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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 395.2275
(k) Dissolution; Liquidation; Distribution of Assets
395.2275 Joint Ventures—Transfers at Termination. A joint venture transferred assets from its books of account to other joint ventures of the same real or ultimate ownership. The transfers were made only upon the natural termination of the enterprise for which the joint venture was created. The joint venture agreements indicate that the parties contemplated a sale of joint party assets upon completion of the joint venture work. In absence of a sale, there was to be a distribution of the assets in kind. For accounting purposes, the transfers were credited to the joint venture's investment accounts and later were debited directly to the account of the entities receiving the assets.
While the matter is not entirely free from doubt, it appears that the proper interpretation is that the transfers represent distribution in kind and not sales. It also appears that the parties decided to transfer the assets to the other entity only upon liquidation and in the absence of sales of the assets. This is indicated by the following:
(1) The transfer occurred only upon final termination of the joint venture enterprise.
(2) The parties' agreement provided for distributions in kind upon termination of the joint venture in absence of sales of the property.
(3) There was no bargained-for exchange between strangers in the usual sense.
(4) There is no indication of a predetermined plan to transfer the assets from one joint venture to another. (5) The entries in the capital accounts indicate that, at the time of the transfer, there was also a withdrawal of the "investment" represented by the assets transferred.
The subsequent transfers to the other joint ventures should be treated as contributions of capital unless there is evidence that the respective partners received consideration other than an interest in the joint venture, such as assumption of loans payable, cash payment or other taxable consideration. 8/4/65.