Does filing the required bulk-sale notice, by itself, relieve the purchaser of all liability for the seller's unpaid sales taxes — and does timing matter?

Plain-English summary

The law firm Kleinberg, Kaplan, Wolff & Cohen, P.C. (New York, New York), representing clients buying the assets of corporations in bulk-sale transactions, asked whether filing the required bulk-sale notice relieves the purchaser of all liability for the seller's unpaid sales/use taxes — and whether it matters if the notice is filed at least ten days before the sale versus later than ten days before.

The answer: the notice alone is not a release — timely notice plus withholding the purchase money is what caps and protects the buyer.

• § 1141(c) requires a bulk-sale purchaser to notify the Tax Commission by registered mail at least ten days before taking possession or paying. The purchase money then carries a first-priority lien for the seller's taxes, and the buyer is forbidden to pay it over to the seller to the extent of the State's claim.
• If the buyer files timely and the Tax Commission (a) fails to assert a possible claim, or (b) fails within 90 days to state the total tax due, the buyer may release the withheld funds to the seller and is relieved of liability. If the Commission does state an amount within 90 days, the buyer pays it from the withheld funds and is then relieved. Either way the buyer's exposure is limited to the purchase price it withheld.
• If no notice is filed, or it is filed late, the buyer becomes personally liable for the seller's taxes — up to the higher of the purchase price or the assets' fair market value — even if it withheld nothing. (With a late filing, the Commission still has 90 days to state the amount, but the buyer's liability is personal and capped at the higher figure, not the purchase price.)
• So filing the notice by itself does not relieve the buyer of "any and all" liability. Timely filing protects the buyer from inheriting an unknown tax debt; a late filing at least forces the Commission to state the buyer's obligation within 90 days.

What this means for you

Buying a business? File the notice early and hold back the money. The protection in a bulk sale comes from two steps together: notifying the Tax Commission at least ten days ahead, and withholding the purchase price until the State either clears the deal or tells you what the seller owes.

Late or missing notice is the danger zone. Skip the notice, or file it late, and you can be personally on the hook for the seller's back taxes — up to the higher of what you paid or what the assets are worth — regardless of whether you held any money back.

The notice isn't a magic release. Don't assume mailing the form ends your exposure. It's the combination of timely notice and withholding, plus the 90-day Tax Commission response window, that actually limits your liability.

Common questions

Q: If I file the bulk-sale notice, am I off the hook for the seller's taxes?
A: Not by itself. You must also withhold the purchase money. Then, if the Tax Commission doesn't assert a claim or state an amount within 90 days, you can release the funds and are relieved; if it states an amount, you pay it from the withheld funds.

Q: What happens if I file the notice late?
A: You become personally liable for the seller's taxes, capped at the higher of the purchase price or the assets' fair market value — even if you withheld nothing. The Commission still has 90 days from your late notice to state the amount due.

Q: How long does the Tax Commission have to respond?
A: 90 days from receiving your notice. If it fails to notify you of the total tax due within that window (after a timely filing), you may pay the withheld funds over to the seller and are relieved of liability for the seller's taxes.

Citations and references

Statutes and authority:

• Tax Law § 1141(c) — bulk-sale rules: registered-mail notice at least ten days before the sale; first-priority lien on the purchase money; buyer's duty to withhold; 90-day window for the Tax Commission to state the tax due; and personal liability (capped at the higher of purchase price or fair market value) when notice is not filed or is late

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h80_198s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-80(198)S
Sales Tax
December 2, 1980

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S80070lB

On July 1, 1980, a Petition for Advisory Opinion was received from
Kleinberg, Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, New York, N.Y. 10017.
The issue raised by Petitioner is whether a purchaser in a bulk sale
transaction is relieved of any and all potential liability for any unpaid sales
or use taxes of the seller (other than any sales or use tax arising from the bulk
sale itself), where such purchaser files the notice of bulk sale required by
Section 1141(c) of the Tax Law (a) at least ten days prior to such sale and (b)
at a time later than ten days prior to such sale. Petitioner represents clients
who are contemplating the purchase of the assets of corporations in transactions
that will constitute bulk sale transactions.
Section 1141(c) of the Tax Law provides, in relevant part, that "Wherever
a person required to collect tax shall make a sale, transfer or assignment in
bulk of any part or the whole of his business assets, otherwise than in the
ordinary course of business, the purchaser, transferee or assignee shall at least
ten days before taking possession of the subject of said sale ...or paying
therefor, notify the tax commission by registered mail of the proposed sale and
of the price, terms and conditions thereof....
Whenever the purchaser...shall fail to give notice to the tax commission
as required by the preceding paragraph or whenever the tax commission shall
inform the purchaser... that a possible claim for such tax or taxes exists, any
sums of money, property or choses in action, or other consideration, which the
purchaser, transferee or assignee is required to transfer over to the
seller...shall be subject to a first priority right and lien for any such taxes
theretofore or thereafter determined to be due from the seller...to the state,
and the purchaser, transferee or assignee is forbidden to transfer to the
seller...any such sums of money, property or choses in action to the extent of
the amount of the state's claim. Within ninety days of receipt of the notice of
the sale...from the purchaser...the tax commission shall give notice to the
purchaser...and to the seller...of the total amount of any tax or taxes which the
state claims to be due from the seller...to the state, and whenever the tax
commission shall fail to give such notice to the purchaser...and the
seller...within ninety days from receipt of notice of the sale, transfer, or
assignment, such failure will release the purchaser...from any further obligation
to withhold any sums of money, property or choses in action, or other
consideration which the purchaser.. .is required to transfer over to the seller.
.... For failure to comply with the provisions of this subdivision the
purchaser... shall be personally liable for the payment to the state of any such
taxes theretofore or thereafter determined to be due to the state from the
seller...except that the liability of the purchaser...shall be limited to an
amount not in excess of the purchase price or fair market value of the business
assets sold...whichever is higher.... Upon receipt within the ninety days as
aforesaid of the notice of the total amount of the state's claim from the tax
commission, and demand for payment thereof, the purchaser...may make payment of
such claim to the state from any sums of money, property, or choses in action
withheld in accord with the provisions of this paragraph...and upon making the
payment, such purchaser...shall be relieved of all liability for such amounts to
the seller...and such amounts paid to the state shall be deemed satisfaction of
the tax liability of the seller...to the extent of the amount of such payment."

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

2
TSB-H-80(198)S
Sales Tax
December 2, 1980

Accordingly, a purchaser is not relieved of any and all potential liability
for unpaid taxes of the seller merely by filing the notice required by Section
ll4l(c) of the Tax Law. Rather, the timely filing of such notice, coupled with
the required withholding of funds described above, enables the purchaser to
become aware of existing and potential tax liabilities of the seller and to limit
his own liability therefor. That is, where the purchaser files a proper and
timely notice of bulk sale with the Tax Commission and the Tax Commission (a)
fails promptly to notify the purchaser of possible claims against the seller, or
(b) within 90 days from receipt of the notice of bulk sale fails to notify the
purchaser of the total amount of taxes due, the purchaser may turn over to the
seller the funds which are due the seller, and the purchaser is thereupon
relieved of any liability for taxes due to the State from the seller. If within
the 90 days the Tax Commission does notify the purchaser of the amount of taxes
due from the seller, the purchaser may pay such taxes from the funds withheld and
is thereupon relieved of all liability for the seller's taxes. The purchaser's
obligation to pay over funds to the Tax Commission is thus limited to the
purchase price, which he has withheld from the seller.
Where a notice of bulk sale is not filed or is filed late, the purchaser
becomes personally liable for taxes due from the seller, up to an amount equal
to the higher of the purchase price or the fair market value of the assets. Thus,
where a notice of bulk sale is filed late the Tax Commission has ninety days to
inform the purchaser of the total amount of tax due from the seller, and all of
the conditions outlined above apply except that (a) the purchaser is personally
liable for the taxes due, irrespective of whether or not he has withheld the
funds from the seller, and (b) the limit to his liability is not the purchase
price but the higher of the purchase price or the fair market value of the assets
involved.
Petitioner is therefore advised that the filing of the notice of bulk sale
required by the statute, whether timely or untimely, does not by itself relieve
a purchaser of any and all liability for taxes due from the seller. However, the
timely filing of such notice does protect the purchaser from inheriting an
unknown tax liability of the seller after completing a bulk sale transaction. The
filing of the notice after the time stated in the statute insures the purchaser
a statement of his obligations within ninety days of such filing, which
obligation may be met wholly or partially from withheld funds.

DATED: October 24,1980

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau