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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
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395.0000 Occasional Sales—Sale of a Business—Business Reorganization—Regulation 1595
Annotation 395.2025
(i) Transfers and Contributions to New Corporation or Partnership
395.2025 Transfer of Assets to Joint Venture. Corporation A is owned 100% by Shareholder 1. Corporation B is owned 60% by Shareholder 1, 20% by Shareholder 2, and 20% by Shareholder 3. Corporations A and B form a joint venture where substantially all of the assets of each corporation are transferred to the joint venture, and each corporation's ownership in the joint venture is based on the ratio of the assets contributed by each corporation to the total assets contributed by both corporations. Corporation A contributes $3,000,000 in assets and Corporation B $1,000,000. As a result, Corporation A owns 75% interest in the joint venture and Corporation B owns 25% interest.
For purposes of the occasional sale exemption, Shareholder 1 has an ultimate interest in 90% of the tangible personal property of the joint venture derived through its ownership in Corporation A: 100% x 75% = 75%, and through its ownership in Corporation B: 60 % x 25% = 15%. Shareholders 2 and 3 each have an ultimate ownership interest in 5% of the property of the joint venture derived through their ownership interests in Corporation B: 20% x 25% = 5%. The real or ultimate ownership of the tangible personal property before and after the transfers by Corporation A to the joint venture is as follows:
| Shareholders | Interests in Transferor Corporation A | Interests in Transferee Joint Venture | Interests Common Before and After Transfer By Corp. A |
|---|---|---|---|
| 1 | 100% | 90% | 90% |
| 2 | – | 5% | – |
| 3 | – | 5% | – |
| 100% | 100% | 90% |
The real or ultimate ownership of the tangible personal property before and after the transfers by Corporation B to the joint venture is as follows:
| Shareholders | Interests in Transferor Corporation B | Interests in Transferee Joint Venture | Interests Common Before and After Transfer by Corp. B |
|---|---|---|---|
| 1 | 60% | 90% | 60% |
| 2 | 20% | 5% | 5% |
| 3 | 20% | 5% | 5% |
| 100% | 100% | 70% |
Since 90% of the real ownership of the tangible personal property by Corporation A is unchanged after the transfer, Corporation A's transfer of assets to the joint venture exempt from tax under section 6281 and 6367. On the other hand, since only 70% of the real ownership of the tangible personal property of Corporation B is unchanged after its transfer to the joint venture, Corporation B's transfer of assets to the joint venture is subject to tax. 8/6/99. (2000–2).