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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 395.0077
(a) In General
395.0077 Subsequent Adjustment to Sales Price of Fixed Assets. An operator of a sawmill entered into a contract to sell its business operations. The main elements in the sale included the inventory of timber valued at $30,000,000 and certain fixed assets referred to as "mill assets" valued at $810,000. A section in the sales contract states, in part "buyer and seller acknowledge that the amount allocated to each asset category represents its fair market value determined pursuant to an arm's length negotiation." The contract states that the "mill assets" purchase price shall be adjusted on the date of the final payment on the "mill assets" payment note to account for the risk associated with the volatility in the White Fir lumber market based on the White Fir average market.
When the predetermined date for the adjustment arrived, the market value of the White Fir apparently dropped in value by over $929,089. Pursuant to the agreement, the selling price of the "mill assets" was reduced to zero and the Assets Payment Note for purchase/sale of the assets was returned. Records of the purchaser apparently record the assets on the books with no purchase price. The taxpayer also has not claimed depreciation on filed income tax returns.
The taxpayer had reported tax on the $810,000 selling price of the mill assets but, after the adjustment, has requested a refund of that tax. The seller and purchaser agreed to adjust the selling price of the mill assets even though the adjustment was directly related to the timber inventory. The subsequent agreement is without effect for sales and use tax purposes. It is evident that the price adjustment related to the timber inventory, not the mill assets. Therefore, the claim for refund should be denied. 12/16/96.