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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 395.2508
(l) Sales Between Parent and Subsidiaries
395.2508 Inter-Company Transfer of Fixed Assets. Company A, a wholly owned subsidiary of Company B, manufactures and sells medical equipment in California. Company B also manufactures and sells medical devices and does business through divisions or "units" located in Texas, Utah, and California. Company B's California unit used the same facilities as Company A. In two consecutive quarters, various assets such as computers and microscopes were transferred from B's Utah unit to Company A. In the following quarter, other assets were transferred from B's Texas division to Company A. All assets were recorded in Company A's fixed asset account at the net book value. The following conclusions apply:
(1) The assets were all booked as capital assets in Company A's accounts. This is evidence that Company A had possession and use of them. The accounting treatment is prima facie evidence that Company A had both title and possession of these assets. The records of Company A reflected liabilities owing to Company B as a result of these transfers. Company A's promise to pay Company B for the assets constituted consideration even if the debt was never paid.
(2) Since Company B was engaged in the business of manufacturing and selling tangible personal property which would require the holding of a seller's permit, the sales do not qualify as exempt occasional sales.
(3) Since there is no evidence to suggest that title to the equipment passed in California rather than at the out-of-state shipping point, nor is there any evidence of local participation in the sale by any office, representative or other place of business of Company B's, Company A is liable for use tax. 11/22/91.