California is synonymous with taxes! When buying or selling a business, it is important to know if the company you are buying or selling is up to date in paying its tax liabilities. California code holds the successor to a business transaction personally liable for the payment of taxes, interest, and penalties due – plus a 10% penalty for amounts not paid at the transaction’s closing day. The successor’s liability is limited to the fair market value of the acquired assets or business.
That leads to an important step in a business transaction – the “Tax Clearance Certificate.” First, the successor can submit a written request to the California income tax agency, the Franchise Tax Board (FTB). Then, they will issue a certificate in response to the request, stating the amount of taxes, interest, or penalties that are due, or none if that is the case.
The FTB has up to 60-days to issue the certificate. If the FTB fails to respond in 60-days, it shall be deemed equivalent to issuing a certificate stating that no tax, interest, or penalties are due.
If the business purchase and sale is an asset sale and you comply with the bulk asset sale provisions, you can request a ‘Bulk Sale Certificate”. That releases a business’s withholding tax liability. A certificate can be issued to the escrow holder if the businesses don’t owe a withholding tax.
Do you want to know how this will help you buy or sell your business? Then, click the link below and schedule a free consultation with JPink Law.