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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 395.2193
(k) Dissolution; Liquidation; Distribution of Assets
395.2193 Dissolution and Transfer of Assets. A limited partnership consisting of Corporation A and Gift Trust B is in the business of leasing, selling, and repairing equipment. Corporation A is owned by husband X and wife Y (81%) and their son Z (19%). Z also is the sole trustee of Gift Trust B. The partnership plans to liquidate and distribute the assets to the partners in accordance with their respective interest as provided in the partnership agreement. The liquidation of the partnership will not be subject to any liabilities (i.e., the partners would not assume any liabilities of the partnership). After the liquidation, Corporation A will operate the business at one of the sites of the partnership. Gift Trust B will transfer the assets it receives from the partnership into a limited liability company (LLC). Gift Trust B's other assets, which consist of cash and other investments but no tangible personal property, will remain in the gift trust and will not be transferred to the LLC. The LLC will operate the business at the other sites previously operated by the limited partnership.
The parties have valid and legitimate business reasons for structuring the transactions in this manner and will not be doing so for the purpose of avoiding California sales and use tax. Thus, the series of transactions will not be disregarded. Tax would apply to the series of transactions as follows:
(1) The transfer of the partnership assets to the partners would not be subject to tax since the partners will not assume any liabilities of the partnership.
(2) The Gift Trust's transfer to the LLC is exempt from tax as an occasional sale since it is transferring at least 80% of the tangible personal property it held or used in the course of its selling activities to the LLC, and the Gift Trust will maintain at least 80 percent ownership of LLC at the conclusion of the transfer. 6/21/96.