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 towholly owned corporation. Dear Mr. Calvert: You have requested our opinion as towhether atransfer of motor vehicles occurring inconnection with the incorporation of a sole proprietor ship or partnership by its owners is subject tothe Motor Vehicle Retail Sales and Use Tax imposed by Art. 6.01, Taxation-General, V..T.C.S. Ifour opinion is inthe 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 apartnership to engage in the trucking business. They purchased two trucks, had them titled inthe name ofthe 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 inits name, and the answer depends onwhether or not there has been a retail sale ofthe trucks. Article 6.01, Taxation-General, V. T. C. S., imposes atax onall retail sales ofa motor vehicle. InArticle 6.03 “sale” and “retail sale’: are defined as follows:

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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 ofproperty 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 ofthe 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 inaccordance with the terms ofArticle 6686, Revised Civil Statutes ofTexas, 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 ofthe motor vehicle sales tax imposed by Art. 6.01. For example, inAttorney General Opinion O-6871 (1945), the stockholders of a corporation had dtssolved itand had transferred all of its assets including vehicles to apartnership they had formed and inwhich each stockholder held an interest propor,tionate to what he had held inthe corporation. This office was asked whether the transfer ofvehicles from the dissolved corporation to the newly formed partnership constituted a taxable sale. This office held that the owners ofthe business had simply adopted a different form of doing business and that insofar as the transfer ofvehicles from the dissolved corporation to the newly formed partnership was apart of this reorganization without a change inownership there was no taxable sale.

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A similar question was presented inAttorney General Opinion S-2t(l953). A Texas corporation had been merged into aDelaware 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 ofboth corporations was the same. We held that the transfer ofvehicles occurring inconnection with the merger didnot constitute a sale for purposes ofthe motor vehicle sales tax. The opinion stated:

“It appears that ifthere be a merger oftwo corporations, either by contract orby operation of law, without conside~ration moving to the liquidated corporation, itdoes not have the effect of converting the transfer ofthe assets ofthe liquidated corporation to the surviving corporation into a sale ofthe assets. ” S-22 at p. 1. On the other hand, inAttorney General Opinion. C-764 (1966). there was a transfer ofvehicles between a subsidiary corporation and its parent but nomerger of the two entities. Both corporations continued doing business, and the books ofthe parent indicated that itowed the subsidiary alarge sum of money in return for the vehicles. Inthese 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 inthese opinions, then, is that there is notaxable sale for Art. 6. 01purposes when vehicles are transferred in connection with the adoption of a new form of doing-business witlout a change inownership andwith no consideration other than stock inthe newly formed entity being exchanged, See also National Dairy Products Corporation v. Carpenter, 326 S.W. 2.d87 (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. 1278The 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 ofvehicles and other assets to the new corporation the partners received no consideration other than stock inthat corporation. Owner ship ofthe business remains the same. Itis our opinion that inthis 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 inconnection withthe incorporation of apartnership or sole proprietorship so long as them is no change inownership and no consideration other than stock inthe newly formed entity is exchanged. Very truly yours,

A OVED 

# clJOHN L. HILL Attorney General ofTexas

David Kendall, Chairman Opinion Committee

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