State of Rhode Island - Division of Taxation
Ruling Request No. 2010-01
Request for Ruling Regarding Applicability of “Casual Sales” Treatment Under RIGL §44-18-20(d)(2) when Assets are Transferred Among Corporations in an Affiliated Group
The facts set forth in your request of ruling dated October 12, 2010
On September 30, 2010, ABC, LLC (“ABC”) and ABC Operating Company, LLC, (“ABCOC”), each of which are Rhode Island limited liability companies, merged into XYZ, LLC, (“XYZ”) a Delaware limited liability Company that is qualified to do business in Rhode Island. Following the merger, XYZ was the surviving entity. The Employer Identification Numbers for ABC, ABCOC and XYZ, respectively, are 11-1111111, 22-2222222 and 33-3333333.
At the time of the merger XYZ directly owned 100% of the membership interest in ABC and ABCOC. For federal and state income tax purposes the merger of ABC and ABCOC into XYZ will be tax free under the provisions of Section 731 of the Internal Revenue Code of 1986, as amended the (“Code”).
Prior to the merger ABC owned the land and building which constitutes the business in downtown City and a portion of the furniture, fixtures and equipment used at the business and ABCOC owned the vast majority of the furniture, fixtures and equipment used at the business and operated the business. Any Rhode Island sales and use tax due on the initial acquisition of the assets held by ABC and ABCOC at the time of the merger were paid when those assets were acquired. Following the merger all of the assets owned by ABC and ABCOC were transferred to XYZ and it will operate the business.
In this case the previous taxable transfers or sales of the assets that were transferred pursuant to the merger had been subject to sales and use tax, the transferee is a member of each of the transferors and any gain on these transfers pursuant to the merger will not be recognized for federal income tax purposes under Section 731 of the Code.
Whether the transfer of the assets held by ABC and ABCPOC to XYZ pursuant to the merger should not be subject to Rhode Island sales and use tax and should be treated as a “casual sale” under Section 44-18-20(d)(2), Rhode Island General Laws, which is exempt from tax.
RIGL §44-18-20(d) provides in part: Notwithstanding the provisions contained in this section and in § 44-18-21 relating to the imposition of a use tax and liability for this tax on certain casual sales, no tax is payable in any casual sale:
(1) When the transferee or purchaser is the spouse, mother, father, brother, sister, or child of the transferor or seller:
(2) When the transfer or sale is made in connection with the organization, reorganization, dissolution, or partial liquidation of a business entity; provided:
(i) The last taxable sale, transfer, or use of the article being transferred or sold was subjected to a tax imposed by this chapter;
(ii) The transferee is the business entity referred to or is a stockholder, owner, member, or partner; and
(iii) Any gain or loss to the transferor is not recognized for income tax purposes under the provisions of the federal income tax law and treasury regulations and rulings issued thereunder.
Based on the facts presented, the transfer of assets was made in connection with the reorganization of a business entity, the last taxable sale, transfer, or use of the assets being transferred were subjected to tax imposed under Title 44 Chapter 18 of the Rhode Island General Laws, the transferee is the business referred to and the gain or loss to the transferor is not recognized for income tax purposes under the provisions of the federal income tax law and treasury regulations and rulings.
Accordingly, transfer of the assets held by ABC and ABCOC to XYZ pursuant to the merger is not be subject to Rhode Island sales and use tax and should be treated as a “casual sale” under Section 44-18-20(d)(2), Rhode Island General Laws, which is exempt from tax.This ruling may be relied upon by the company and shall be valid until expressly revoked or until the applicable statutory provisions of law are amended in a manner that requires a different result or the underlying facts described herein change.
David M. Sullivan
December 6, 2010