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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 395.1964
(i) Transfers and Contributions to New Corporation or Partnership
395.1964 Partnership—Contributions. Corporation G and Corporation P form a partnership. P will contribute cash of $990 and G will contribute $10. P will then purchase from G a 1 percent interest in certain real estate. P and G will then contribute their combined interest in the real estate to the partnership. Thus, following these transactions, G will have a 99 percent interest in the partnership and P will have a 1 percent interest.
G will then contribute certain assets of a business holding a seller's permit to the partnership in exchange for an additional partnership interest. The partnership will assume certain liabilities of G. The assets contributed by G represent 80 percent of the tangible personal property of the business. After the transfer of the business P will purchase for cash an interest in the partnership which will bring its interest to 50 percent.
No sales tax liability arises as the result of this series of transactions. The most critical issue is the transfer of business assets by G to the partnership. The transfer meets the requirements of Regulation 1595(b)(2), i.e., 80 percent or more of the assets are transferred and the ultimate ownership of these assets is 80 percent or more unchanged. Therefore, the transfer of business assets by G to the partnership is nontaxable. 7/18/89.