Opinion
Rehearing Denied March 2, 1993.
Review Granted April 29, 1993.
Previously published at 13 Cal.App.4th 69, 18 Cal.App.4th 1186
Daniel E. Lungren, Atty. Gen., Edmond B. Mamer, Supervising Deputy Atty. Gen., and Clara L. Slifkin, Deputy Atty. Gen., for defendant and appellant.
Morrison & Foerster, Charles J. Moll III, Peter B. Kanter, San Francisco, Harwood, Marcus & Braun, and Fred O. Marcus, Chicago, IL, for plaintiff and respondent.
FRED WOODS, Associate Justice.
In Cal-Metal Corp. v. State Bd. of Equalization (1984) 161 Cal.App.3d 759, 207 Cal.Rptr. 783 this court, in a unanimous opinion by Justice Johnson, held that a transfer of tangible personal property to a transferee who agreed to assume the transferor's liabilities, was a taxable transfer under California Administrative Code (now Cal.Code Regs.), title 18, section 1595, subdivision (b)(4).
We reaffirm that holding, find the trial court erred in granting respondent's summary judgment motion for a tax refund, and reverse.
FACTUAL AND PROCEDURAL BACKGROUND
As the trial court observed, and the parties agreed, "there really isn't a factual dispute. It's a matter of the given facts as to which case applies." Accordingly, the essential facts may be stated simply.
In late 1983 Beatrice Company (Beatrice or respondent) created a wholly owned subsidiary corporation, Standard Dry Wall Products, Inc. (Standard). Standard remained dormant until July 1984 when Beatrice The transfer of assets and liabilities was contractual and included an assumption agreement. The agreement provided that Standard "assumes and undertakes to faithfully and punctually pay, perform and/or discharge in full ... all of the debts, liabilities and obligations ... of Beatrice's ... Division ... of every kind, nature and description, accrued, absolute, contingent and otherwise...."
The State Board of Equalization (Board or appellant) audited Beatrice for the tax period January 1, 1982, through September 30, 1984, determined the transfer was a taxable sale, and computed the due amount as $14,040.68. Beatrice paid the tax but filed a refund claim. The Board denied the claim and Beatrice filed the instant action for a tax refund.
Beatrice had transferred $8,869,718 in assets to Standard and Standard had assumed $4,043,718 in liabilities. There is no dispute concerning the Board's method of tax allocation and of the $14,040.68 tax only $9,598.81 is in dispute.
Both Beatrice and the Board moved for summary judgment. The trial court denied the Board's motion and granted Beatrice's. This appeal followed.
DISCUSSION
1. California sales tax
"For the privilege of selling tangible personal property at retail a tax is ... imposed...." (REV. & TAX CODE, § 6051.) Selling, i.e. a "sale," is defined as "[a]ny transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration." (§ 6006, subd. (a). Emphasis added.)
Statutory references, unless otherwise noted, are to the Revenue and Taxation Code.
"Consideration," although not defined by the Revenue and Taxation Code, is defined by Civil Code section 1605: "Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise."
Certain transfers are exempt from sales tax. One such exemption provides: "Contribution to Commencing Corporation or Commencing Partnership. Tax does not apply to a transfer of property to a commencing corporation or commencing partnership in exchange solely for first issue stock of the commencing corporation or an interest in the commencing partnership. Tax does apply, however, if the transferor receives consideration such as cash, notes, or an assumption of indebtedness, and the transfer does not otherwise qualify for exemption. The tax is measured by the amount of such consideration attributable to the tangible personal property transferred." (Cal.Admin.Code, tit. 18, § 1595, subd. (b)(4).)
"Whenever tangible personal property is sold, it is subject to taxation unless specifically exempt." (Newco Leasing, Inc. v. State Bd. of Equalization (1983) 143 Cal.App.3d 120, 125, 191 Cal.Rptr. 588.)
2. Application of law to facts
The crux of the matter is consideration. Respondent contends the subject transfer was without consideration, arguing: "Thus, without the payment of consideration there can be no sale, and without a sale there can be no tax."
Respondent's contention, and the trial court's decision, is based upon Macrodyne Industries, Inc. v. State Bd. of Equalization (1987) 192 Cal.App.3d 579, 237 Cal.Rptr. 537.
In Macrodyne "[t]he following stipulated facts were submitted to the trial court. As in the instant matter, the Board imposed a tax on the transfer, Macrodyne paid the tax, and then sued for a refund. The Court of Appeal, Division 5 of this District, held Macrodyne was entitled to a refund. Its holding was based upon the absence of consideration. It stated: "Since the transfer of the divisions to the subsidiaries had no effect on the liability of Macrodyne, no benefit was conferred upon Macrodyne by the transfer. There being no consideration, there could be no sale. Where there is no sale, no sales tax may be imposed." (Id. at p. 583, 237 Cal.Rptr. 537.)
Although Macrodyne purported to distinguish our Cal-Metal Corp. decision on its absence of a "joint liability" stipulation, we find the distinction artificial. In Cal-Metal Corp. the transferor, without a stipulation, was "jointly liable" v¡s a v¡s creditors. But that liability to creditors is irrelevant to consideration. As between transferor and transferee, transferee had accepted a contractual duty, it had "agreed to suffer a prejudice" (see Civ.Code, § 1605) in exchange for transferor's promised transfer. Thus, the transfer involved consideration.
Macrodyne stated: "Cal-Metal Corp. v. State Bd. of Equalization, supra, 161 Cal.App.3d 759, 207 Cal.Rptr. 783, upon which the Board relies, is distinguishable. The transferee in Cal-Metal was a commencing partnership, not a preexisting separate entity. Thus, Cal-Metal involved the application of Sales and Use Tax regulation 1595, subdivision (b)(4) (Cal.Admin.Code, tit. 18, § 1595, subd. (b)(4)) entitled 'Contribution to Commencing Corporation or Commencing Partnership'). (Cal-Metal Corp. v. State Bd. of Equalization, supra, 161 Cal.App.3d at p. 762, 207 Cal.Rptr. 783.) The transfer before us was to a preexisting corporation. More importantly, there was no stipulation in Cal-Metal to the fact that the transferor remained jointly liable. The Cal-Metal court, therefore, interpreted the language of the contract which stated that ' " '... the partnership shall assume the liabilities ...' " ' of the transferred property. (P. 765, 207 Cal.Rptr. 783.) The Board in this case stipulated that Macrodyne jointly retains the liabilities of the division and is bound by that factual stipulation." (Macrodyne Industries, Inc. v. State Bd. of Equalization, supra, 192 Cal.App.3d 579, 583, 237 Cal.Rptr. 537.)
The Macrodyne analysis erred, we believe, by only considering benefit. Since it found "no benefit was conferred upon Macrodyne" (id. at p. 583, 237 Cal.Rptr. 537) it concluded there was no consideration. Omitted from its analysis was prejudice, prejudice to the transferee in assuming transferor liabilities.
As we stated in Cal-Metal Corp., "the assumption of liability owed by a transferor of property can constitute the consideration for the transfer." (Cal-Metal Corp. v. State Bd. of Equalization, supra, 161 Cal.App.3d at p. 764, 207 Cal.Rptr. 783.) This is settled law. (Civ.Code, § 1605; Industrial Asphalt, Inc. v. State Bd. of Equalization (1992) 5 Cal.App.4th 1237, 1240, 7 Cal.Rptr.2d 444; Newco Leasing, Inc. v. State Bd. of Equalization, supra, 143 Cal.App.3d 120, 126, 191 Cal.Rptr. 588; Millsap v. National Funding Corp. (1943) 57 Cal.App.2d 772, 776, 135 P.2d 407.)
Accordingly, to invert respondent's argument, with the payment of consideration there was a sale, and with a sale there was a tax. Respondent's contention is without merit. For the same reasons as we have discussed, the "Contribution to Commencing Corporation ..." exemption is inapplicable. By its express terms the "[t]ax does apply ... if the transferor receives consideration such as ... an assumption of indebtedness...." (Cal.Admin.Code, tit. 18, § 1595, subd. (b)(4).)
Respondent also makes a collateral estoppel argument based upon an unpublished opinion. We reject the argument. (§ 7176; see Macrodyne Industries, Inc. v. State Bd. of Equalization, supra, at pp. 583-584, fn. 2, 237 Cal.Rptr. 537.)
DISPOSITION
The judgment is reversed. The matter is remanded to the trial court for further proceedings consistent with this opinion.
Costs on appeal are awarded to appellant.
LILLIE, P.J., and JOHNSON, J., concur.