Purchasing or Acquiring a Business or its Assets- Caution (as extracted from Pub 750)
Bulk Sales Transactions
If you are the purchaser, transferee, or assignee in a bulk sale transaction you will not be held liable for the seller’s unpaid sales tax if you comply with the requirements listed below.
Notify the Tax Department - You must notify the Tax Department of the pending bulk sale transaction at least 10 days before paying for or taking possession of any business assets, whichever occurs first, by filing Form AU-196.10, Notification of Sale, Transfer or Assignment in Bulk. You must send Form AU-196.10 by registered mail to the address given on the form. While the seller is supposed to advise you of this notification requirement, the failure of the seller to give you this notification does not relieve you of liability for the seller’s unpaid sales taxes. When the 10th day falls on a Saturday, Sunday or legal holiday in New York State, notice will be considered timely if given on the next Succeeding day which is not a Saturday, Sunday or legal holiday in New York State.
Withhold consideration payable to the seller until authorized by the Tax Department - Within 5 business days of receiving Form AU-196.10, the Tax Department will advise you as to whether it is possible that the seller has unpaid sales taxes. If the seller does not have any unpaid sales taxes and if an additional review or audit is not necessary, the Tax Department will issue to you Form AU-197.1, Purchaser’s and/or Escrow Agent’s Release-Bulk Sale. If the seller has unpaid sales taxes or is selected for additional review or audit, the Tax Department will issue the purchaser Form AU-196.2, Notice of Claim to Purchaser. If you receive Form AU-197.1 - If you receive Form AU-197.1, you may pay the seller the full purchase price. The Tax Department will not
hold you liable for any unpaid sales taxes, even if there are outstanding warrants or judgments.
If you receive Form AU-196.2 - If you timely receive Form AU-196.2, you are advised not to pay the seller until the Tax Department completes its review of the seller’s sales tax account. Within 90 days of the receipt of Form AU-196.10, the Tax Department must notify you (and the seller) of the actual amount of sales taxes due from the seller for which you will be held liable. Upon receipt of Form AU-196.2, the purchaser may wish to consult a tax practitioner about the best course of action to take.
If the Tax Department does not issue Form AU-196.2 within 5 business days of the date of receipt of a properly completed and timely filed Form AU-196.10, the purchaser cannot be held liable for any of the seller’s unpaid sales taxes unless there are outstanding warrants or judgments for unpaid sales taxes.
For purposes of the Tax Department’s obligation to respond within 5 business days, the date of receipt of Form AU-196.10 by the Tax Department will be the date it was actually delivered to the Bulk Sales Unit of the Audit Division, but no earlier than 10 days before the later of the scheduled date of sale or the actual date of sale (The actual date of sale is deemed to be the earlier of the date of payment or taking possession of the business assets).
The following examples illustrate common bulk sale transactions:
Example 1: Corporation A, a person required to collect sales tax, sells its business assets to Corporation B. This sale is a bulk sale transaction.
Example 2: Corporation A, a person required to collect sales tax, transfers all of its business assets to Corporation B in exchange for stock in Corporation B. The transfer of
Corporation A’s assets to Corporation B is a bulk sale transaction.
Example 3: Corporation A purchases all the issued and outstanding stock of Corporation B, a person required to collect sales tax. Corporation A and Corporation B will continue to exist as separate legal entities. Since the business assets of Corporation B have not been transferred in connection with the sale of its stock, this is not a bulk sale transaction.
Example 4: Corporation A, a person required to collect sales tax, sells its entire inventory which is purchased by Corporation B for resale. The sale by Corporation A is a bulk sale transaction.
Example 5: Mr. Smith, a person required to collect sales tax, makes a gift of all of his business assets to another person. This transfer is a bulk sale transaction.
If you have any questions about the bulk sale requirements, call (518) 457-4164 from 8:00 a.m. to 4:00 p.m. (Eastern Time), Monday through Friday. Please have either the assigned bulk sales case number or the name and the sales tax identification number of the seller or the purchaser available when you call. In addition to the above bulk sale transaction notification requirements, if you intend to operate the business, you need to determine your registration requirements.
You may owe sales tax on the business assets purchased
In addition to your obligations and requirements with respect to the bulk
sale as described above, you are responsible for paying the sales tax
due, if any, on any tangible personal property purchased or otherwise
acquired in a bulk sale transaction. Sales tax is not imposed on the sale
of real property or intangible assets, such as goodwill.