SALT Report 2616 – The New York Department of Taxation and Finance updated its tax bulletin regarding the rules and procedures that must be followed when a bulk sale transaction takes place to ensure that the purchaser is not held liable for any of the seller’s unpaid sales or use taxes. The bulletin addresses what a bulk sale is and provides guidance regarding the purchaser’s and seller’s obligations.
The bulletin defines a bulk sale as the sale, transfer, or assignment of business assets by a person required to collect sales tax. Business assets are defined as any assets directly related to the business, such as:
- Tangible personal property,
- Real property, and
- Intangible assets, such as goodwill
However, a bulk sale does not include sales of assets made in the ordinary course of business, such as retail sales to customers.
The purchaser in a bulk sale transaction should not pay the seller any monies for the business without following certain procedures. Failure to follow the Department’s procedures may result in the purchaser being held liable for the seller’s unpaid sales and use taxes. The Department’s procedures are as follows:
The purchaser must notify the Tax Department of a pending bulk sale by filing Form AU-196.10, Notification of Sale, Transfer, or Assignment in Bulk, at least 10 days prior to paying for or taking possession of, any business assets.
The burden of proving a notice was received by the Department is on the purchaser. Therefore, the Department advises purchasers to file Form AU-196.10 either by registered mail, certified mail with return receipt, or by hand-delivering it to the Albany Department. If any other delivery method is used, the notice will not be effective until the date the Department actually receives it, which may result in the purchaser being held liable.
If any information on the original form changes or is incorrect or unavailable the purchaser must file a revised Form AU-196.10. For example, if the closing date for the sale changes, a revised form indicating the new closing date should be filed and the word “Revised” must be clearly written at the top.
Once the Department receives a completed Form AU-196.10, they will issue the purchaser either: Form AU-197.1, Purchaser’s and/or Escrow Agent’s Release – Bulk Sale, if the seller does not have any unpaid sales taxes and a review or audit is not necessary. Or, Form AU-196.2, Notice of Claim to Purchaser, if the seller owes unpaid sales tax and is scheduled for a review, or is under audit. These forms will be mailed to the purchaser with 5 days of receiving Form AU-196.10.
Purchasers who receive Form AU-197.1 from the Department will not be held liable for any unpaid sales taxes owed by the seller. However, if the purchaser receives Form AU-196.2 they should not pay the seller any monies due until the Department has completed its review of the seller’s sales tax account, or they may be held liable.
If the Department fails to issue the purchaser Form AU-196.2 within five business days or, if the Department incorrectly sends the purchaser Form AU-197.1 stating that the seller has no outstanding liabilities, the purchaser will not be held liable for any of the seller’s unpaid sales and use taxes and may pay the seller the full purchase price of the business.
However, the bulletin warns that although the purchaser may receive Form AU-197.1 or AU-196.2 from the Department, any assets purchased from the seller are still subject to any liens if there is an outstanding warrant or judgment against the seller for unpaid taxes.
The seller must provide any prospective purchasers with Form TP-153, Notice to Prospective Purchasers of a Business or Business Assets. This form details the purchaser’s responsibilities in a bulk sale. However, if the seller fails to give this notice to a prospective purchaser it will not relieve the purchaser of its bulk sale obligations or any bulk sale liabilities.
Sellers must file a final return and pay any taxes due within 20 days of ending their business operations. Failure to do so will result in the seller being held liable for any taxes, penalties, and interest due on the final return, regardless of whether the purchaser has been relieved of liability.
Sellers who are thinking about selling their business or business assets are advised to contact the Department for a review of their sales tax account to determine whether the business has any delinquent sales tax returns or owes any sales tax.
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