Virtually every state has a tax bulk sales provision that requires buyers of business assets to file a notice with the state of any purchase of business assets outside the ordinary course of business. This means that every bulk asset sale of a business has to be reported by the buyer for those states in which the seller does business. Failure to file this notice and then withhold any taxes claimed due by the state will result in the buyer's being personally liable for the unpaid back taxes of the seller.
The costly penalty for failing to file a tax bulk sales notice was recently illustrated in Douglasville Hospitality, Inc. v. Riley, Georgia Tax Tribunal, in a decision that was issued on July 23, 2015. In that case, the buyer purchased a hotel in Georgia but did not file the required tax bulk sales notice with the Georgia Department of Revenue (DOR). The seller previously filed its sales and use tax returns for the past years of the hotel's operations but had not paid the tax due or the interest and penalties assessed. As a result, the Georgia DOR issued an assessment to the buyer for the unpaid amounts. The buyer contended that it should not be held liable for the back taxes and that the normal three-year statute of limitations should apply. The Georgia Tax Tribunal disagreed and held that the buyer's failure to file the tax bulk sales notice made it personally liable for the back taxes, interest and penalties due from the seller. Moreover, the Tribunal held that Georgia did not have a statute of limitations on taxes due as a result of failing to file this tax bulk sales notice, and the normal three-year statute of limitations on assessments could not be extended to such transactions and, thus, did not apply.
This recent Georgia case is one of many that emphasizes how not filing a tax bulk sales notice in the asset sales of a business can be costly to the buyer. As a result, this should be considered a key requirement for buyers in asset purchase transactions.