If you are buying a business in Maine, 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 Maine business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
A tax clearance letter indicates the tax status of a business. If all of the business’s state tax accounts are paid in full, the letter will state that the business has no known liability with the state taxing authorities. Under Maine law, the owner of a business may be liable for unpaid trust fund taxes (such as sales tax) and unemployment compensation tax. If you are buying a business, you are required to withhold from the purchase price the amount of any of these kinds of taxes, along with any interest and penalties, that are owed by the seller. If you do not withhold that money, you might be held liable for the payment of those same taxes, interest, and penalties.
Tax clearance letters are issued by Maine Revenue Services (MRS). A request for a tax clearance letter can be faxed or mailed to the MRS by an officer or owner of the business. That means that if you’re trying to buy a business, you’ll need the cooperation of the current owners to get a letter. For more information, check the MRS website and these two MRS documents.
If you are buying a Maine 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 find out what creditor financing statements are on record by doing a UCC search on the Maine.gov website. A UCC search provides a record of secured liens that have been recorded on property owned by a business. Maine’s UCC search website is fee-based — you will have to set up an online account and pay a fee to run searches.
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.