Can a buyer avoid South Carolina's tax lien on transferred business assets by obtaining a transferor affidavit?

Plain-English summary

South Carolina Revenue Ruling #04-2 explained how a buyer or other transferee could address the tax-lien and licensing risk created when business assets change hands.

Under the ruling, a transfer of a majority of a business's assets, measured by fair market value, could place the transferor's unpaid business-tax liability against the assets in the transferee's hands. The Department could also withhold or revoke a license to continue the business until the state taxes were settled.

The ruling distinguished two protections:

• A Transferor Affidavit was available when the property was not a business asset or the transfer did not include a majority of the business assets across related or planned transfers. It was valid for 30 days from signing.
• A Certificate of Compliance was the protection for a transfer of a majority of business assets or a business sale. It was valid when obtained no more than 30 days before the transfer.

Neither document cleared liens already imposed by other statutory or judicial means, such as a preexisting real-property-tax lien. The transferor also remained responsible for filing returns and paying the tax.

What this means for you

Buyers of business assets

Do not count assets; compare their fair market value. Also consider related or planned transfers together. A series of sales to different buyers could still amount to a transfer of the whole business.

Sellers and transaction advisers

The affidavit was for a seller certifying that the transferred property was not business property or was less than a majority of the business assets. A substitute affidavit was acceptable only if it contained all required information.

Buyers of rental property

The ruling used federal income-tax principles to decide whether a mixed-use vacation home was a business asset. It also warned that a buyer from a nonresident seller might separately have South Carolina income-tax withholding duties.

Common questions

Q: How long was a Transferor Affidavit valid?
A: Thirty days from the date the transferor signed it, with the transfer required to occur within that period.

Q: Could an affidavit replace a certificate for a majority-business-asset transfer?
A: No. The ruling treated a timely certificate of compliance as necessary to protect the transferee when a majority of the business assets was transferred.

Q: Were several related transfers tested separately?
A: No. Related or planned transfers could be considered together, even if they occurred over time or involved several transferees. Unrelated transfers were not aggregated.

Q: Did either document eliminate all existing liens?
A: No. The ruling expressly excluded liens placed on the assets before the transfer through other statutory or judicial means.

Citations and references

• S.C. Code Ann. § 12-54-124 — transferred-business-asset lien and licensing provisions
• S.C. Code Ann. § 12-36-530 — business-sale lien referenced in the certificate discussion
• S.C. Code Ann. § 12-6-30(10) — definition of “business”
• S.C. Code Ann. § 12-8-580 — nonresident seller withholding warning
• IRC §§ 162 and 280A — federal business and mixed-use-home concepts used by the Department

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR04-2.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org
SC REVENUE RULING #04-2
SUBJECT:

“Transferor Affidavit” Exception to Code Section 12-54-124 Upon the
Transfer of Certain Assets

EFFECTIVE DATE: June 18, 2003
REFERENCES:

S. C. Code Ann. Section 12-54-124 (Enacted June 18, 2003)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2000)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public and
to Department personnel. It is a written statement issued to apply
principles of tax law to a specific set of facts or a general category of
taxpayers. A Revenue Ruling is an advisory opinion; it does not have
the force or effect of law and is not binding on the public. It is,
however, the Department’s position and is binding on agency personnel
until superseded or modified by a change in statute, regulation, court
decision, or advisory opinion.

Effective June 18, 2003, Act No. 69 (Section 3Y) added Code Section 12-54-124 concerning a
tax lien placed on assets transferred for tax liabilities that were generated by the transferor on or
before the date when a majority of the business assets are transferred, the non-issuance of a
license by the Department to the transferee until all taxes have been paid, and an exception to
these rules if a certificate of compliance is timely obtained by the transferee from the
Department. The new statute reads:
In the case of the transfer of a majority of the assets of a business, other than cash,
whether through sale, gift, devise, inheritance, liquidation, distribution, merger,
consolidation, corporate reorganization, lease or otherwise, any tax generated by the
business which was due on or before the date of any part of the transfer constitutes a lien
against the assets in the hands of a purchaser, or any other transferee, until the taxes are
paid. Whether a majority of the assets have been transferred is determined by the fair
market value of the assets transferred, and not by the number of assets transferred. The
department may not issue a license to continue the business to the transferee until all
taxes due the State have been settled and paid and may revoke a license issued to the
business in violation of this section.
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This section does not apply if the purchaser receives a certificate of compliance from the
department stating that all tax returns have been filed and all taxes generated by the
business have been paid. The certificate of compliance is valid if it is obtained no more
than thirty days before the sale or transfer.
The purpose of this advisory opinion is to answer some common questions that have arisen in the
application of this new law and to explain a method by which a transferee who is not receiving
business assets, or where the transferor is not transferring a majority of the assets of a business in
this and other related or planned transfers, may have assurance that the Department will not
assert that Code Section 12-54-124 placed a lien against the assets in the hands of the transferee,
and if applicable, the Department will not refuse to issue a license and will not revoke a license
based upon Code Section 12-54-124.
The statute provides that the law does not apply if a transferee receives a timely certificate of
compliance. This advisory opinion sets forth a mechanism whereby the law will also not apply in
certain situations even if a transferee does not obtain a certificate of compliance. In the
Department’s opinion, it was not the legislative intent of this statute to impede the sale of assets
or expect the transferee to always know whether business assets or a majority of the assets of a
business are being transferred. Accordingly, the Department has determined in the situations
described below that it will not assert that Code Section 12-54-124 applies if a valid “Transferor
Affidavit” is obtained. In such situations, the Department will not place a lien against the assets
in the hands of the transferee, and the Department will not refuse to issue and will not revoke a
license based upon Code Section 12-54-124. The Department, however, will pursue the
transferor if the transferor does not file all applicable returns and pay its tax liabilities. Note:
Neither Code Section 12-54-124, a “Certificate of Compliance,” nor the “Transferor Affidavit”
protect the transferee from a lien placed on the assets prior to the transfer by other statutory or
judicial means. For example, the transferee is not protected from a lien existing on the property
due to nonpayment of real property taxes.
Question 1 – Transferor Affidavit
Q. If the transferor asserts that the assets transferred are not business assets or do not constitute a
majority of its business assets, then how may a transferee be protected from the provisions of
Code Section 12-54-124?
A. The transferee can obtain from the transferor a “Transferor Affidavit.” The purpose of this
affidavit is to protect the transferee who is not receiving business assets or where the
transferor is not transferring a majority of the assets of a business in this and other related or
planned transfers from a tax lien that may be placed on the assets transferred pursuant to
Code Section 12-54-124 if the transferor does not file all applicable returns or pay all of its
South Carolina tax liabilities. The “Transferor Affidavit” is valid for 30 days from the date
signed by the transferor. In other words, if the transferee obtains a valid “Transferor
Affidavit” and the transfer takes place during this 30 day period, then the Department will
not assert that Code Section 12-54-124 placed a lien placed against the assets in the hands of
the transferee, and if applicable, the Department will not refuse to issue a license and will not
revoke a license based upon Code Section 12-54-124. Note: Neither Code Section 12-542

124, a “Certificate of Compliance,” nor the “Transferor Affidavit” protect the transferee from
a lien placed on the assets prior to the transfer by other statutory or judicial means. For
example, the transferee is not protected from a lien existing on the property due to
nonpayment of real property taxes.
A form “Transferor Affidavit” is attached to this advisory opinion. This affidavit may be used or
a substitute affidavit is acceptable in lieu of this affidavit provided all information is reflected on
the substitute affidavit.
Question 2 – Certificate of Compliance
Q. What is the difference between a “Transferor Affidavit” and a “Certificate of Compliance?”
A. The purpose of a timely certificate of compliance is to protect the transferee from a tax lien
that may be placed on the business assets transferred pursuant to Code Sections 12-54-124
and/or 12-36-530 when a majority of the assets of a business are being transferred or
when a business is sold, even if the transferor did not file all applicable returns and pay all
of its South Carolina tax liabilities. Note: Neither Code Section 12-54-124, a “Certificate of
Compliance” nor the “Transferor Affidavit” protects the transferee from a lien placed on the
assets prior to the transfer by other statutory or judicial means. For example, the transferee is
not protected from a lien existing on the property due to nonpayment of real property taxes.
A certificate of compliance issued prior to the transfer is valid for 30 days from the date it is
issued by the Department. If the transfer takes place during this 30 day period, then the
Department will not assert that Code Section 12-54-124 placed a lien against the assets in the
hands of the transferee, and if applicable, the Department will not refuse to issue a license
and will not revoke a license based upon Code Section 12-54-124. See SC Revenue
Procedure #03-5, “Certificate of Compliance Exception to a Lien Placed on Assets
Transferred,” for additional information on the procedure to use if requesting a certificate of
compliance from the Department, and the applicability of the certificate of compliance to
liens placed against the sale of any business pursuant to Code Section 12-36-530. Note: The
transferor still remains liable for filing all applicable returns and paying all of its South
Carolina tax liabilities even if a certificate of compliance is provided to the transferee.
Question 3 – Definition of “Business”
Q. What is a business?
A. Since Code Section 12-54-124 does not contain a definition of “business,” it is the
Department’s opinion that relying on the common meaning of “business” for income tax
purposes is reasonable when interpreting the provisions of Code Section 12-54-124. In South
Carolina’s Income Tax Act, Code Section 12-6-30(10) defines “business” to include trade,

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profession, occupation, or employment. Further, South Carolina has adopted many of the
provisions of the Internal Revenue Code, such as Internal Revenue Code Sections 162 1 and
280A. 2
In determining whether a transferor is engaged in a “business,” and subject to the provisions of
Code Section 12-54-124 upon the transfer of a majority of the business assets in this and other
related or planned transfers, the Department will apply income tax principles in Chapter 6 of
Title 12 and Internal Revenue Code principles that have been adopted, such as Code Sections
162 and 280A.
For example, in determining if the transferor of a vacation home that has both personal use and
rental use is a “business” subject to the provisions of Code Section 12-54-124, the Department
will look to the federal income tax concepts in Internal Revenue Code Section 280A. 3 In
general, if Section 280A limits the deduction of the vacation home rental expenses, then it is the
Department’s opinion that there is not a transfer of “business” assets subject to the provisions of
Code Section 12-54-124. The transferor may furnish the transferee a “Transferor Affidavit”
stating that the vacation home transferred is not a business asset; a certificate of compliance is
not necessary.
Alternatively, if Section 280A does not limit the deduction of the vacation home rental expenses,
including depreciation, then it is the Department’s opinion that there is a transfer of “business”
assets. Since this is the only vacation home owned by the transferor in this example, the transfer
would be a transfer of a “majority of the business assets” and would be subject to the provisions
of Code Section 12-54-124. A certificate of compliance is necessary to protect the transferee
from the lien provisions of Code Section 12-54-124.
Note: Even if the transferee receives a “Transferor Affidavit” or certificate of compliance, the
transferee should note that if he is purchasing real property from a nonresident seller that he may
be required to withhold income taxes from the nonresident seller. See Code Section 12-8-580
and SC Revenue Advisory Bulletin #02-6 for more information.

1

Internal Revenue Code Section 162, “Trade or Business Expenses,” allows a deduction for
ordinary and necessary expenses paid or incurred during the taxable year that are directly
connected with or pertaining to the taxpayer’s business.
2
Internal Revenue Code Section 280A, “Disallowance of Certain Expenses in Connection with
Business Use of Home, Rental of Vacation Homes, etc.” provides limitations on the amount of
deductions that may be taken in connection with the rental of a residence or vacation home that
is also used as a residence of the taxpayer.
3
Note: Any person who makes short term rentals of real estate will be liable for accommodations
tax on his rentals whether or not the rentals constitute a business as defined by this advisory
opinion. See Code 12-36-910 and 12-36-510.
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Question 4 – Definition of “Majority of the Assets of a Business”
Q. What is the transfer of a majority of the assets of a business?
A. Code Section 12-54-124 provides that the fair market value of the assets is used to determine
whether a majority of the assets have been transferred. The number of assets transferred is
not used to make this determination.
Generally, a legal entity is one business, but it is possible for a legal entity, i.e., corporation,
limited liability company, etc., to contain more than one discrete business enterprise. For
example, a company owns six grocery stores having equal fair market value. If the company
transfers the business assets of two of the grocery stores, then it is the Department’s opinion
that the provisions of Code Section 12-54-124 would not apply since a majority of the
business assets are not being transferred. The transferor may furnish the transferee a
“Transferor Affidavit” stating that a majority of the business assets, based on fair market
value, are not being transferred in this transfer and other related or planned transfers. See SC
Revenue Advisory Bulletin #01-1 for guidance in determining when a legal entity contains
one or more discrete businesses.
Question 5 – Definition of “Transfer”
Q. Does the statute apply even if the planned or related transfers occur over a period of time or
involve more than one transferee?
A. Yes, neither the period of time to complete the transfer nor the number of transferees
involved affects the application of the law. For example, a company liquidating its retail
business may transfer all the assets of the business over a period of time to several different
persons, or the business may use an auctioneer to sell all of the business assets in one day. In
either case, the provisions of Code Section 12-54-124 apply. The transferee can request the
transferor provide a timely certificate of compliance. See SC Revenue Procedure #03-5,
“Certificate of Compliance Exception to a Lien Placed on Assets Transferred.” Unrelated
transfers will not be aggregated.
Question 6 - Applicability to Foreclosures
Q. Is this provision applicable to foreclosures?
A. A foreclosure is a forced sale by a court. If: (1) the Judge finds that Code Section 12-54-124
is inapplicable, (2) the party whose assets are being foreclosed completes a “Transferor
Affidavit,” or (3) the transferee obtains a timely certificate of compliance, then the
Department will not assert that Code Section 12-54-124 placed a lien against the assets in the
hands of the transferee, and if applicable, the Department will not refuse to issue a license
and will not revoke a license based upon Code Section 12-54-124.

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SOUTH CAROLINA DEPARTMENT OF REVENUE
s/Burnet R. Maybank III
Burnet R. Maybank III, Director
Columbia, South Carolina
, 2004
March 2

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Transferor Affidavit
Tax Lien Inapplicable
SC Code Section 12-54-124
The undersigned transferor hereby certifies as follows:

1. This affidavit is being given in connection with a transfer of property to assure the transferee
   that the Department will not assert that Code Section 12-54-124 placed a lien against the
   assets in the hands of the transferee, and if applicable, the Department will not refuse to issue
   a license and will not revoke a license based upon Code Section 12-54-124. This affidavit
   issued for purposes of Code Section 12-54-124 is valid for 30 days from the date signed.
   It is understood that this affidavit does not protect the transferee from a lien placed on the
   assets prior to the transfer by other statutory or judicial means, or relieve the transferor of his
   liabilities to pay all of its taxes or file all applicable returns, and that it does not protect the
   transferee from the Department refusing to issue a license, or revoking a license, for any
   other reason. For example, the transferee is not protected from a lien existing on the property
   due to nonpayment of real property taxes.
2. The undersigned is the transferor of the assets described in the attached description.
3. The Transferor’s name is

4. The Transferor’s address is

5. The Transferor’s taxpayer identification number is

6. Date of Transfer
7. The Transferee’s name is
8. The Transferee’s address is

I hereby certify the following concerning the transfer (check appropriate box):
□ The assets transferred are not business assets.
□ Less than a majority of the business assets, based on fair market value, are being transferred in
this and other related or planned transfers.

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The undersigned authorizes the delivery and disclosure of this affidavit to the South Carolina
Department of Revenue and acknowledges that any false statement contained herein is
punishable by fine, imprisonment, or both. Recognizing that I am subject to the criminal
penalties under Code Section 12-54-44(B)(6)(a)(i), I declare that I have examined this affidavit
and to the best of my knowledge and belief it is true, correct, and complete.

Signature

Date

Name – Please Print

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Instructions
Transferor Affidavit - SC Code Section 12-54-124

Purpose of Transferor Affidavit
The purpose of this affidavit is to provide assurance to the transferee who is not receiving
business assets or where the transferor is not transferring a majority of the assets of a business in
this and other related or planned transfers that the Department will not assert that Code Section
12-54-124 placed a lien on the assets in the hands of the transferee, and if applicable, the
Department will not refuse to issue a license and will not revoke a license based upon Code
Section 12-54-124. Caution: This affidavit does not protect the transferee from a lien placed on
the assets prior to the transfer by other statutory or judicial means, or relieve the transferor of his
liabilities to pay all of its taxes or file all applicable returns.
Who May Execute this Affidavit
Any transferor who is not transferring business assets or not transferring a majority of the assets
of a business based on the fair market value in this and other related or planned transfers may
give this affidavit to each transferee to provide assurance that the Department will not assert that
Code Section 12-54-124 placed a lien on the assets in the hands of the transferee if the transferor
has South Carolina tax liabilities or has not filed all applicable returns. The Department will
pursue the transferor if the transferor did not file all applicable returns or pay all of its tax
liabilities.
Note: A transferor who is transferring a majority of the assets of a business may provide each
transferee with a timely certificate of compliance before finalizing the transfer to provide
assurance that the Department will not assert that Code Section 12-54-124 placed a lien on the
assets transferred. See SC Revenue Procedure #03-5, “Certificate of Compliance Exception to a
Lien Placed on Assets Transferred,” for additional information.
Reliance on Transferor Affidavit
The “Transferor Affidavit” is valid for 30 days from the date signed by the transferor.
Accordingly, if the qualifying transfer takes place during this 30 day period, then the Department
will not assert that Code Section 12-54-124 placed a lien on the assets in the hands of the
transferee, and if applicable, the Department will not refuse to issue a license and will not revoke
a license based upon Code Section 12-54-124. The transferee may rely on the “Transferor
Affidavit” if the transferee does not know the affidavit is false.
When and Where to Execute this Affidavit
The transferor should fully complete this affidavit and submit it directly to each transferee. Each
transferee should retain the affidavit and provide it if requested during audit. This affidavit
should not be remitted to the Department until it is requested by the Department.

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