Purchasing a business can be an exciting venture, allowing a person or company to expand his or her assets and add additional sources of income. However, business owners should be aware of the tax issues that can arise when buying a business, including whether they will be responsible for the business’s tax liability.
If a business owes taxes, interest, or penalties at the time of its sale, the purchaser of the business may be held liable for these amounts. This is known as successor liability, and the California State Board of Equalization (BOE) may enforce this liability through a state sales tax audit within three years of the purchase of the business. A state sales tax refund claim may also trigger the enforcement of a tax liability.
Avoiding Liability Through Tax Clearance
Purchasers can avoid being held responsible for a business’s tax liability by obtaining a certificate of tax clearance. This certificate can be obtained from the BOE by sending a request which includes the following information:
- The name, address, and phone number of both the purchaser and the seller;
- The address of the business;
- A copy of the purchase agreement which includes the purchase price;
- If an escrow company was used, the name of the company and the escrow number; and
- The date of purchase.
The BOE will determine whether the business owes any taxes, interest, or penalties. If any amount is owed, this liability must be paid before the certificate of clearance will be issued. If the BOE determines that taxes are due, the purchaser is required to withhold the amount due from the purchase price until the seller shows that the liability has been paid and no amount is due. Once the purchaser receives a certificate of clearance, he or she will no longer be required to cover any unpaid sales and use taxes.
Contact a San Jose Business Tax Attorney
When purchasing a business, it is incredibly important to understand whether the business has any tax liabilities for which you may be responsible. An experienced tax attorney can help you obtain the tax returns and other documentation you need to obtain a clearance letter and avoid being held liable for taxes that are owed.
If you are planning to purchase a business, John D. Teter Law Offices can work with you to make sure you have addressed any outstanding financial issues, allowing you to get the most out of your new acquisition and achieve financial success. Contact a San Jose, CA tax attorney today at 408-866-1810.