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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
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395.0000 Occasional Sales—Sale of a Business—Business Reorganization—Regulation 1595
Annotation 395.0005
(a) In General
395.0005 Asset Sales. Parent Corporation had two wholly owned subsidiaries, Newco and Lessor. Newco was an inactive corporation. Lessor's only activities consisted of leasing to Parent tax paid machinery in substantially the same form as acquired. Since its only activity was the leasing of property in transactions that were not continuing sales, Lessor was not required to hold a seller's permit.
Parent contributed the stock of Lessor to Newco and Lessor thereby became a wholly owned subsidiary of Newco. Lessor subsequently distributed the equipment it leased, which represented 100 percent of its tangible personal property, to Newco as a dividend in kind. The equipment was transferred subject to the ongoing leases to Parent. Parent thereafter sold its manufacturing business, where the leased equipment was used, to Purchaser. At the same time, Newco sold to Purchaser the equipment that had been leased to Parent.
Assuming the transfer from Lessor to Newco was a sale (e.g., if Newco assumed liabilities in the transfer), that sale would be an exempt occasional sale because Lessor did not use the property in a business requiring a seller's permit and made no other sales in any 12-month period. Newco retained Lessor's tax-paid status in the property under the last paragraph of subdivision (b)(1)(E) of Regulation 1660 because Lessor transferred all its tangible personal property and the ultimate ownership of the property was unchanged. Since Newco's only activity was the lease of tax-paid property, it was not required to hold a seller's permit. Therefore, since it made no other sales of property, its sale of the leased equipment also qualified as an exempt occasional sale. 11/90; 3/18/91.