Tax Tips
| Publication year | 1976 |
| Pages | 1317 |
1976, September, Pg. 1317. Tax Tips
This month's column more properly should be called a "tax alert" rather than a "tax tip." Its objective originally was to assist the practitioner in up-dating his or her check-off list for the sale/purchase/acquisition/merger of a business with respect to the sales and use tax return requirements, liabilities and pitfalls. In the course of preparing the column, however, we became aware of a possible fundamental change in the application of sales and use tax laws to transfers of business assets.
First, a short review is in order. Colorado and local sales taxes are assessed on "sales and purchases of tangible personal property at retail."(fn1) The use tax is assessed on the storage, use or consumption of such assets if no sales tax has been paid upon their acquisition.(fn2) Any sale which is not a sale at wholesale is a retail sale.(fn3) This definition includes the sale of a business.(fn4) In the business sale context, we can then eliminate as sales or use tax candidates assets such as real property, accounts receivable, goodwill, raw material inventory, work in process, finished goods inventory (if to be resold), notes, securities, mortgages, contract rights, bank and savings accounts, insurance contracts, and miscellaneous special items.(fn5) Items subject to the tax include furniture, fixtures, office equipment, tools, fixed or portable machinery, automobiles and trucks.
In the simple, outright sale-purchase of a business with such assets, the taxable nature of the event is clear. More complex arrangements for business transfers, however, have led to questionable conclusions and administrative practices by our sales tax authorities not set forth in the statute and not elaborated by regulation. For instance, a statutory merger has usually not been considered a sales taxable event. On the other hand, a stock-for-assets acquisition has attracted the sales tax, even though in each case the resultant positions of both acquirer and acquired are essentially the same.
In the 1975 session of the Colorado legislature, Senate Bill 25 was introduced proposing to amend the definition of "sale" in the sales tax statute(fn6) by specifically excluding therefrom a number of transactions. Those transactions were (a) division of partnership assets among the partners, (b) formation of a corporation, (c) formation or dissolution of a professional corporation, (d) distribution of assets on dissolution of a corporation, (e) repossession of personal property by chattel mortgage holder, and (f) transfer of assets between (to and from) a wholly owned subsidiary and parent corporationtion.
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