Academic journal article Journal of Accountancy

Successor Tax Liability in Business Purchases

Academic journal article Journal of Accountancy

Successor Tax Liability in Business Purchases

Article excerpt

A purchaser of assets generally expects that it will not be liable for the income tax liabilities of the seller. While sophisticated buyers may anticipate that they will be liable for so-called trust fund taxes (e.g., withholding, sales tax, etc.), few buyers expect that they will be liable for the seller's unpaid share of income and income-based franchise taxes.

However, a few important states impose such a liability. These states give their tax administrators authority to collect the seller's income tax liability from the buyer even if there is no indication of fraud or an intent to evade tax.

[ILLUSTRATION OMITTED]

STATE INCOME AND FRANCHISE TAX SUCCESSOR LIABILITY

A number of states provide a bulk-sale procedure whereby a buyer of assets must report the purchase to the state within a certain statutory time period (and meet certain statutory requirements and make required filings) to absolve itself of successor liability for nearly all outstanding state taxes. In most cases, the liability and the procedure are limited in scope to sales taxes.

States generally impose successor liability pursuant to statutes and regulations for sales taxes and other transaction-level taxes, such as gross receipts taxes. Certain states, notably Illinois and Pennsylvania, have statutes that explicitly impose successor income tax liability for those taxpayers that do not engage in the bulk-sale notification procedure.

Illinois provides that a buyer may succeed to the income tax liabilities of the seller when a "major part" of the business is purchased outside of the usual course of business. A major part of the business is defined as the inventory the taxpayer is engaged in selling, the furniture or fixtures, the machinery and equipment, or the business's real property. A sale of any one or more of these components constitutes a bulk sale. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.