Buying a Business in Kansas: How to Avoid Assuming Tax Liability

Find out how to get a tax clearance letter and check for UCC liens in Kansas.

If you are buying a business in Kansas, 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 Kansas business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.

Tax Clearance Letter (Tax Clearance Certificate)

A tax clearance letter (also known in Kansas as a tax clearance certificate) is an official statement that a business or an individual taxpayer currently is in good standing with the Kansas Department of Revenue (DOR). A certificate covers taxes due to the DOR, also taxes, fees, and payments due to the Kansas Department of Labor, and other fees due to to other state agencies. The buyer of a Kansas business can be held responsible for the seller’s unpaid taxes and fees.

A request for a tax clearance certificate must come from:

  • the business owner
  • a corporate officer, office manager, or other appointed official of the company
  • an individual who has notarized authorization from the business owner or officer to request and receive tax information (provide a paper copy; online application cannot be used); or
  • an individual who has statutory authority or legal power of attorney to request and receive tax information on behalf of the business (provide a paper copy; online application cannot be used).

Information in response to a request is considered confidential and only released to the same kind of person who can request the clearance. As is clear from the foregoing list, if you are buying a Kansas business, you will need the cooperation of the current owner to obtain a tax clearance certificate.

The certificate if valid for 90 days. You can request a certificate online, by phone, or by mail There is a $10 fee for online requests and a $15 fee for requests by phone or mail. If the request is being made by someone given a power of attorney by the business, use Form DO-10, Power of Attorney, for that purpose.

The DOR has two publications with additional information about getting tax clearance. In addition, you can find more details, including access to forms, by checking the DOR website.

UCC Liens

If you are buying a Kansas 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 online or paper through the Kansas Secretary of State (SOS). Either type of search incurs a fee: $10 for online searches and $20 for paper-based searches. To do an online search you must first register an online account. For more information, check the SOS UCC Debtor Search webpage and FAQ page. In addition, some Kansas counties allow you to search for federal tax liens.

Other Debts

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.

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