Wednesday, November 23, 2011

Is the buyer of a business liable for the seller's sales tax obligations?

A purchaser of any business or stock of goods is liable for payment of any amount owed the state by the seller under the Title 2 (Chapters 101 through 211) of the Tax Code up to the amount of the purchase price.

As such, the purchaser must, at the time of purchase, withhold a sufficient amount from the purchase price to pay any amounts due including penalties and interest or any other amounts assessed or to be assessed against the seller.

A purchaser's duty to withhold the amount owed by the seller will continue until the seller presents to the purchaser a certificate from the comptroller stating that no tax is due.

When determining if a "business" has been or will be sold, the comptroller will examine the transaction to determine what the parties to the transaction intended to buy and sell. The answer in each situation will depend on the type of business involved. A seller may have sold a "business" even when few assets were transferred. Depending on the type of business involved, a "business" may be sold if an owner sells:
(1) a building, land, furniture, fixtures, inventory, and the right to use the seller's trade name; or
(2) all the capital assets of a business; or
(3) the name and goodwill of a business; or
(4) all the inventory of a business; or
(5) fixed assets and realty necessary to operate a similar business as the seller at the same location.

A certificate stating the amount due or that no tax is due may be obtained in the following manner: The seller, the seller's assignee, or purchaser must make a written request for the certificate before the sale of the business is completed. The comptroller must then issue a certificate to the seller within 60 days after the records are made available by the seller for audit or within 60 days after receiving the written request for the certificate, whichever period expires later, but in any event not later than 90 days after receiving the written request. If any amount is found to be due, it must be paid before the certificate will be issued. Failure of the comptroller to timely issue the certificate to the seller will release the purchaser from any further obligation to withhold an amount from the purchase price.

If you are buying or selling a business, feel free to contact our Dallas office to discuss at (214) 206-1999 or via email at info@copplaw.com.

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