If you are buying a business in Wisconsin, 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 Wisconsin business also should check state UCC records to make sure the business’s assets are not encumbered by any liens.
In Wisconsin, if you buy a business or its stock of goods, you will be personally liable for any of the seller’s unpaid sales and use taxes. With that in mind, Wisconsin has at least two types of certificates related to a business’s state tax liabilities. First, a current business owner can request a certificate stating all state taxes have been paid. There is no one official name for this certificate; however, it sometimes is referred to as a certificate relating to delinquent taxes.
Second, a buyer of a business can request a so-called clearance certificate. This certificate is issued to the buyer of a Wisconsin business after the sale is complete. The certificate only covers the business’s sales and use tax obligations before the sale. Both kinds of certificate are issued by the Wisconsin Department of Revenue (DOR).
A request for a certificate relating to delinquent taxes must be signed by a business’s owner, corporate officer, or a person authorized by the owner. That means that if you’re trying to buy a business, you’ll need the cooperation of the current owner to get a letter.
A clearance certificate, issued after the sale of a business, may be requested by the buyer of the business. No request form is available online. The request must be in writing. Your request must include:
Because the required information includes information about the seller, you’ll need the cooperation of the seller to get a certificate. There is no downloadable request form for either certificate. For more information, including how to submit requests for certificates, check the DOR website.
If you are buying a Wisconsin 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 Wisconsin Department of Financial Institutions (WDFI) website.
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.