Document Number
07-64
Tax Type
Retail Sales and Use Tax
Description
Seller did not pay outstanding liabilities before selling business. New owner liable
Topic
Collection of Delinquent Tax
Persons Subject to Tax
Records/Returns/Payments
Date Issued
05-10-2007


May 10, 2007



Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter in which you seek correction of retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period May 2002 through February 2004. I apologize for the delay in responding to your letter.

FACTS


The Taxpayer acquired the business assets of another company ("Seller") on March 1, 2004. A subsequent audit revealed that tax had not been remitted on purchases made during the audit period (prior to the Taxpayer's acquisition of the Seller). The Taxpayer was assessed use taxes for that period. The Taxpayer contests such action, contending that any liability rests with the prior owner and the Department should seek payment from the prior owner.

DETERMINATION


Virginia Code § 58.1-629 provides that:
    • 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 fifteen 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 ... If the purchaser of a business or stock of goods fails to withhold the 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 any 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 agreement between the Taxpayer and the Seller clearly indicates in paragraph 1 that the Taxpayer agreed to reduce the liabilities held by the Seller. Furthermore, paragraph 1 of the agreement states that the Taxpayer will use a combination of receivables and unbilled work in progress to retire all current debt held by the Seller.

Based on the documentation and facts presented, it appears that the Taxpayer made no attempt to obtain written certification from the Department that the Seller had paid the outstanding liabilities prior to consummating the purchase of the business assets. In addition, the Taxpayer failed to withhold from the purchase money, the amount of tax and interest due from the Seller. As such, the Taxpayer failed to follow the requirements of Va. Code § 58.1-629 and Title 23 VAC 10-210-3090. This determination is consistent with Public Document 99-297 (11/15/99), which addresses a situation similar to that presented in this case.

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 its payment to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attn: *****.

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 ***** at *****.
                • Sincerely,

                • Janie E. Bowen
                    • Tax Commissioner
AR/56140i

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46