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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 395.1892
(i) Transfers and Contributions to New Corporation or Partnership
395.1892 Commencing Corporation and Subsequent Sale of Stock. A proposed transfer of all of the assets and none of the indebtedness of a manufacturing business to a newly-created subsidiary solely in exchange for stock, followed by the sale of such stock will not be a taxable transaction for purposes of the California Sales and Use Tax law.
The transfer is exempt because it meets the requirements of section 6006.5(b), transfer of all assets to a newly-created entity when after the transfer, the ownership of the property is the same as existed before the transfer. In addition, transfers of property to a commencing corporation in exchange solely for the first issue of stock of the corporation are nontaxable under Regulation 1595(b)(3), except to the extent the transferor receives consideration such as cash, notes, or assumption of indebtedness. Each of the foregoing provisions apply to the proposed transfer of assets to the newly-created subsidiary.
Moreover, the transfer of the assets to the commencing corporation followed by the sale of such stock is structured in this manner to maintain compliance with federal labor laws and other valid business purposes. 6/4/90.