N.Y. Comp. Codes R. & Regs. tit. 20 § 537.4

Current through Register Vol. 46, No. 45, November 2, 2024

Section 537.4 - Purchaser's, transferee's or assignee's liability

(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).

N.Y. Comp. Codes R. & Regs. Tit. 20 § 537.4