If you are buying a business in Georgia, you will want to obtain tax clearance from the state to make sure you are not taking on the seller’s outstanding tax liability. Buyers often assume that if they acquire a business through an asset purchase as opposed to a stock sale then they will not be responsible for any of the seller’s unpaid taxes. However, most states have successor liability rules that allow the transfer of certain tax liability to the buyer even in an asset purchase. Often this type of successor liability is limited to sales and use tax and other excise taxes that a seller collects on behalf of the state.
Obtaining a tax clearance letter from the state is important assurance for a buyer in an asset or a stock purchase that they are not taking on unpaid tax liabilities of the seller. In addition to obtaining tax clearance from the state, a buyer of a Georgia business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
A tax clearance letter (known in Georgia as a tax clearance certificate) states that there a business has no unpaid sales taxes, withholding taxes, or various other state taxes. Under Georgia law, the buyer of a Georgia business can be held liable for the business’s unpaid sales or withholding tax up the amount of the purchase price of the business. Georgia law also states that the buyer must hold back the amount of any unpaid taxes from the purchase price. A tax clearance certificate can provide the buyer with substantial proof that the business has no unpaid taxes.
Certificates of compliance are issued for businesses structured as corporations. In the case of other forms of business, such as partnerships or typical LLCs, taxes are paid directly by the owner (such as the partners or LLC members) and so there are no certificates of compliance for these forms of business.
Certificate of compliance are issued by the Georgia Department of Revenue (DOR). Use Form TSD-10, Application for Tax Clearance Certificate, to make the request. Forms may be submitted by U.S. mail or email. Requests must come from an owner or officer of the business. That means that if you are the buyer, you will need the cooperation of the current owners to obtain a certificate. The person completing the form should review it carefully: there are checkboxes for various important items, such as whether the business makes retail sales in Georgia and whether it has employees in Georgia.
For more information, check the DOR’s successor liability webpage.
If you are buying a Georgia business, you’ll also want to make sure the assets you are acquiring are not subject to any liens. You can do this by checking the state’s public records for creditor financing statements. This gives you notice of what secured debt you’ll be acquiring (if any) related to the business’s equipment, inventory, and possibly other items. You will want to do this whether you are buying the business in an asset or stock purchase.
You can do a UCC search on a website maintained by the Georgia Superior Court Clerks' Cooperative Authority (GSCCCA). To use the GSCCCA site you must first register online — including provide a current email address — to create an account. There are several types of accounts; all but one type (the limited-use account) incur some kind of fee. Apart from its UCC search site, the GSCCCA also maintains websites to search for several other kinds of liens.
If you are buying a business, there are other possible kinds of business debt not covered here that you might want to investigate, particularly in a stock acquisition. This could include, for example, unpaid local taxes, guarantees, or other private contractual obligations.
For all the essential information about buying or selling a business, get The Complete Guide to Buying a Business (Nolo) and The Complete Guide to Selling a Business (Nolo), both by Fred S. Steingold.