The Honorable Robert S. Calvert 

Comptroller of Public Accounts 

State of Texas 

Austin, Texas 

Opinion No.’ H- 273 

Re: Liability for Motor Vehicle 

Sales Tax where truck trans 

ferred from sole proprietor - 

ship or partnership to wholly 

owned corporation. 

Dear Mr. Calvert: 

You have requested our opinion as to whether a transfer of motor 

vehicles occurring in connection with the incorporation of a sole proprietor 

ship or partnership by its owners is subject to the Motor Vehicle Retail 

Sales and Use Tax imposed by Art. 6. 01, Taxation-General, V. .T. C. S. 

If our opinion is in the affirmative, you then ask what would be the ba,sis 

to..which the 4% tax rate should apply. 

The following fact situation apparentIy provoked your request. A 

man and his wife formed a partnership to engage in the trucking business. 

They purchased two trucks, had them titled in the name of the partnership, 

and paid the 4% motor vehicle sales tax due on the transaction. Two days 

later the couple decided to incorporate their business. They formed a 

corporation and issued all of its shares to themselves in equal amounts. 

The partnership was liquidated, and all of its assets including the trucks 

were transferred to the corporation. The question is whether the corporal: 

tion must now pay a sales tax when it registers title to the trucks in its 

name, and the answer depends on whether or not there has been a retail 

sale of the trucks. 

Article 6. 01, Taxation-General, V. T. C. S. , imposes a tax on all 

retail sales of a motor vehicle. In Article 6. 03 “sale” and “retail sale’: 

are defined as follows: 

p, 1276 
- 

The Honorable Robert S. Calvert page 2 (H-273) 

“(A) Sale. The term ‘sale’ as herein used 

shall include installment and credit sales, and the 

exchange of property as well’as the sale thereof 

for money, every closed transaction constituting a 

sale. The transaction whereby the possession of 

property is transferred but the seller retains title 

as security for the payment of the price shall be 

deemed a sale. 

“(B) Retail Sale. The term ‘retail sale’ as 

herein used shall include all sales of motor vehicles 

except those whereby the purchaser acquires a 

motor vehicle for the exclusive purpose of resale and 

not for use and shall not include those operated under 

and in accordance with the terms of Article 6686, 

Revised Civil Statutes of Texas, 1925, as amended. 

The term ‘retail sale’ also shall include rentals the 

gross receipts from which are subject to the tax 

imposed by this Chapter, andpurchases usedor to 

be held for in such rentals shall be considered purchases for resale. ” 

This office has on several occasions issued opinions bearing. on 

what constitutes a taxable sale for purpose of the motor vehicle sales 

tax imposed by Art. 6. 01. For example, in Attorney General Opinion 

O-6871 (1945), the stockholders of a corporation had dtssolved it and had 

transferred all of its assets including vehicles to a partnership they had 

formed and in which each stockholder held an interest propor,tionate to 

what he had held in the corporation. This office was asked whether the 

transfer of vehicles from the dissolved corporation to the newly formed 

partnership constituted a taxable sale. This office held that the owners of the 

business had simply adopted a different form of doing business and that 

insofar as the transfer of vehicles from the dissolved corporation to the 

newly formed partnership was a part of this reorganization without a 

change in ownership there was no taxable sale. 

p. 1277 
The Honorable Robert S. Calvert page 3 (H-273) 

A similar question was presented in Attorney General Opinion 

S-2t(l953). A Texas corporation had been merged into a Delaware 

corporation. All of its capital stock and assets including vehicles 

were then acquired by the Delaware corporation which offered no consideration in return, apparently because ownership of both corporations 

was the same. We held that the transfer of vehicles occurring in connection 

with the merger did not constitute a sale for purposes of the motor vehicle 

sales tax. The opinion stated: 

“It appears that if there be a merger of two 

corporations, either by contract or by operation of 

law, without conside~ration moving to the liquidated 

corporation, it does not have the effect of converting 

the transfer of the assets of the liquidated corporation to the surviving corporation into a sale of the 

assets. ” S-22 at p. 1. 

On the other hand, in Attorney General Opinion. C-764 (1966). there 

was a transfer of vehicles between a subsidiary corporation and its parent 

but no merger of the two entities. Both corporations continued doing 

business, and the books of the parent indicated that it owed the subsidiary 

a large sum of money in return for the vehicles. In these circumstances 

we held that a taxable sale had occurred because even though the two 

corporations may have had the same ownership they were separate entities 

doing business independently of each other, they had not merged, and the 

parent was to pay a consideration other than stock for the vehicles. 

The interpretaion established in these opinions, then, is that there is 

no taxable sale for Art. 6. 01 purposes when vehicles are transferred in 

connection with the adoption of a new form of doing-business witlout a 

change in ownership and with no consideration other than stock in the newly 

formed entity being exchanged, See also National Dairy Products Corporation v. Carpenter, 326 S. W. 2.d 87 (MO. 1959). but cf. Attorney General 

Opinion V-36 (1947). 

Applying this interpretationto the situation you describe, it is plain 

that no taxable sale has occurred. The owners of a trucking business have 

p. 1278 
The Honorable Robert S. Calvert I page 4 (H-273) 

simply adopted a new form of doing business; their partnership has been 

discontinued, and a corporation formed in ite’plice. In exchange for the 

transfer of vehicles and other assets to the new corporation the partners 

received no consideration other than stock in that corporation. Owner ship 

of the business remains the same. It is our opinion that in this situation., 

there is no, sale under Art. 6.01 and therefore the new corporation need 

not pay the motor vehicle sales tax when it registers title to the trucks 

in its name. 

There is no liability for the mbtor vehicle sales 

tax imposed by Art. 6.01, Taxation-General, V. T. C. S. 

when vehicles are transferred in connection with the 

incorporation of a partnership or sole proprietorship 

so long as them is no change in ownership and no consideration other than stock in the newly formed entity 

is exchanged. 

Very truly yours, 

A OVED 

cl JOHN L. HILL 

Attorney General of Texas 

David Kendall, Chairman 

Opinion Committee 

p. 1279