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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 395.2470
(k) Dissolution; Liquidation; Distribution of Assets
395.2470 Special Effects Corporation. In June 1989 an individual incorporated a special effects business for the sole purpose of creating special effects on a production for a studio. The corporation entered into a contract with the studio to prepare the special effects. Concurrently with the execution of the contract, the individual who was the sole shareholder of the corporation agreed to sell all the stock of the corporation to the studio after the picture. After the studio acquires the stock, it will either liquidate the corporation or cause it to cease doing business.
The work performed by the corporation for the studio is nontaxable "qualified production services". The sale of the stock by the individual to the corporation is a nontaxable sale of an intangible asset. The liquidation of the corporation would not be taxable if it were a ratable distribution in kind of corporate assets to shareholders, provided no consideration is paid by the shareholders for the asset (such as assumption of liabilities). Further, unless the corporation qualified as a retailer by engaging in some other activity (e.g. making two or more sales in a twelve-month period) a sale of assets upon liquidation would qualify as an exempt occasional sale, under Revenue and Taxation Code sections 6006.5(a), and 6367. 10/6/89.