If you are buying a business in Vermont, 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 Vermont 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 Vermont as a letter of good standing or certification of tax standing) is proof that all of a business’s state tax liabilities are paid or in an approved payment plan, and all required returns have been filed. Letters of good standing are issued by the Vermont Department of Taxes (DOT). There is no DOT-issued request form. To make a request, provide the following information:
Unlike many other states, a request for a Vermont letter of good standing need not come from a current officer or owner of the business. This is because the letter does not reveal any private information about the business’s tax situation. For more information, check the DOT website.
You can mail, fax, or email your request to:
Vermont Department of Taxes
133 State Street
Montpelier, VT 05602
Fax number: (802) 828-5282
Email: firstname.lastname@example.org (put “Letter of Good Standing Request” in the subject line)
If you are buying a Vermont 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 lien search on the Vermont Secretary of State website. Search results from a free search include a detailed listing of collateral.
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.