If you are buying a business in Oregon, 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 an Oregon 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 Oregon as a certificate of compliance) is proof that all of a business’s state tax accounts are paid up. Certificates of compliance are issued by the Oregon Department of Revenue (DOR). A certificate will show whether the business entity, as well as its owners, has filed all required tax returns and/or paid all taxes due, including under a payment plan. Generally the certificate will cover the three years preceding the date of the certificate and also subsequent tax years. An authorization to provide this information remains in effect until a specific date provided by the requester or until the taxpayer (seller of the business) revokes the authorization.
Use Form 150-800-743, Tax Compliance Certification, to request the certification. Generally, requests must come from a current owner of the business or someone authorized by the owner. 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 DOR website.
If you are buying an Oregon 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 do a UCC search on the Oregon Secretary of State website. Unlike many other states, Oregon provides relatively full results, including images of UCC financing statements, for free. In addition, search results include 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.