Buying The Assets of A Business? Watch Out for Successor Tax Liability.
Many sales of businesses are structured as asset sales rather than a sale of the ownership interest (such as stock or partnership interest) to avoid having the buyer assume liabilities of the seller.
However, many buyers are unaware that California sales tax of the seller may become a liability to the buyer.
If a person who has a sales tax liability sells his or her business or stock of goods, his or her successor shall withhold a sufficient amount to cover the tax liability of the former owner unless the former owner produces a receipt or certificate from California showing that the tax liability has been paid. If the purchaser of a business or stock of goods fails to withhold from the purchase price as required, he or she becomes personally liable for the payment of the amount required to be withheld. The liability of the successor or purchaser of a business or stock of goods includes all tax, interest, and penalties incurred by the former owner as a result of operating the business.