Protecting Yourself Against Successor Liability
If you are buying a business that is subject to Texas taxes, you may want to consider obtaining a Texas tax clearance certificate from the Texas Comptroller to confirm that, as the buyer, you are not taking on the seller’s outstanding tax liability, a legal obligation known as successor liability. Many buyers believe that any state and local tax issues belonging to the seller remain with the seller and in general will not apply to them, but this is not always so. Adding state and local tax considerations into due diligence for your transactions can help prevent another person’s tax compliance liabilities from becoming your own—an unpleasant surprise that will remain a financial responsibility until resolved.
As a buyer, even if you are only in pursuit of purchasing assets of a business (versus an equity interest of the company), you may be responsible for any of the seller’s unpaid taxes, as a successor. Most states have successor liability rules (generally with regard to sales and use taxes) on the transfer of the assets of a business or the equity interest in a company, but it is best to assure you are fully informed of your tax liability, if any, in the transaction.
A tax clearance letter (Certificate of No Tax Due) essentially states that the business or seller does not owe taxes to the state; obtaining it is a joint effort by the buyer and seller wherein the seller of the business must authorize the request, which is submitted by the buyer. Certificates of No Tax Due are issued by the Texas Comptroller.
WE WELCOME YOUR QUESTIONS ON TEXAS TAXES
For assessment of your current tax liability status in your purchase of a business, obtaining a Texas tax clearance letter, or if you are considering buying a business that is subject to Texas taxes, contact trusted advisors with REDW’s State and Local Tax (SALT). Let us help you avoid a potentially deep-rooted tax pitfall.