The Honorable Robert       S. Calvert               Opinion   No.’ H-   273
Comptroller    of Public   Accounts
State of Texas                                      Re:   Liability for Motor Vehicle
Austin,  Texas                                            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    pur-
                chases 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 con-
sideration 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 corpora-
             tion 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 Corpora-
tion 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 con-
             sideration other than stock in the newly formed entity
             is exchanged.

                                                 Very     truly yours,




                                                     JOHN L. HILL



A     OVED
                                         cl          Attorney General    of Texas




David Kendall, Chairman
Opinion Committee




                                         p.   1279
