Sec. 03.06.01.13. Certain Capital Transactions

A. Certain specific capital transactions are exempted from taxation.

B. For the purpose of these exemptions:

(1) The term "stock" means equity securities, including any equity security convertible into any other class of equity security, any warrant, and any right to subscribe to or purchase any equity security. The term "stock" does not include any securities which are redeemable for cash at the option of the holder, or which are convertible into any form of debt securities.

(2) The term "transfer" means a transfer of personal property:

(a) Under a reorganization within the meaning of §368(a) of the Internal Revenue Code;

(b) Upon organization of a corporation or joint-stock company, to the corporation or company principally in consideration for the issuance of its stock;

(c) To a partnership only as a contribution to its capital or in consideration for a partnership interest in the partnership; or

(d) To a limited liability company only as a capital contribution or in consideration for an interest in the limited liability company.

(3) A transfer of tangible personal property to a corporation upon its organization is "principally in consideration for the issuance of its stock", if the aggregate value in money of the consideration other than its stock, issued, paid, or transferred by the corporation in exchange for the tangible personal property, is less than 50 percent of the fair market value of the tangible personal property received by the corporation. The transfer to or assumption of liability by a corporation upon its organization is not "consideration other than its stock", if, without regard to any dollar limitation, the entire transaction would otherwise qualify as an exempt casual and isolated sale.

C. Transactions Not Subject to the Tax.

(1) A transfer of tangible personal property to a corporation or joint-stock company upon its organization, principally in consideration for the issuance of its stock, is not subject to tax. The transfer will not be considered to be upon the organization of a corporation unless the Articles of Incorporation were filed for record with the appropriate State authority not more than 6 months before the transfer, and the corporation has not been actively engaged in business for more than 30 days before the transfer.

(2) A transfer of tangible personal property to a limited liability company only as a capital contribution or in consideration for an interest in the limited liability company is not subject to tax.

(3) A transfer of tangible personal property made pursuant to a reorganization within the meaning of §368(a) of the Internal Revenue Code is not subject to tax. An Internal Revenue Service ruling or opinion of counsel as to qualification under these sections is evidence of entitlement to this exclusion.

(4) A distribution of tangible personal property by a corporation to its stockholders as a complete or partial liquidating distribution, whether or not made pursuant to the dissolution of the corporation, is not subject to tax. The transfer of tangible personal property is not a liquidating distribution if any consideration, other than the surrender of stock of the corporation, is paid for the property transferred.

(5) A transfer of tangible personal property to a partnership solely as a contribution to the capital of a partnership, or in consideration for a partnership interest, made at any time, by any existing or new partner, is not subject to tax. If any consideration is paid for the property transferred other than an interest in the partnership, the transfer is subject to tax. The transfer to or assumption of liability by a partnership is not consideration paid by the partnership, if, without regard to any dollar limitation, the entire transaction would otherwise qualify as an exempt casual and isolated sale.

(6) A distribution of tangible personal property by a partnership to its partners or by a limited liability company to a member is not subject to tax. A transfer which is not in the nature of a distribution of earnings or profits or a return of capital (such as a sale in the ordinary course of business) is subject to tax.