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Lawletter No. 164 Business buyer should get tax clearance before closing If you are buying any business subject to sales taxes, be sure you obtain copies of the tax clearance from the Board of Equalization before you close escrow. Otherwise, you might wind up holding the bag for the seller's unpaid taxes. Governing law: California Revenue & Taxation Code section 6811 and 6812 provide that the purchaser of a business must withhold a sufficient amount from the purchase price to cover any tax due. The buyer is relieved from this obligation at such time as the seller produces a written clearance from the Board of Equalization indicating that no tax is due. If the buyer pays the seller, or releases funds from escrow before such clearance is received, then the buyer becomes personally liable for payment of the unpaid tax to the extent that he has paid the seller. Recommended procedures: As a general rule, most, if not all, of the money that the buyer pays to take over a station should go through an escrow. The buyer should not consent to the release of the funds until he is satisfied that the taxes have been paid. As we have repeatedly stated in these pages , both the buyer and the seller should have good legal representation and advice in any service station franchise assignment transaction. For more on escrows from the buyer's perspective, see Lawletter No. 153. |
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