(a)
(1)
Failure by the
purchaser, transferee or assignee to withhold the funds from the
seller, transferrer or assignor makes the
purchaser, transferee or assignee
personally liable for the payment to the State of any and all sales and use
taxes, theretofore or thereafter determined to be due the State from the
seller, transferrer or assignor. Where the
purchaser, transferee or assignee
withholds the funds from the
seller, transferrer or assignor but fails to give
timely notice, the
purchaser, transferee or assignee is personally liable for
the payment to the State for any and all sales and use taxes (regardless of how
they arose), theretofore or thereafter determined to be due the State from the
seller, transferrer or assignor, except where the
purchaser is relieved of his
obligation to withhold the funds pursuant to the provisions of subdivision (c)
of section
537.3
of this Part.
(2) The
purchaser,
transferee or assignee is cautioned that when a properly filed
bulk sale notice
is received by the department more than 10 days prior to either the scheduled
date of sale or the actual date of sale, the department will deem the date or
receipt to be the 10th day prior to the later of the actual date of sale or the
scheduled date of sale indicated in the notice. Therefore, where a
bulk sale
notice is filed under these circumstances, the department will have more than
90 days from the date the department actually receives the notice to notify the
purchaser of any sales or use tax obligations owed by the
seller. Where a
revised notice is filed, the date of receipt or, if applicable, the deemed date
of receipt, of the revised notice will be used by the department in determining
the dates by which it must fulfill its obligations under subdivisions (a) and
(c) of section
537.6
of this Part. If the actual date of sale is earlier than the proposed date of
sale indicated in the notice, the
purchaser has the obligation to file a
revised notice of sale. The filing of a revised notice of sale may result in
the department using an earlier date in determining the dates by which it must
fulfill its obligations under subdivisions (a) and (c) of section
537.6
of this Part. However, the
purchaser should be aware that should he fail to
file a revised notice of sale, the department will not adjust the dates by
which it must fulfill its obligations under subdivisions (a) and (c) of section
537.6
of this Part even if the department becomes aware by some other means that an
earlier sale has occurred.
(b) In addition to any liability of the
seller, transferrer or assignor for taxes for which the purchaser is liable,
the purchaser is also liable for the sales taxes imposed upon the sale of any
tangible personal property included in the bulk sale, including penalties and
interest, except property purchased for resale or otherwise exempt by any
provisions of article 28 of the Tax Law.
(c) The liability of the purchaser,
transferee or assignee for taxes for which the seller is liable shall not,
however, exceed the sales price or the fair market value, determined as of the
date of the sale, transfer or assignment, of the business assets sold,
whichever is greater.
(d) The
following examples illustrate situations which may arise:
Example 1:On June 1, 1990 a purchaser notifies the
department that a bulk sale will take place on July 20, 1990. The notice of
sale is timely. However, since the notice was received more than 10 days prior
to the scheduled date of sale, the department will deem the date of receipt to
be July, 10 1990, the 10th day prior to the scheduled date of sale. Therefore,
the department will have until July 17th, 1990 to issue a notice of a possible
claim for sales and use taxes and until October 8, 1990 to assess the purchaser
for any sales and use tax liability owed by the seller.
Example 2:Assume the same facts as in example 1, except
that on July 5, 1990 the purchaser notifies the department that the sale date
was changed and actually took place on June 25, 1990. Provided that a notice of
possible claim for sales and use taxes owed by the seller has not already been
sent in response to the prior notice of sale, the department will have until
July 12, 1990 to issue such notice of possible claim. The department would then
have until October 3, 1990 to assess the purchaser for any sales and use tax
liability owed by the seller.
Example 3:Assume the same facts as in example 1, except
that the purchaser neglects to notify the department that the sale took place
earlier than the date indicated in the notice of sale. On July 2, 1990 the
department learns from a business publication that the sale took place on June
25, 1990. The department will still have until July 17, 1990 to issue a notice
of possible claim for taxes due, and have until October 8, 1990 to assess the
purchaser for any sales and use taxes owed by the seller.
Example 4:The seller of a business owes New York State
$5,000 in sales taxes (plus additional penalty and interest on such $5,000).
The purchaser gives timely notice but fails to withhold any funds from the
seller. The purchaser purchases all the business assets of the seller for
$100,000. Such assets have a fair market value of $90,000. The purchaser is
liable for only the $5,000 owed by the seller and the sales taxes, including
any penalty and interest, imposed on the sale of the tangible personal
property, the collection of which may be enforced against him in the same
manner as taxes imposed by article 28 of the Tax Law.
Example 5:Assume the same facts as in Example 4, except
that the purchaser has withheld the sales proceeds from the seller but has
failed to give timely notice. The Division of Taxation gives notice to the
purchaser of the total amount of taxes due from the seller within 90 days from
receipt of the notice (although untimely) by the purchaser. The purchaser is
required to pay the $5,000 (plus the sales taxes, including penalty and
interest, imposed on the sale of the tangible personal property) to the
Department of Taxation and Finance from the funds withheld, and may turn over
the balance to the seller. Upon payment of the $5,000 (plus the sales taxes,
including any penalty and interest imposed on the sale of tangible personal
property), the purchaser's liability to the Department of Taxation and Finance
is discharged. The seller will remain liable for any penalty and interest still
owed on the $5,000. If the liability for taxes due on the sale of the tangible
personal property is paid out of the seller's funds, the seller may collect
such amount from the purchaser.
Example 6:The seller of a business owes New York State
$150,000 in sales taxes (plus additional penalty and interest on such
$150,000). The purchaser purchases all the business assets of the seller for
$100,000. Such assets have a fair market value of $90,000 on the date of sale.
The purchaser fails to withhold any funds from the seller. The purchaser is
liable for $100,000, the amount of the purchase price (plus the sales taxes,
including any penalty and interest, on the sale of the tangible personal
property), the collection of which may be enforced against him in the same
manner as taxes imposed by article 28 of the Tax Law.
Example 7:Assume the same facts as in Example 6, except
that such assets have a fair market value of $140,000. The purchaser is liable
for $140,000, the fair market value (plus the sales taxes, including any
penalty and interest, imposed on the sale of tangible personal property), the
collection of which may be enforced against him in the same manner as taxes
imposed under article 28 of the Tax Law.
Example 8:Assume the same facts as in Example 6. The
purchaser withholds the $100,000 purchase price from the seller but fails to
give timely notice. The Division of Taxation gives notice to the purchaser of
the total amount of taxes due ($150,000) from the seller within 90 days from
the receipt of the notice (although untimely) by the purchaser. Although the
purchaser has withheld, he is liable for the $100,000, the amount of the
purchase price (plus the sales tax, including penalty and interest, imposed on
the sale of the tangible personal property), and may not release the funds to
the seller. The purchaser is required to pay the entire $100,000 in the funds
withheld to the Department of Taxation and Finance. Upon payment of the full
$100,000 by the purchaser, the seller remains liable for the balance or $50,000
($150,000 minus $100,000), plus penalty and interest on the $150,000 and, in
addition, the sales taxes, including any penalty and interest, imposed on the
sale of the tangible personal property. Upon payment of the $100,000 to the
Department of Taxation and Finance by the purchaser, the purchaser also remains
liable for the sales tax, including any penalty and interest, imposed on the
sale of the tangible personal property.
Example 9:Assume the same facts as in Example 8, except
that the fair market value is $140,000. The purchaser is required to make
payment of the entire $100,000 to the Department of Taxation and Finance. The
purchaser's remaining liability of $40,000 (plus the sales taxes, including any
penalty and interest, imposed on the sale of the tangible personal property)
may be enforced and collected against him in the same manner as the taxes
imposed by article 28 of the Tax Law.
Example 10:Assume the same facts as in Example 8 in which
the purchaser has withheld but has failed to give timely notice. Assume,
however, that the Division of Taxation has also failed to give notice to the
purchaser of the total amount of taxes due from the seller within 90 days from
the receipt of the notice (although untimely) by the purchaser. The purchaser
is discharged from his obligation to withhold the funds and may turn over such
funds to the seller. The purchaser remains liable for the sales taxes,
including any penalty and interest, imposed on the sale of the tangible
personal property.
Example 11:The individual proprietor of a business owes New
York State $120,000 in sales taxes plus penalty and interest. He decides to
retire from the business and transfers all his business assets by way of gift
to his son. The fair market value of the business assets at the time of
transfer is $100,000. The transferee fails to give notice of the transfer in
bulk to the Department of Taxation and Finance until after the transfer. The
Division of Taxation gives notice to the transferee of the total amount of
taxes due from the transferrer within 90 days from the date of receipt of the
untimely notice from the transferee. The transferee is personally liable for
$100,000, the fair market value of the transferred business assets.
Example 12:A corporation which operates a retail department
store through five locations decides to sell one of its locations and to
continue operating the remaining four. The corporation has been filing separate
sales tax returns for each location and has an outstanding sales tax liability
from one of the locations being retained. The sale of the one location is a
bulk sale. The purchaser fails to withhold the sales proceeds from the seller.
The purchaser is liable for the unpaid sales taxes of the corporation, up to
the purchase price or the fair market value of the business assets, whichever
is greater. It is immaterial that the liability arose from a location other
than that being purchased by the purchaser. The method the corporation utilized
to file returns is also not relevant in determining the purchaser's
liability.
(e) The
liability of the
purchaser, transferee or assignee is assessed and enforced in
the same manner as the liability for any tax imposed by article 28 of the Tax
Law. The
purchaser, transferee or assignee will not become personally liable
for the penalties and interest owed by the
seller, transferrer or assignor up
to the date of the sale. However, a
purchaser, transferee or assignee will be
liable for any penalties and interest which accrue on the derivative liability
of such
purchaser, transferee or assignee. Such penalties and interest will
begin to accrue five days after the date the notice of claim for taxes due and
demand for payment thereof is issued by the Division of Taxation.
Example 13:The owner of a business located in Albany, NY
sells its furniture and fixtures for $110,000. The purchaser does not withhold
the $110,000 or any portion of it, nor does he give notice of the intended sale
to the Department of Taxation and Finance but pays the entire $110,000 to the
seller on the date of sale, and takes possession of the furniture and fixtures
which have a fair market value, as of that date, of $150,000. Prior to the date
of sale, the seller had collected $140,000 in sales tax from his customers but
had failed to pay over that amount to the Department of Taxation and Finance.
Such taxes were then due and owing by the seller, together with penalty and
interest of $37,000 as of the date of sale. Accordingly, the total taxes,
penalties and interest due from the seller as of the date of sale, resulting
from the failure to pay over taxes collected by the seller, is $177,000. The
purchaser is liable for $140,000 (the total tax due from the seller). In
addition, both the seller and the purchaser are liable for the sales taxes
imposed on the sale of the furniture and fixtures to the purchaser, which tax
had not been paid. Such taxes amount to $7,700 ($4,400 in statewide taxes and
$3,300 in local taxes). Accordingly, the total amount of taxes owed by the
seller as of the date of sale is $184,700 ($177,000 plus $7,700) plus any
penalty and interest owed on the $7,700. The total amount of taxes owed by the
purchaser is $147,700 ($140,000, the amount of tax owed by the seller, plus
$7,700). The purchaser is also liable for any penalty and interest owed on the
$7,700. Subsequent to the sale, the liability of the purchaser becomes finally
and irrevocably fixed. At that time there has accrued additional interest of
$17,000 on the $140,000 taxes due from the seller by virtue of the failure to
pay over such taxes to the Department of Taxation and Finance in a timely
manner. An additional $2,940 penalty and interest has accrued on the taxes of
$7,700 which were imposed on the sale of the furniture and fixtures.
Accordingly, on the date that the purchaser's liability has become finally and
irrevocably fixed, the total taxes, penalty and interest due and owing by the
seller for tax not remitted prior to the date of sale amounted to $194,000
($140,000 taxes plus $54,000 penalty and interest), plus an additional $10,640
($7,700 taxes plus $2,940 penalty and interest). The purchaser is liable for
the latter amount of $10,640, since the purchaser purchased the furniture and
fixtures without paying the tax on such assets. The purchaser is also liable
for the $140,000 in tax owed by the seller plus the interest and penalties
which have accrued on the purchaser's derivative tax liability from the date
five days after the date of issuance of the notice of determination and demand
for payment.
(f) If the
purchaser, transferee or assignee establishes that his failure to timely pay:
(1) any amounts due with respect to his
derivative liability for any taxes owed by the seller; or
(2) any taxes due with respect to his
purchase of tangible personal property as part of his purchase in bulk of
business assets, was due to reasonable cause and not due to willful neglect,
the Department of Taxation and Finance may waive penalties and as much of the
interest as it is authorized to waive pursuant to law. Any such waiver with
respect to the purchaser, transferee or assignee, however, does not act as a
waiver on behalf of the seller, transferrer or assignor.
(g) Upon receipt by the purchaser, transferee
or assignee of the notice of the State's claim for taxes due and demand for
payment thereof, within the 90 days after receipt of a notice of sale, transfer
or assignment in bulk, the purchaser, transferee or assignee may make payment
to the State from the funds withheld. Where the total of the (1) sales taxes
due from the seller, plus (2) the sales taxes, including penalty and interest,
imposed on the sale of tangible personal property, is less than the amount
withheld, the purchaser, transferee or assignee may pay such total amount to
the State from the funds withheld. Where payment of the tax imposed on the sale
of tangible personal property to the purchaser, transferee or assignee is made
from the seller's, transferee's or assignee's funds, the seller, transferor or
assignor may collect such tax from the purchaser, transferee or
assignee.
(h) Upon payment to the
Department of Taxation and Finance of such total amount, the purchaser,
transferee or assignee is relieved of all liability for such amount and such
amount paid to the State is deemed satisfaction of the tax liability, and of
penalties and interest with respect to the taxes imposed on the sale of
tangible personal property, of both the purchaser, transferee or assignee and
the seller, transferrer or assignor to the extent of the amount of such
payment. Where such total amount exceeds the amount in the fund, the purchaser,
transferee or assignee may make payment to the State of the entire amount
withheld. In such case the purchaser, transferee or assignee and the seller,
transferrer or assignor are liable only to the extent set forth in this
Part.
(i) Where the
seller,
transferor or assignor makes part payment of his tax liabilty or where assets
of the
seller are levied or executed upon by the Department of Taxation and
Finance, and the remaining outstanding liability of the
seller for tax exceeds
the liability of the
purchaser, transferee or assignee, the
purchaser's,
transferee's or assignee's liability continues without diminution.
Example 14:The seller of a business owes New York State
$150,000 in sales taxes. The purchaser purchases all the business assets of the
seller for $100,000. The purchaser has failed to give timely notice or withhold
any funds from the seller. The purchaser is liable for $100,000, the amount of
the purchase price (plus the sales taxes, including any penalty and interest,
imposed on the sale of tangible personal property). The Department of Taxation
and Finance recovers $40,000 from the seller. Since the balance of the seller's
liability still due and owing is $110,000 (plus the sales taxes, including any
penalty and interest, imposed on the sale of any tangible personal property),
the purchaser is still liable for $100,000 (plus the sales taxes, including any
penalty and interest imposed on the sale of any tangible personal
property).
Example 15:Assume the same facts as in Example 14, except
that the amount recovered from the seller is $70,000. The seller's tax
liability remaining is $80,000 (plus the sales taxes, including any penalty and
interest, imposed on the sale of the tangible personal property). The
purchaser's liability is thus reduced to $80,000 (plus the sales taxes,
including penalty and interest, imposed on the sale of the tangible personal
property.
Example 16:Assume the same facts as in Example 14, except
that the Department of Taxation and Finance recovers $70,000 against the
purchaser. The purchaser's outstanding liability is thereby reduced to $30,000
(plus the sales taxes, including penalty and interest, imposed on the sale of
any tangible personal property) and the seller's total tax liability is also
reduced by $70,000.
(j)
Where there have been successive sales, transfers or assignments in bulk of
business assets, each successive
purchaser, transferee or assignee in bulk of
business assetswill acquire a derivative liability, up to the greater of the
consideration given or fair market value of the
business assets purchased, from
all previous sales, transfers or assignments in bulk to the
seller, transferrer
or assignor for which an outstanding liability still exists. This is true even
if the
business assets acquired by the successor
purchaser, transferee or
assignee are not the same assets involved in the previous transactions and even
if the successive bulk sales do not relate to the same business activity.
Example 17:A Corporation, the seller of a business, owes
New York State $150,000 in sales taxes. B Corporation, the purchaser, purchases
from the seller all of its business assets for $100,000. The assets have a fair
market value of $95,000. The purchaser, B Corporation, neither gives notice nor
withholds any funds from the seller. B Corporation is liable for $100,000, the
amount of the purchase price (plus the sales taxes, including penalty and
interest, imposed on the sale of tangible personal property).
Example 17:B Corporation now sells its business assets to C
Corporation for $200,000. Such assets have a fair market value of $95,000. C
Corporation also fails to give notice or withhold. At the time of the purchase
by C Corporation, its seller, B Corporation, fails to pay over $60,000 of sales
taxes which it collected from its customers. C Corporation, the purchaser, is
liable for the sales taxes owing by its seller, B Corporation. The taxes
include the following:
(1) the
$100,000 for which B Corporation was liable because of its failure to withhold
funds from A Corporation,
(2) the
$60,000 in sales taxes which were not paid over by B Corporation to the
Department of Taxation and Finance, and
(3) the sales taxes imposed on the sale of
tangible personal property from A Corporation to B Corporation. In addition, C
Corporation is also liable for the sales taxes imposed on the sale of tangible
personal property from B Corporation to C Corporation along with any related
penalties and interest.
Example 18:Assume the same facts as in Example 17, except
that the purchase price paid for the business assets by C Corporation was
$90,000. C Corporation is liable for $95,000, the fair market value of the
assets, plus the sales taxes, including any penalty and interest, imposed on
the sale of the tangible personal property from B Corporation to C
Corporation.
Example 19:P Corporation, which operated a grocery store
for 3 years, sells all of its business assets to Q Corporation for $100,000.
The assets have a fair market value of $95,000. Q Corporation does not notify
the Department of Taxation and Finance of the sale until after it has taken
place, neither does Q Corporation withhold any funds. Because P Corporation
fails to respond to the Division of Taxation's request that P provide the books
and records relating to its operation of the grocery store, an estimated
assessment of $75,000 in tax is issued against P Corporation. An assessment for
$75,000 is also issued against Q Corporation which is liable for such amount as
purchaser from P. Q Corporation now sells all of its business assets, which
have a fair market value of $95,000, to R Corporation for $100,000. R
Corporation does not notify the Department of Taxation and Finance of the sale,
nor withhold any funds. R Corporation is liable for the $75,000 for which Q is
liable.
Example 19:At a prehearing conference, Q Corporation
reaches a settlement agreement with the Division of Taxation under which Q
Corporation's liability is reduced to $50,000 in taxes. Q Corporation pays the
$50,000 in taxes, plus the appropriate interest and penalty, and is released
from any further liability for P Corporation's taxes. The release of Q
Corporation from liability for the taxes owed by P releases R Corporation from
liability for any taxes which Q Corporation is required to remit.
Example 20:X, a sole proprietor, sells the convenience
store she operates to Y Corporation for $40,000. At the time of the bulk sale,
the Division of Taxation conducts an audit of X and determines that she owes
$4,000 in sales and use taxes relative to her operation of the store. X does
not pay the tax liability and Y Corporation fails to withhold and pay over to
the Department of Taxation and Finance the proceeds of the bulk sale. Y
Corporation has a derivative liability for the $4,000 in tax owed by X. After
purchasing the grocery store, Y Corporation decides to expand and opens two
more locations. A year later, Y Corporation sells one of the new locations to Z
for $60,000. The $4,000 derivative liability from the bulk sale by X is still
outstanding. Even though the business assets sold by Y Corporation to Z are not
the same assets that X sold to Y Corporation, Z is still required to withhold
and pay over to the Department of Taxtion and Finance the $4,000 in tax owed by
Y Corporation as a result of the bulk sale from X to Y.
(k) The purchaser is also subject
to the liabilities and remedies imposed under the provisions of article 6 of
the Uniform Commercial Code, where such article is applicable to the
transaction.
(l) The
purchaser is
not excused from any obligation or liability on his or her part, either because
of the
seller's failure to comply with the
seller's obligations set forth in
section
537.5
of this Part or by virtue of the failure of the Department of Taxation and
Finance to comply with the provisions of subdivision (f) of section
537.6
of this Part (which subdivision relates to the issuance of bulk sales
certificates).
