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GEOGRAPHIC: United States; California; Florida; Ma

taxryland; Minnesota; New Jersey; New York; Tennessee; Virginia; Wisconsin
state taxation, conformity with IRC;
stock purchases as asset purchases, gain or loss, elections;
reorganizations, controlled firm stock
Transfer pricing and apportionment issues;
For coverage of the conference at which this report was first
presented, see State Tax Notes, May 31, 1999, p. 1804; 1999 STT 99-13
and 1999 STT 100-19; or Doc 1999-18396 (6 original pages) and Doc
For the full text of the Tennessee Supreme Court’s ruling in
Hutton v. Johnson, see Doc 97-31594 (7 pages) or 97 STN 225-32.
TASHA: PUT BOX TEXT HERE, IN BRACKETS. THEN BEGIN FULL TEXT. York. Daniel Thompson is a partner with PricewaterhouseCoopers LLP, San Francisco.

This paper was prepared for the Georgetown University Law Center’s Continuing Education Advanced State and Local Tax Institute, held May 20-21 in Washington. (For a report on the conference, see State Tax Notes, May 31, 1999, p. 1804; 1999 STT 99-13 and 1999 STT 100-19; or Doc 1999-18396 (6 original pages) and Doc 1999-18487 (5 original pages).)
A.Internal Revenue Code section 351 provides that no gain or loss
is recognized for federal income tax purposes if property is
transferred to a corporation by one or more persons solely in
exchange for stock in such corporation and immediately after the
exchange such persons are in control (at least 80 percent of the
voting stock and of the total number of all other classes of
B.The nonrecognition provisions of IRC section 351 apply
regardless of whether the corporation is newly created or is an
C.States generally adopt, either explicitly or implicitly, the
nonrecognition provisions of IRC section 351 for income
D.Although gain or loss may not be recognized for federal and
state income tax purposes, the transfer of property may be
subject to sales or use tax if the transfer is not properly
structured. In many states, an exemption from sales and use tax
only applies to transfers to a newly formed corporation. If the
transfer occurs at a later time, tax will be due unless another
exemption (such as sale for resale) applies.

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1.In New York, for example, only the transfer to a
corporation “upon its organization in consideration for the
issuance of its stock” is excluded from tax. N.Y. Tax Law
section 1101(b)(4)(iv)(D).

(a) New York’s regulations provide that transfers made to
a dormant corporation which is being activated do not
qualify for the exclusion. 20 N.Y.C.R.R. section


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