97-031

Response June 4, 1997

REQUEST LETTER

May 2, 1997

Re: Sales Tax Advisory Opinion

Dear Ms. Rees:

Request is hereby made for an advisory opinion from the Tax Commission that a transfer of vehicles subject to titling and registration will be considered an isolated or occasional sale and exempted from sales tax under Rule R865-19S-38C in the following fact situation:

1. "Corporation" is a Utah corporation with only one (1) shareholder.

2. All of the vehicles to be transferred are currently owned by Corporation.

3. Corporation currently makes daily delivery of petroleum products and other flammables to its customers in the vehicles.

4. In an attempt to restrict its potential tort and environmental liability exposure Corporation will effect a spin-off reorganization by creating a new subsidiary and transferring all of its delivery vehicles to said wholly-owned subsidiary corporation ("Sub 1 ")

5. Sub 1 will then transport goods for Corporation and will charge Corporation a reasonable freight fee for the transportation.

Tax Commission Rule 865-19S-38C provides as follows:

C. Sales of vehicles required to be titled or registered under the laws of this state are not isolated or occasional sales, except that any transfer of a vehicle in a business reorganization where the ownership of the transferee organization is substantially the same as the ownership of the transferor organization shall be considered an isolated or occasional sale.

The transfer of the delivery vehicles from Corporation to Sub1 should therefore qualify for the exemption outlined in the Rule. The creation of the subsidiary and the spinoff of the delivery vehicles to it will be a business reorganization as contemplated by the Rule. All of the stock of Sub1 will be owned by Corporation and all of the stock of Corporation will remain owned by the same single shareholder. The ownership of the transferee organization (Sub1) should be "substantially the same" as the ownership of the transferor organization (Corporation), as contemplated by the Rule. The requirements of the Rule should thus be met.

Please advise us whether the Tax Commission agrees such transfers will be exempt from sales tax under the Rule. If you need any further information or clarification, please do not hesitate to phone me.

Respectfully submitted,

NAME

RESPONSE LETTER

June 4, 1997

NAME

ADDRESS

CITY STATE ZIP

Advisory Opinion - Isolated or occasional sale

Dear NAME,

We have received your request for an opinion as to whether the transfer of your client’s vehicles to a spin-off subsidiary qualifies for an exemption from sales tax on the basis of an isolated or occasional sale.

Utah Code section 59-12-104 and Utah Administrative Rule R865-19S-38 provide that any transfer of any motor vehicle in a business reorganization where the ownership of the transferee organization is substantially the same as the ownership of the transferor organization is considered an isolated or occasional sale. This Section provides for two criteria to be met for the transaction to be isolated or occasional sale: one, that the business be reorganized, and two, the new organization is substantially the same as to the ownership as the original organization.

By the description in your letter, a corporation with one shareholder will transfer corporate assets (vehicles) to a subsidiary that is wholly owned by the same shareholder. In that case, the transfer is not subject to sales tax.

Please let us know if you have other questions.

For the Commission,

Joe B. Pacheco,

Commissioner