A business may decide to sell all or a substantial amount of its business assets to another individual or company for a variety of reasons. These types of transactions are known as “bulk sales” if they are not part of ordinary business activities. Both New York and New Jersey require businesses that collect sales tax to disclose a planned bulk sale to state tax authorities. This disclosure is the purchaser’s obligation, since the purpose is to allow the state to determine the seller’s tax liability. If the purchaser does not make the required disclosures, it could become liable for the seller’s outstanding tax debt to the state. The disclosure process is not terribly complicated, but it appears to be one that many businesses forget in the course of purchasing another business’ assets.
What Is a “Bulk Sale”?
Any sale of business assets that is not part of the normal course of business could qualify as a bulk sale under state law. A bulk sale may occur if a company is going out of business, upgrading its equipment, or making significant changes in its business activities. Bulk sales may also occur in mergers or acquisitions, or if a business is converting from a sole proprietorship to a corporation or other business entity.
“Business assets” include any assets used in the course of business, including:
– Personal property, such as computers, office furniture, and inventory;
– Intellectual property, including patents, trademarks, and trade secrets;
– Certain types of real property; and – Intangible assets, like business goodwill.
Bulk Sales Law
New Jersey and New York have very similar bulk sales statutes. N.J. Rev. Stat. § 54:50-38, N.Y. Tax L. § 1141(c). A purchaser must notify the state taxing authority of the sale at least ten days before they take possession of the business assets. The state must notify the parties of any possible tax claims within ten days after the transfer takes place in New Jersey, or ninety days in New York.
Notices Required by the Bulk Sales Law
Each state has a form for bulk sale disclosures. New Jersey’s Form C-9600 (PDF file) is filed with the Division of Taxation of the New Jersey Department of the Treasury. New York’s Form AU-196.10 (PDF file) goes to the New York State Department of Taxation and Finance. The forms request identifying information and contact information for both the purchaser and the seller, the closing date of the bulk sale, and the total price of the sale and of each type of property included in the sale. The purchaser usually must also include a copy of the sales contract.
The state will notify the purchaser if the seller owes tax. The purchaser must often hold all or part of the sales price in escrow, to be applied to the tax debt. If the amount of tax debt exceeds the sales price or escrow amount, the state may recover the deficiency directly from the seller. If the state fails to meet its notice requirements, the purchaser has no further responsibility to maintain escrow. If the purchaser fails to file the disclosure form before the sale, the state can hold the purchaser liable for the seller’s tax debt.
Small business lawyer Samuel C. Berger represents business owners and entrepreneurs in New York and New Jersey. Our fixed-fee legal-service packages cover a variety of our clients’ legal needs, including business formation, contracts, and tax issues. Contact us today online or at (212) 380-8117 to schedule a confidential consultation with an experienced and skilled business law advocate.
More Blog Posts:
Treasury Department Issues New Guidance for Corporations that Transfer Operations Abroad to Reduce Tax Liability, New York & New Jersey Business Lawyer Blog, October 16, 2014
Winding Up and Dissolving a New Jersey Business, New York & New Jersey Business Lawyer Blog, April 11, 2013
New York Tax Court Rules that Business is Liable for Full Sales Tax Bill after Transfer of Business Assets, New York & New Jersey Business Lawyer Blog, August 30, 2012
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