Restaurant Law Blog

Saturday, November 12, 2011

Buyers Often Liable for Prior Restaurant Owner’s Unpaid Sales Tax

There is a common misconception among restaurant owners that if you purchase the assets of an existing restaurant (as opposed to purchasing the Corporation itself) you will not inherit the debts or obligations of the seller.  That is not always the case. 

New York State has a bulk sales liability provision which requires the buyer of part or all of the assets of an existing business to complete and file a bulk sales notice with the New York State Division Of Taxation And Finance.  If you fail to provide this notice and/or withhold sufficient funds from the purchase price (pending determination by the Tax Department) the buyer will be held personally liable for the seller’s unpaid sales and use taxes.  More specifically the buyer must, at least 10 days before taking possession or paying for the assets, first notify the Tax Department of the proposed agreement. The Tax Department then has 90 days to notify all parties of the total amount due, if any. If the Tax Department fails to notify the parties within 90 days, then the buyer will be absolved from the seller’s unpaid sales tax liability. Often however, the parties do not want to wait 90 days until they receive notification from the Tax Department to close on their purchase agreement. In that instance an amount sufficient to pay the outstanding tax liability must be held in escrow until the Tax Department responds.

James DiPasquale, Attorney at Law

DIPASQUALE LAW GROUP

Restaurant Law New York

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