EFTA01120017.pdf

New York State Department of Taxation and Finance TSB-A-14(6)S Office of Counsel Sales Tax Advisory Opinion Unit January 29, 2014 STATE OF NEW YORK COMMISS IONER OF TAXATION AND FINANCE ADVISORY OPINION PETITION NO. S I 31007A The Department of Taxation and Finance received a Petition for an Advisory Opinion from I Petitioner requests guidance on whether the substitution of property between himself and the trust is subject to sales and use taxes in New York. We conclude that the Petitioner and the trust are separate taxpayers capable of entering into a sale. Any substitution of property between the two entities would be a sale, because it would constitute a transfer of title or possession for consideration. Therefore, sales and use taxes are due on any substitution of property transferred between the Petitioner and the trust. Facts Petitioner (the "Senior") created an irrevocable trust (the "Trust") pursuant to a trust agreement between the Trustees and the Settlor. The Settlor is deemed to own the Trust property for Federal and New York State income tax purposes. as provided in §§ 671-679 of the Internal Revenue Code (IRC). Under the terms of the Trust Agreement. the Settlor has the administrative right to reacquire trust property by substituting property of equivalent value at any time (the "Power to Reacquire"). The provision of the Trust Agreement creating the Settlor's Power to Reacquire reads as follows: POWER TO REACOUIRE, Except as otherwise provided below, the Grantor, in an individual and nonfiduciary capacity, without the approval or consent of any person in a fiduciary capacity. shall have the power to reacquire property of the trust, other than shares of voting stock of a controlled corporation (within the meaning of Section 2036(b) of the Code). whether owned directly or indirectly through one or more limited liability companies, partnerships or other entities, by substituting other property of an equivalent value; provided that the Independent Trustees are satisfied that the substituted property is of equivalent value. If no Independent Trustee is then serving, upon the exercise of this power by the Grantor, the Trustees shall appoint an Independent Trustee in accordance with subparagraph (CX1) of Clause EIGHTH. Notwithstanding the foregoing. the Grantor may not exercise his power under this paragraph in such a manner that may shift benefits among the trust beneficiaries within the meaning of Revenue Ruling 2008-22 and Revenue Ruling 2011-28. The Grantor may at any time and from time to time release, in whole or in part, the powers retained by him under this Clause SEVENTH. Such release may be for a limited period or tinder stated EFTA01120017  TSB-A-14(6)S Sales Tax - 2- January 29. 2014 by an instrument in writing conditions or indefinitely. Such release shall be made delivered to the Trustees Reacquire by substituting tangible The Settlor in this case wishes to exercise the Power to for Trust property other than tangible personal property he owns (the "Substituted Property") alent value to the Substituted Property. personal property (the "Trust Property") having an equiv is considered a sale subject to New York He has requested guidance on whether this substitution State sales and use taxes. Analysis er's benefit but retains non- When a Settlor establishes an irrevocable trust for anoth 79. the Senior has created an fiduciary dominion and control, pursuant to IRC §§ 671-6 d differently by different parts of the RC. intentionally defective grantor trust. This trust is treate to be part of the Settlor's estate. However. For the Estate tax, the property is no longer considered ered part of the Settlor's income. for the Personal Income Tax, income from the trust is consid income produced by the trust and because he retains non-fiduciary dominion and control over the presented in this case is how the trust can enter into transactions for his own benefit. The question York. should be treated for purposes of the sales and use tax in New ts from every retail sale of Section 1105(a) of the Tax Law imposes sales tax on the receip n 1101(a) of the "fax Lays provides tangible personal property, unless otherwise exempt. Sectio , limited liability company. society. that the term "person" includes "an individual, partnership er, trustee. assignee. referee, and any association, joint stock company. corporation, estate, receiv er appointed by a court or other person acting in a fiduciary or representative capacity. wheth on, for sales tax purposes. a "sale" otherwise, and any combination of the foregoing." In additi nge or barter, rental. lease or license includes "[a]ny transfer of title or possession or both, excha manner or by any means whatsoever for a to use or consume . . . conditional or otherwise, in any b)(5); see also 20 NYCRR § consideration, or any agreement therefor . . . ." Tax Law § 1101( 526.7 (a). (b). a trust, a transfer has been When an individual transfers title or possession of property to in the case of a grantor trust or made to a separate entity. See TSB-A-99(22)S. This is true even with the a revocable living trust. a If there is consideration given in any form in connection s and sales tax is imposed. W Even transfer, a retail sale of tangible personal property occur purposes. it will still be a sale under though such a transfer may be a non-event for income tax A-06(8)S. the sales tax as long as it is made to a separate entity. See TSB- do not allow the exchange Petitioner contends that the terms of the trust agreement on. The Settlor alone, in a non- between the Settlor and Trust to be supported by considerati quire and what property will be fiduciary capacity, decides whether to exercise the Power to Reac to the substitution. Under these substituted. The Trustees have no power to consent or agree bargaining between the parties and the terms, the Petitioner contends there is no negotiation or exchange is not supported by consideration. EFTA01120018  TSB-A-14(6)S Sales Tax -3- January 29. 2014 e negotiation to be supported by However, a transfer to a trust does not requir 526.7(aX3) (definition of sale includes consideration. See TSB-A-99(22)S; see also 20 NYCRR es something of value in the transfer. involuntary transfer). As long as the individual receiv to transfer tangible personal property to consideration is present. Id. Because Petitioner plans property of equivalent value from the trust in the trust and receive other than tangible personal unless some other exemption applies. return, this transaction is a sale for sales tax purposes and, ed in the exchange. the sales tax will be imposed on the value of the property receiv nal property. See Tax Law § Sales tax is imposed on retail sales of tangible perso purpose other than . . . resale as such . 1105(a). A "retail sale" is defined, in part, as sale "for any the tangible personal property that is . .." Tax Law § I I 01(bX4). Petitioner's initial purchase of sion if Petitioner intended at the time to be transferred to the trust may qualify for the resale exclu consideration. See Matter of alit the property was purchased to transfer it to the trust for However, to establish that he purchased Construction v. Chu. 145 AD2d 716 (3d Dep't 1988). the resale exclusion. Petitioner must the property for resale and thereby qualify the purchase for purpose: resale." Matter of the "show that [the property] was purchased for one and only one er 13, 1994, confirmed 227 AD2d Petition of P-11 Fine Arts, Ltd, Tax Appeals Tribunal. Octob not qualify for the resale exclusion 683 (3d Dep't 1996) (petitioner's purchase of artwork does ing it). Although not determinative, later because petitioner displayed the artwork before resell time of sale. See Matter ofD.J.H. activities may be relevant to ascertain Petitioner's intent at the Construction. supra. /S/ DATED: January 29, 2014 DEBORAH R. LIEBMAN Deputy Counsel . It is limited to the NOTE: An Advisory Opinion is issued at the request of a person or entity with respect to the facts set forth therein and is binding on the Department only person or entity fully and person or entity to whom it is issued and only if the on is based on the law, accurately describes all relevant facts. An Advisory Opini the Opinion is issued or regulations, and Department policies in effect as of the date ation provided in this for the specific time period at issue in the Opinion. The inform to replace the law or document does not cover every situation and is not intended change its meaning. EFTA01120019