Tax Type
Retail Sales and Use Tax
Description
Successor Business Liability
Topic
Collection of Delinquent Tax
Persons Subject to Tax
Date Issued
10-11-2006
October 11, 2006
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the sales and use tax assessment issued to ***** (the "Taxpayer") for the period January 2002 through March 2003. I apologize for the delay in responding to your appeal.
FACTS
By the terms of the Sale and Purchase Agreement, the Taxpayer purchased the business assets of a tavern. The Taxpayer also purchased assets of the tavern from a third party debtor in possession. At the transfer of the business to the Taxpayer, the tavern left unsatisfied sales and use tax liabilities due to the Department. Because the tavern did not remit payment for such liability at the time of sale, the Department proceeded under the provisions of Va. Code § 58.1-629 and assessed the outstanding liability to the Taxpayer.
The Taxpayer contends that the tavern's outstanding tax liabilities are not its responsibility because the provisions of Va. Code § 58.1-629 do not apply to the Taxpayer's purchase of the tavern. In addition, the Taxpayer contends that it should not be held liable for the outstanding liabilities because: (1) the Department failed to file timely memoranda of lien against the tavern; (2) the online registration process failed to make the Taxpayer aware of the successor liability provisions; and (3) the Department has not fully pursued collection action against the tavern and its officers.
DETERMINATION
Successor Business Liability
Virginia Code § 58.1-629 provides that:
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If any dealer liable for any tax, penalty, or interest levied hereunder sells out his business or stock of goods or quits the business, he shall make a final return and payment within 15 days after the date of selling or quitting the business. His successors or assigns, if any, shall withhold sufficient of the purchase money to cover the amount of such taxes, penalties, and interest due and unpaid until such former owner produces a receipt from the Tax Commissioner showing that they have been paid or a certificate stating that no taxes, penalties, or interest is due. If the purchaser of a business or stock of goods fails to withhold purchase money as above provided, he shall be personally liable for the payment of the taxes, penalties, and interest due and unpaid on account of the operation of the business by the former owner,
Virginia Code § 58.1-629 and Title 23 of the Virginia Administrative Code (VAC) 10-210-3090, which interprets Va. Code § 58.1-629, clearly require any dealer that sells out his business or stock of goods or who quits the business to file a final return and pay any outstanding liabilities to the Department. The successor business may request a receipt or certificate from the Department that shows if the seller of a business has any outstanding tax liabilities, or the successor business must withhold from the purchase money any unpaid liability. If this does not occur, the successor business becomes liable for any tax liabilities left unpaid by the former business owner.
In this instance, the Sale and Purchase Agreement between the Taxpayer and the tavern clearly indicates in Exhibit C that the tavern had outstanding sales tax liabilities with the Department. Therefore, as a party to the agreement, the Taxpayer was aware or should have been aware of the tavern's outstanding sales tax liabilities. Based on the documentation and facts presented, it appears that the Taxpayer made no attempt to obtain written certification from the Department that the tavern had paid the outstanding liabilities prior to consummating the purchase of the business. In addition, the Taxpayer failed to withhold from the purchase money the amount of tax, penalties and interest due from the tavern. As such, the Taxpayer failed to follow the requirements of Va. Code § 58.1-629 and Title 23 VAC 10-210-3090.
The Taxpayer contends that the cited statute does not apply in this instance because a majority of the sale assets were purchased from the third party debtor who is not a dealer as contemplated in the statute. I do not agree. While certain assets of the tavern were purchased from the third party, the Sale and Purchase Agreement between the Taxpayer and the tavern constitutes the transfer of the remaining assets, properties, liabilities and warranties of the tavern's business. The tavern clearly quit and sold out its business in accordance with the agreement and was a dealer as defined under Va. Code § 58.1-612. Further, the transaction between the Taxpayer and the third party is not at issue here. The Department's assessment is based on the outstanding tax liability of the tavern as provided in the agreement between the Taxpayer and the tavern. Based on the statute and the Sale and Purchase Agreement, the tax liability of the tavern was properly assessed to the Taxpayer.
Other Issues
I am not persuaded by the Taxpayer's other arguments. The Taxpayer also contends that the Department's online registration form fails to provide information regarding successor liability and fails to elicit information from successor businesses concerning potential successor liability. This is true. There are, however, numerous resources available to the Taxpayer that provide information regarding successor liability such as the Code of Virginia, the Virginia Administrative Code and prior rulings of the Tax Commissioner, which are all found on the Department's website. In addition, the Department's Customer Services unit is available to answer questions regarding the sale of a business.
In regard to the Department's collection responsibilities, there is no requirement in Va. Code § 58.1-629 that the Department issue a memorandum of lien or exhaust all means of collection action against the seller prior to or subsequent to the sale of the business. The statute provides the Department an additional tool to collect outstanding liabilities from a dealer that is selling his business.
CONCLUSION
Based on the above determination, the assessment is correct. An updated bill with interest accrued to date will be sent to the Taxpayer under separate cover. No further interest will accrue provided the bill is paid within 30 days of the date on the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia and regulation sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Janie E. Bowen
Tax Commissioner
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AR/54141.i
Rulings of the Tax Commissioner