If you are buying a business in North Carolina, 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 North Carolina 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 North Carolina as a letter of good standing) states that no sales and use taxes, or admissions and dues tax, or both, are due from the seller. Letters of good standing are issued by the North Carolina Department of Revenue (DORNC). Your request for a letter must be in writing and signed by a current officer or partner 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 DORNC website.
You can mail or fax your request to:
North Carolina Department of Revenue
Attention: Customer Service
P.O. Box 1168
Raleigh, NC 27602
Fax number: (919) 733-5750
Attention: Customer Service.
If you are buying a North Carolina 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 filing search on the North Carolina Secretary of State website. A UCC filing search provides a record of secured liens that have been recorded on property owned by a business. The Secretary of State website also allows you to search for federal tax liens.
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.