When purchasing the assets of another business, purchasers must be aware of the respective state’s bulk sale provisions. Most states have laws and regulations in place with respect to the bulk sale of tangible personal property and/or real estate, especially if the sale includes more than 50% of a business’ assets. Purchasers who are not aware of these provisions may find themselves responsible for all or some of the seller’s state tax liabilities.
Rules vary by state, but most states require the buyer to notify the state prior to the sale, usually about 10 days, to allow the state an opportunity to collect any outstanding tax liabilities of the seller. The state usually has a specified period of time to respond to the notice, informing the respective parties of any tax liabilities or the issuance of a clearance certificate. Should the state fail to respond within the specified period, the purchaser can usually take possession of the asset or assets without fear of being held liable for any taxes owed by the seller. At the time of the sale, the purchaser should collect from the seller a clearance certificate indicating that the seller has fulfilled all their state tax obligations up to and including the date of the sale.
Failure to notify the appropriate state agency and secure a clearance certificate may result in the purchaser acquiring not only the assets, but the state tax liabilities of the seller. Any questions regarding the specific state tax implications of bulk sale purchases should be directed towards your state and local tax professional. To find out more about the Schneider Downs State and Local Tax team, click here.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.