 Opinion No.’ H- 273 Comptroller of Public Accounts
State of Texas Re: Liability for Motor Vehicle Austin, Texas Sales Tax where truck trans
ferred from sole proprietor ship or partnership to wholly owned corporation.
Dear Mr. Calvert:
You have requested our opinion as to whether a transfer of motor vehicles occurring in connection with the incorporation of a sole proprietor ship or partnership by its owners is subject to the Motor Vehicle Retail Sales and Use Tax imposed by Art. 6. 01, Taxation-General, V. .T. C. S. If our opinion is in the affirmative, you then ask what would be the ba,sis to..which the 4% tax rate should apply.
The following fact situation apparentIy provoked your request. A man and his wife formed a partnership to engage in the trucking business. They purchased two trucks, had them titled in the name of the partnership, and paid the 4% motor vehicle sales tax due on the transaction. Two days later the couple decided to incorporate their business. They formed a corporation and issued all of its shares to themselves in equal amounts. The partnership was liquidated, and all of its assets including the trucks were transferred to the corporation. The question is whether the corporal: tion must now pay a sales tax when it registers title to the trucks in its name, and the answer depends on whether or not there has been a retail sale of the trucks.
Article 6. 01, Taxation-General, V. T. C. S. , imposes a tax on all retail sales of a motor vehicle. In Article 6. 03 “sale” and “retail sale’: are defined as follows:
p, 1276
“(A) Sale. The term ‘sale’ as herein used shall include installment and credit sales, and the exchange of property as well’as the sale thereof for money, every closed transaction constituting a sale. The transaction whereby the possession of property is transferred but the seller retains title as security for the payment of the price shall be deemed a sale.
“(B) Retail Sale. The term ‘retail sale’ as herein used shall include all sales of motor vehicles except those whereby the purchaser acquires a motor vehicle for the exclusive purpose of resale and not for use and shall not include those operated under and in accordance with the terms of Article 6686, Revised Civil Statutes of Texas, 1925, as amended. The term ‘retail sale’ also shall include rentals the gross receipts from which are subject to the tax imposed by this Chapter, andpurchases usedor to be held for in such rentals shall be considered pur- chases for resale. ”
This office has on several occasions issued opinions bearing. on what constitutes a taxable sale for purpose of the motor vehicle sales tax imposed by Art. 6. 01. For example,
O-6871 (1945), the stockholders of a corporation had dtssolved it and had transferred all of its assets to a partnership they had formed and in which each stockholder held an interest propor,tionate to what he had held in the corporation. This office was asked whether the transfer of vehicles from the dissolved corporation to the newly formed partnership constituted a taxable sale. This office held that the owners of the business had simply adopted a different form of doing business and that insofar as the transfer of vehicles from the dissolved corporation to the newly formed partnership was a part of this reorganization without a change in ownership there was no taxable sale.
A similar question was presented S-2t(l953). A Texas corporation had been merged into a Delaware corporation. All of its capital stock and assets
were then acquired by the Delaware corporation which offered no con- sideration in return, apparently because ownership of both corporations was the same. We held that the transfer of vehicles occurring in connection with the merger did not constitute a sale for purposes of the motor vehicle sales tax. The opinion stated:
“It appears that if there be a merger of two corporations, either by contract or by operation of law, without conside~ration moving to the liquidated corporation, it does not have the effect of converting the transfer of the assets of the liquidated corpora- tion to the surviving corporation into a sale of the assets. ” S-22 at p. 1.
On the other hand, in Attorney General Opinion. C-764 (1966). there was a transfer of vehicles between a subsidiary corporation and its parent but no merger of the two entities. Both corporations continued doing business, and the books of the parent indicated that it owed the subsidiary a large sum of money in return for the vehicles. In these circumstances we held that a taxable sale had occurred because even though the two corporations may have had the same ownership they were separate entities doing business independently of each other, they had not merged, and the parent was to pay a consideration other than stock for the vehicles.
The interpretaion established in these opinions, then, is that there is no taxable sale for Art. 6. 01 purposes when vehicles are transferred in connection with the adoption of a new form of doing-business witlout a change in ownership and with no consideration other than stock in the newly formed entity being exchanged, See also National Dairy Products Corpora- 326 S. W. 2.d 87 (MO. 1959). but cf. Attorney General tion v. Carpenter, Opinion V-36 (1947).
Applying this interpretationto the situation you describe, it is plain that no taxable sale has occurred. The owners of a trucking business have *4 The Honorable Robert S. Calvert I
simply adopted a new form of doing business; their partnership has been In exchange for the discontinued, and a corporation formed in ite’plice. transfer of vehicles and other assets to the new corporation the partners Owner ship received no consideration other than stock in that corporation. of the business remains the same. It is our opinion that in this situation., there is no, sale under Art. 6.01 and therefore the new corporation need not pay the motor vehicle sales tax when it registers title to the trucks in its name.
There is no liability for the mbtor vehicle sales tax imposed by Art. 6.01, Taxation-General, V. T. C. S. when vehicles are transferred in connection with the incorporation of a partnership or sole proprietorship so long as them is no change in ownership and no con- sideration other than stock in the newly formed entity is exchanged.
Very truly yours, cl JOHN L. HILL Attorney General of Texas A OVED
David Kendall, Chairman
Opinion Committee