If you are buying a business in Nebraska, 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 Nebraska 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 Nebraska as a certificate of clearance) is evidence that a business does not owe sales and use taxes, withholding, or income taxes. Without a certificate of clearance, a buyer of a business or stock of goods must withhold enough money from the purchase price to cover any unpaid taxes, penalties, and interest. Failure to withhold this money leaves the buyer personally liable for those amounts.
Certificates of clearance are issued by the Nebraska Department of Revenue (DOR). The buyer of a business can request a certificate. However, both the buyer and the seller (or individuals authorized by the buyer and the seller) must sign the form. That means that if you are buying a business you will need the cooperation of the current owner. The certificate will show either the amount of taxes owed or clearance that no taxes are owed. Use Form 36, Tax Clearance Application, to submit a request.
You must submit your request for a certificate by mail, email, or fax. You should file at least 15 days before completing a purchase. There is no fee to submit the form. For more information, including regarding Nebraska successor liability for buyers of businesses, check the DOR website.
If you are buying a Nebraska 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 Nebraska Secretary of State website. Nebraska requires you to create an online account before you can run UCC searches on the state’s website. In addition, searches by business name incur a fee (currently $4.50 per search).
Apart from UCC liens, the Nebraska DOR has a separate website — the Delinquent Taxpayer List — where you can search for individuals and businesses with unpaid state taxes. The site lists taxpayers with over $20,000 in unpaid taxes.
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.