California – Protecting Yourself From a Potential Tax Bill

SALT Report 2838 – The California State Board of Equalization issued a warning to taxpayers who may be considering purchasing a business without a BOE issued tax clearance certificate.  Without a certificate, a purchaser who buys a business from someone who has unpaid sales tax liabilities may be held liable for the taxes.

To avoid this scenario, the BOE advises that the purchaser request a tax clearance from the BOE when opening an escrow account. The tax clearance can be obtained by sending a written request to a local BOE office before any funds are distributed. The request should include:

  • The name, address for each location being purchased, and the seller’s permit number for the business being purchased,
  • The date the business is expected to be transferred,
  • The purchaser’s name, address, and escrow number,
  • A copy of the purchase or sales agreement which should include the purchase price, the value of fixtures and equipment, inventory, goodwill, and other terms of the sales agreement, and
  • The purchaser’s seller’s permit number, if available

Once a tax clearance has been requested, the BOE will determine whether the business being sold owes any money. If money is owed, the BOE will request that the current owner pay the amount due and advise the escrow company of the amount to withhold from the purchase price to cover the liability.  If the current owner pays its liabilities, the BOE will issue a certificate of tax clearance.

If all of these procedures are followed, the buyer will not be held responsible for the seller’s unpaid taxes once a tax clearance has been issued.

For Further Information

California State Board of Equalization – Special Notice L-341