Tax treatment of Passover "sales"?

I've seen that sort of thing.

What I've seen is a purchase with a right to buy back for the same price. But it can take any number of forms.

I'd think it would be treated as a sham or collapsible transaction. In other words, ignored for tax purposes, since in fact no one is earning or receiving any income.

Does the business have any employees during the "open" period? Does the erstwhile owner temporarily become an employee of the new owner? I'd be concerned, even as a short-term owner, about things like payroll taxes, workers comp, other labor laws, insurance exposure, etc.

That made me chuckle, to consider that for tax purposes it could be ignored as a "sham", but for religious purposes it's treated as a perfectly legitimate and sincere transaction. I guess the standards of one's "higher authority" really do vary.

Well, tax law doesn't always make economic sense, so I wouldn't hold it up nacle of logic.

As I see it, the $1 earned should be reported. But it's so minimal that it never is, I assume.

Couldn't he avoid that by giving back the $1 when the "sale" doesn't go through?

But since he's Jewish, giving up a buck might be unthinkable (I'm Jewish, so I hope I can say that without being called racist).

Couldn't they structure the deal this way: Sell the business to the goy for $1, then a week later buy it back from him for $1. The two sales cancel each other out, and there's no tax implications.

That's exactly how the deal is structured. It creates a wash sale as the original seller buys back the business/assets at the end of Passover for the same amount as they were sold for. Technically, it should be reported as such, but since there is no tax implication from the paired transactions, it's easier to just ignore them.

Ira Smilovitz

Assuming the original owner regains ownership as planned, I would expect this to be treated as a sham transaction and ignored for tax purposes.

I'd be more concerned about the potential non-tax issues if things don't go smoothly. Are there licenses that need to be transferred to the new owner (and then back) in order for the business to legally operate during Passover? Since this appears to be a sham transaction, both owners may be sued if something bad happens. Are the Insurance companies OK with this arrangement and will they cover both old and new owners during Passover? What happens if one of these two die during Passover? There may be other potential land mines that could really mess up the short term owner. This whole scheme sounds like a bad idea for the non-Jew friend.

If God applies a 'function over form doctrine' the negative consequences for the 'observant' Jew in the hereafter may dwarf anything bad that happens in this world.

This isn't an issue because the typical pattern is that only the non-kosher food items are sold to the non-Jew and not the entire business. The sold items are segregated from any part of the business that might continue to operate during the holiday (cabinets sealed, shelves coveree, etc). Any business risks remain with the Jewish owner.

Many food related businesses close completely for the holiday to avoid any question as to whether the owner is complying with religious restrictions.

Ira Smilovitz

But what about sales taxes on each sale?

Interesting point. At least in California the sale of a business does not ordinarily trigger sales tax, either on the business as a whole or assets of the business. I'd guess there are similar exemptions in other (but perhaps not all other) states.

What's the issue? There aren't any sales tax triggering sales. The sale of the non-kosher for Passover food to the non-Jew is not a retail sale as the purchaser is buying it for resale. The transferred food isn't sold during the holiday because to do so would create the appearance that the Jewish business owner was violating the religious proscriptions. The repurchase of the food is also not a retail sale.

Ira Smilovitz

Around here, a sale by a retailer is considered a retail sale unless the buyer supplies a sales tax exemption number. The temporary food distributor may have some hoops to jump thru to make this work properly.

It is interesting that storing non-kosher food (even if owned by someone else) at the Jewish business is considered religiously acceptable but selling it is not. In both cases, the Jewish business is involved with non-kosher food during Passover.

I've heard of people doing that with bread products in their homes during passover - they leave everything in place, but have someone else buy it and own it over the holiday. It's all about the loopholes.

I believe the requirement is that the two foods have to be kept separate. As long as they're in separate refrigerators, they meet that proscription.

If they sell them, they'll probably have go pass over the same sales counters, using the same utensils, etc. and that's the problem they're trying to avoid.

Even so - what's the sales tax on a $1 transaction?

No, the Jewish business isn't involved with the non-kosher food during Passover. The food is physically isolated before Passover begins and isn't touched by the Jew until after he repurchases it at the end of the holiday. Some will go so far as to lock up the food so that they can't access it even if they wanted to.

Yes, it's a religious legalism. Conceptually, is it any different from the legalism that holds that a corporation is a person? Both provide means for dealing with issues that couldn't be dealt with otherwise.

Ira Smilovitz

The difference is that religious practices are generally thought to be related to morality. Is the business owner somehow a "better" person by taking advantage of a loophole in the wording of religious doctrines? There's presumably a reason behind the requirement to keep Kosher for Passover foods separate from non-KfP foods, does this sham sale really serve that purpose?

Orthodox Jewry is full of stuff like this. Rich Jews sometimes hire gentile servants on the Sabbath to turn their lights on and off, because they don't think they're allowed to do it. By that logic, you're not violating the commandment against murder if you hire an atheist to do it for you.

How it works:

One of the Rabinic principles in Judaism is that the laws must be ones that the people can live with. Historically, as life became more sophisticated, the simple idea of destroying all Hametz for Passover became a burden, so the Rabbis invented alternatives that the people could live with.

ira smilovitz wrote: : On Thursday, August 14, 2014 4:49:44 AM UTC-4, Lawrence Israel wrote: : > But what about sales taxes on each sale?

: What's the issue? There aren't any sales tax triggering sales. The sale of the non-kosher for Passover food to the non-Jew is not a retail sale as the purchaser is buying it for resale. The transferred food isn't sold during the holiday because to do so would create the appearance that the Jewish business owner was violating the religious proscriptions. The repurchase of the food is also not a retail sale.

: Ira Smilovitz

Ira, there are Jewish owned stores in my neighborhood tht sell their chmatz and reain open in my very mixed neighborhood sellign all kinds of Passover adn non Koser for Passover foods. At the end of the holiday our Ortocox rRabbi announces that we can shop at these stores for chamatz. this may well be more of a halachic(Jewish law) question than an accounting one,but it seems to be common in many religiously mixed neighborhood. I am gettign confused by some of this discussion.

Wendy Baker

From Jewish Magazine.... the history of the practice that is at least two thousand years old.