Tuesday, September 9, 2008

SALES TAX - What is Successor Liability for Wisconsin Sales Taxes?

The buyer of a business should be aware that if the seller has an outstanding liability for Wisconsin sales or use taxes, the buyer can become personally liable for the unpaid tax of the seller if the proper steps are not taken. With careful planning, however, the buyer can avoid the successor liability problem.

The successor liability rule, found in Wisconsin Statute Section 77.52(18), is:

“If a retailer liable for any sales or use tax sells his business or inventory or otherwise quits business, the retailer’s successors or assigns are required to withhold a sufficient amount of the purchase price to cover the tax obligations until the seller produces either (i) a receipt showing that the tax was paid or (ii) a certificate stating that no tax is due.”

This means that the buyer of a business or a stock of goods, including furniture, fixtures, equipment, and inventory must withhold purchase price money from the seller until the buyer receives a:

1) Receipt from the seller showing the tax was paid, or
2) Certificate stating that no tax is due.

If the buyer does not withhold purchase money until one of the two above is received, the buyer will be personally liable for unpaid tax to the extent of the purchase price.

This provision puts the burden of making sure that tax gets paid on the buyer of the business. The buyer must make sure that the taxes are paid or become liable for the debts. The buyer and seller cannot get rid of successor liability by contract. Successor liability is determined by law and no agreement between buyers and sellers can change this. Of course, a buyer and seller can agree that if the buyer ends up having to pay the seller’s tax, the seller will indemnify the buyer. This indemnification, however, gives the buyer recourse against the seller. It does not do anything to protect a buyer from liability to the Department of Revenue.

1 comment:

Anonymous said...

If the individual quits a business purchased by land contract and the previous owner takes it over would he be liable for unpaid sales tax under the succesor law?