If you are buying a business in West Virginia, 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 West Virginia 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 West Virginia as a statement of good standing) is proof that all of a business’s state taxes are paid in full and all required state tax returns are filed. Under West Virginia law, the buyer of a business (also called the successor) becomes liable for the seller’s unpaid taxes, interest, and penalties thirty days after the business is sold. To avoid liability, the buyer should withhold from the purchase money an amount sufficient to cover the unpaid amounts until the seller provides a document from the state tax commissioner showing the taxes have been paid. For more details, check Section 11-10-11 of the West Virginia Code..
Statements of good standing are issued by the West Virginia State Tax Department (STD). You can request a statement with Form GSR-01, Request for Statement of Good Standing. Your request must be signed or authorized by a current owner 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, including access to the request form, check the STD website.
If you are buying a West Virginia 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 West Virginia Secretary of State website (SOS). The SOS’s UCC search website only provides very basic information for free. For any details, you must pay a fee.
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.