If you are buying a business in New Mexico, 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 New Mexico business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
A tax clearance letter (known in New Mexico as a certificate of no tax due or, simply, tax clearance) is proof that a business doesn’t have any New Mexico state tax liability. As the buyer of a New Mexico business, you can avoid being assessed for that business’s unpaid state taxes by requesting a tax clearance from the New Mexico Taxation and Revenue Department (TRD). If the business you’re buying has unpaid taxes, you must place money in a trust account to cover the amount owed. The money in the trust account can be withheld from the purchase price of the business or come from other sources.
Tax clearances are issued by the TRD. To request a clearance, use Form ACD-31096, Tax Clearance Request. Unlike in some other states, New Mexico’s request form doesn’t necessarily need to be signed by a current owner of the business. Instead, the buyer of that business (also known as the successor) can attach documents to the form, such as a copy the business purchase agreement, that will allow the buyer to submit the request. For more information, check the TRD website
The TRD must issue tax clearance within 30 days of receiving a request from a successor in business. If any tax is due, the successor (buyer) must pay it within 30 days. Otherwise, the TRD will assess the successor for the amount due. Once all taxes are paid, any money in a trust account will be released to the former owner. Also, if the TRD fails to respond to a request within 30 days, the buyer is not required to withhold money to cover unpaid taxes.
For additional information, check the Collections page on the TRD website.
If you are buying a New Mexico 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 New Mexico Secretary of State website.
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.