If you are buying a business in Missouri, 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 Missouri business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
A tax clearance letter (also known in Missouri simply as a tax clearance) is a statement that a Missouri corporation has no state tax due. Tax clearances are issued by the Missouri Department of Revenue (DOR). Use Form 943, Request For Tax Clearance. The request must be signed by a current officer 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.
As a business buyer, you must withhold enough money from the purchase price to cover any of the seller’s unpaid taxes — until you receive tax clearance from the state that all taxes have been paid. Other types of statements, such as an affidavit from the seller, do not eliminate your successor liability for unpaid taxes. For more information, including access to Form 943, check the DOR website.
A Missouri tax clearance is different from a Missouri Certificate of No Tax Due. The Certificate is used mainly in order to obtain or renew certain state-issued business licenses. However, it may also be used when a business is being sold.
If you are buying a Missouri 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 the Missouri Secretary of State website. Missouri requires you to create an online account before you can run UCC searches on the state’s website. In addition, on the Missouri DOR website, you can search for state tax liens for free.
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.