If you are buying a business in North Dakota, 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 Dakota 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 Dakota as a certificate of good standing) is evidence that a business has no unpaid state taxes. Certificates of good standing are issued by the North Dakota State Tax Commissioner (STC). Use Form SFN 60035, Application to Obtain Certificate of Good Standing. The request must be in writing and come from someone directly associated with 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. If the seller allows, the STC may send its response to the buyer. For more information, including forms, check the STC website.
You can mail, fax, or email your request to:
Office of State Tax Commissioner
600 E. Boulevard Ave., Dept. 127
Bismarck, ND 58505-0599
Fax number: (701)328-0332
If you are buying a North Dakota 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 North Dakota Secretary of State (SOS) website. In North Dakota, the SOS’s search website is known as the Central Indexing System (CIS). The CIS not only allows you to search for UCC liens but also other liens, such as federal and state 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.