It always surprises me when new owners of an establish business are dismayed to receive a tax bill that they assume is the responsibility of the previous owner. Sales taxes are based on the business and not who owns it at the time. In a bulk purchase, you are acquiring the tax liability that comes with the business, even if that tax liability does not rear its ugly head until years later.
It suffices to say that if you are looking to buy a business, and it does not matter if it’s a multi-million dollar business or worth thousands, you need to do your due diligence when it comes to sales taxes. For some reason, these taxes always fly under the radar. This is particularly true in the areas of sales tax exemption certificates and compliance. You need to add this important piece to your check list. Not only do you need to maintain all the information for exempt sales under the previous owner to prove that were legitimate exemptions, but you also need to make sure they are considered valid. What would be the use of having an invalid certificate a few years down the road when the auditor comes knocking? Of course, you can always reach out to the customer to ask for a new certificate, but you might be out of luck in collecting one. Then it will be up to you to explain why and how it happened.
When you decide to acquire a business and want confirmation that it is clear of sales tax liability, you can contact the state and ask for what you might refer to as a “No Sales Tax Liability Declaration.” It has several different names depending on the state, but you get the idea. It sounds easy, but it may take a while to obtain. That piece of paper still might not be enough, because there are other reasons to be audited and liabilities that could be found, but at least it may give you a little piece of mind.
Other recent “Exemption Certificate Mgmt.” posts by Silvia Aguirre:
- Exemption Certificates for Federal Government Purchases
- Marketplace Fairness: What Does It Mean For Exemption Certificates?
- Will Oregon Start Charging Sales Tax? If So - Are You Ready?
- Canada is Bringing Back Exemption Certificates!
- Louisiana Changes State Forms to Include Parish Exemptions
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