For business transactions occurring in the State of New Jersey, the New Jersey State Division of Taxation imposes an absolute liability and obligation on the New Jersey business “purchaser” to provide the State with a “pre-closing” notification of the proposed business sale, the terms of the sale and the anticipated date of closing. This pre-closing notification, referred to as a “Bulk Sales Notice” (but formally identified by the State as a “Notification of Sale, Transfer or Assignment in Bulk”) should be prepared by your business attorney and must be filed with the New Jersey State Division of Taxation no less than 10 days prior to the business closing. The purpose of this notification is to assist the State with their sales tax audit and collection efforts, i.e., when the taxation authority receives the notification, the State will examine the “seller’s” tax records and make a determination as to whether or not the “seller’s” tax records are current and whether or not the “seller” owes any outstanding sales tax. If outstanding sales taxes are due by the “seller”, the State of New Jersey imposes a liability and obligation on the business “purchaser” to pay the “seller’s” outstanding sales tax from the business purchase proceeds due from the purchaser to the seller at closing.
Procedurally, the bulk sales notice must be timely pre-filed with the New Jersey Division of Taxation. Once this notice is timely pre-filed, the State will review the Seller’s tax records and make a determination as to an amount due or an amount to be set aside and held in escrow at closing. Provided that you have timely notified the State and have set aside the appropriate escrow of funds demanded by the State, you may proceed with the closing without any further liability for the seller’s sales taxes.
If you fail to comply with the New Jersey State bulk sale notification and collection obligations, the State of New Jersey can and will hold you personally responsible for the payment of the seller’s outstanding pre-closing sales taxes. This obligation may be substantial and is an unnecessary problem that occurs in far too many transactions. While this issue must be addressed by your business attorney, it is important that, as a business purchaser, you be aware of this “hidden” liability.
We recommend also reading the following articles by New Jersey Business Lawyer, Charles N. Internicola:
For additional information on how our office assists clients in business purchases contact us by phone at (800) 976-4904 or (718) 979-8688 or contact The Internicola Law Firm, P.C. by email.
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