New York – Bulk Sale Purchaser Liable for Seller’s Unpaid Tax

SALT Report 2287 – The New York Division of Tax Appeals issued a ruling regarding whether the purchaser of a retail liquor store was liable for the unpaid sales taxes owed by the Seller at the time of purchase. As required by law, the Taxpayer filed a Notification of Sale, Transfer, or Assignment in Bulk with the Division of Taxation. The Notification stated that the date of sale was May 29, 2009; however, the envelope in which the Notification was received by the Division was stamped June 8, 2009.

Upon receipt of the Notification, the Division issued the Taxpayer a Notice of Claim to Purchaser advising him of a potential claim for sales and use taxes owed by the Seller. The Notice advised the Taxpayer not to distribute any funds or property to the Seller until the Seller’s liabilities could be determined.

If liabilities were found, the Seller would be required to make a payment before the Division would authorize the release of any funds or property. Further, the Notice warned the Taxpayer that failure to comply with the terms of the Notice would subject the Taxpayer to any sales tax liabilities due from the seller.

Subsequently, a review of the Seller’s books and records indicated that the Seller had unpaid sales tax liabilities in the amount of $50,334.42. The auditor issued an assessment against the Seller for the unpaid taxes along with interest and penalties for fraud and under reporting its tax. The Seller and the Taxpayer appealed the assessment.

Upon review of the case, the Appeals Judge referred to New York Tax Law §1141(c), which states that the purchaser in a bulk sale transaction is required to notify the Division of the sale at least 10 days prior to taking possession of, or making payment for, the business assets in order to avoid any potential liabilities for unpaid taxes by the Seller. In this case, the Appeals Judge determined that the Taxpayer did not comply with the tax law as the sale occurred on May 29, 2009 and the Notification received by the Division was dated June 8, 2009, well outside the 10 day time period.

Based on the above, the Appeals Judge determined that the Taxpayer was liable for the Seller’s sales tax assessment because the Taxpayer did not timely notify the Division of Taxation of the transfer. Additionally, the penalty that was assessed against the Seller for fraud was upheld and added to the Taxpayer’s assessment because neither the Taxpayer nor the Seller could show reasonable cause that would support a reduction or abatement of the penalty.

For Further Information

New York Division of Tax Appeals – Determination Number 823935