For business transactions occurring in the State of New York, the New York State Department of Taxation and Finance imposes a liability and obligation on the 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 is typically referred to as a "Bulk Sales Notice" it should be prepared by your business attorney and must be filed with the New York State Department of Taxation and Finance no less than 10 days prior to the business closing. The purpose of this notification is to assist the State with its 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 York imposes an 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. If the business purchaser does not satisfy the "seller's" outstanding sales tax (from the proceeds due to the seller at closing) the State of New York will hold the "purchaser" personally liable for the seller's outstanding taxes.
Procedurally, the bulk sales notice must be timely pre-filed with the New York State Department of Taxation and Finance. Once this notice is timely pre-filed, you must discuss and review with your attorney the State's response and whether or not a closing may occur before a final determination by the State of New York. It is critical to note that the bulk sales notice is time sensitive and, if taxes are due, the State of New York has up to 90 days (from the date of receipt of the bulk sales notice) to advise you as to the exact amount of sale tax due from the seller and to be collected at closing. If you intend to close prior to this 90 day notification period, you must discuss your notification, escrow and sales tax collection obligations with your business attorney.
What Happens if You Fail to File the Bulk Sales Notice?
If you fail to comply with the New York State bulk sale notification and collection obligations, the State of New York 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.