Withholding on a Sale or Transfer of a Business or Substantial Portion of Business Assets
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Did you know if you acquire the assets of a business, you also acquire its (the payer’s) withholding tax liability? Under California law (RT&C Section 18669) the successor of business assets can be held personally liable for the amount of withholding taxes, interest, and penalties if not paid by the payer. It does not matter how the assets were acquired, whether purchased, transferred, inherited, or distributed in liquidation. The obligation to pay required withholding tax transfers with the assets. The successor’s liability is limited to the fair market value of the assets acquired.
As a successor, you are required to withhold in trust a sufficient part of purchase price or set aside in trust money or property to cover the amount of the taxes required to be withheld and any interest or penalties associated with the withholding tax obligation(s) that are due or unpaid by the business entity (payer).
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A successor can submit a written request to us for the amount of withholding taxes, interest, or penalties due. We have 60 days to issue a certificate or statement showing the amount due. The successor is then required to pay any required withholding taxes and any interest or penalties due or unpaid within 30 days after we issue a statement showing the amount due or on the day the business or assets are acquired, whichever occurs last. If a written request for a certificate is not made by the successor, the amount of withholding taxes, interest, or penalties due or unpaid is due the day the business or assets are acquired. If payment is not made by the due date, a 10 percent penalty, based on the payable amount, can be assessed.
If we do not issue a certificate or statement within the 60-day period after a successor submits a request, we are deemed to have issued a certificate stating no withholding taxes, interest, or penalties are due.
Whether or not we issue a certificate or statement within the 60-day period or collect amounts due from a successor, the business entity (payer) remains liable for the amount due, less any amounts we collected from any successor(s).
To request a certificate:
The successor of a California business, successor representative, escrow officer, or title officer may submit a written request for a bulk sale certificate. The written request can be faxed to 916.845.9034. The request must include the following information:
- Name of successor
- Complete successor’s mailing address
- Escrow company’s name
- Complete escrow company’s address, phone, and fax
- Escrow officer’s name
- Escrow number
- Sales price
- Estimated closing date
- Name of business being transferred
- Physical address of business
- Liquor license number (if any)
- Payer name
- Complete payer physical address
- State tax account number
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