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

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

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

Tax Clearance Letter (Letter of Good Standing or Certificate of Amount Due)

A tax clearance letter (known in Nevada variously as a letter of good standing or certificate of amount due) is a statement showing whether or not a business has unpaid state taxes. The statements are issued by the Nevada Department of Taxation (DOT). You can request a letter of good standing or certificate of amount due directly from the DOT (see below). There is no blank form available online to make the request.

The request must be from a current owner of the business. That means that if you’re trying to buy a business, you’ll need the cooperation of the current owner to get a letter or certificate.

In general under Nevada law, if a buyer of a business does not request a certificate of no amount due, that buyer becomes personally liable for the business’s unpaid taxes up to the amount paid for the business or its stock of goods. However, there are some exceptions to this general rule. Check Nevada Revised Statutes section 360.525 for the relevant law.

You can mail, phone, fax, or email your request:

Nevada Department of Taxation

1550 E. College Parkway

Suite 115

Carson City, NV 89706

Phone: 775-684-2000

Fax: 775-684-2020

Email: [email protected]

Be sure to include the name of the business, its location, and a taxpayer ID number so that the request will go to the correct DOT revenue officer. For more information, check this DOT information sheet.

UCC Liens

If you are buying a Nevada 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 Nevada Secretary of State (SOS) website. The SOS requires you to create an online account before you can run UCC searches online.

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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