Recently, the Supreme Court of New York, Third Division (Court) held that Andrew Carlson (Petitioner), sole owner of Best Wings, LLC (Wings), Professional Hospitality, LLC (Hospitality) and Great Food Great Fun, LLC (Food) is liable for sales tax for not timely filing a bulk sale notice related to an asset transfer within related companies.
“Special rules and procedures must be followed when a bulk sale transaction takes place to ensure the purchaser is not held personally liable for any ... seller’s unpaid sales or use taxes.”
transaction timeline
In 2008, Wings acquired the assets of two restaurants. However, the New York Division of Taxation and Finance (Division) did not receive notice of the bulk sale purchases until November 2012 when Wings filed two notices of bulk sale pursuant to NY Tax Law § 1141(c). A similar situation occurred in December 2012 when Hospitality and Food informed the Division of additional bulk sale purchases that occurred in 2011.
In February 2013, the Division issued notices of determination to Wings advising that it was liable for the outstanding sales tax liability as a bulk sale purchaser related to the 2008 transactions, and then also sent notices to Hospitality and Food as bulk sale purchasers.
untimely notice
In reaching its decision, the Court determined that Petitioner did not qualify for the bulk sale exemption from sales tax because he did not notify the Division of the bulk sale at least 10 days before the sale occurred. Petitioner argued that because the bulk sale liability is not a collected tax or a sales tax liability, the Division could not impose bulk sale liability against the responsible party of a purchasing or transferee entity under Tax Law § 1141.
bulk sale notice
However, the Court stated that the failure to comply with the 10 day notice requirement of Tax Law § 1141 allows for the purchaser, transferee, or assignee to be held personally liable for the tax due in keeping with the intent of the law to “preserve the state’s indisputable right to collect taxes which could otherwise be extinguished by the simple expedient of taxpayer transferring its assets.” (Matter of North Shore Cadillac-Oldsmobile, Inc. v Tax Appeals Trib. of State of N.Y., 13 A.D.3d 994 (2004).
takeaway
All corporate restructuring and reorganization has tax implications. Through strategic tax planning in advance of a deal closing, certain tax liabilities can be avoided. Let the tax professionals with the requisite experience guide you through the process. Remember, time is of the essence.