Sales tax planning

Sales tax planning

August 18, 2005 | By Keith Martin in Washington, DC

Sales tax planning around sale of one plant failed.

Sales taxes are normally collected on asset sales, but not on sales of interests in a project company that owns the assets. This is one of several reasons why most sales are structured as sales of a company rather than the assets directly.

International Paper Co. signed a letter of intent to sell a corrugated box manufacturing plant in Colorado to Weyerhauser Corp. for $16.5 million. However, the parties thought better of the structure. International Paper contributed the plant to a new limited liability company and sold the LLC interests instead.

The Colorado tax authorities collapsed the transaction and assessed a sales tax as if the
assets had been sold to Weyerhauser directly. A Colorado appeals court upheld the tax in June.

The case is International Paper Co. v. Cohen. It is a warning to figure out the tax structure before the negotiations get very far along.