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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 395.1585
(h) Ownership "Substantially Similar"—"Real or Ultimate" Ownership
395.1585 Contribution of Tax-Paid Rental Equipment. A sole proprietorship is planning to contribute all of its assets, subject to existing liabilities and to lessees' rights, into an existing shell corporation for legal liability reasons. The existing corporation is 100 percent owned by the sole proprietor. The "off-road" construction equipment being transferred will continue to be leased to related entities. The equipment does not consist of vehicles required to be registered under the Vehicle Code. The sole proprietor does not hold a seller's permit because the equipment is leased in substantially the same form as acquired and sales tax reimbursement or use tax has been paid timely measured by the purchase price.
The transfer of the assets to the corporation qualifies as an occasional sale under Revenue and Taxation Code section 6006.5 since the property was not held or used by the taxpayer in activities for which the seller is or would have been required to hold a sellers permit and the property is not vehicles required to be registered under the vehicle code.
Since the corporation will acquire the equipment in a transfer of all of the assets held or used by the taxpayer in its leasing activities, the ownership is substantially the same after the transfer, and the transferor timely paid sales tax reimbursement or use tax on purchase price, tax does not apply to the subsequent lease of the equipment by the corporation. (Regulation 1660(b)(1)(E).) 4/15/94.