A Mississippi business may have unpaid state taxes or owe money to creditors. These kinds of unpaid debts can be important if you are buying or selling a business. Here’s how to get a tax clearance letter from the state and check on creditor liens for a Mississippi business.
A tax clearance letter is a document showing that a business has met all of its Mississippi state tax obligations. Tax clearance letters are issued by the Mississippi Department of Revenue (DOR). Unlike most states, Mississippi currently does not provide online information regarding tax clearance letters. To request a tax clearance letter, your best options are to mail or fax a request to the DOR.
The request must come from 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.
Under Mississippi law, the buyer of a business must withhold enough money from the purchase price to cover unpaid sales taxes until the seller provides tax clearance. For full details, read Section 27-65-55 of the Mississippi Code, which is accessible through a non-government website.
In addition, business buyers are liable for unpaid unemployment insurance. Buyers should withhold any unpaid amounts from the purchase price. Check the Mississippi Department of Employment Security website for more details.
If you are buying a Mississippi 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 Mississippi Secretary of State website. A UCC search provides a record of secured liens that have been recorded on property owned by a business.
Mississippi’s UCC search website allows for both public searches, which are free but limited in the details provided, and subscription-based searches. The Secretary of State also has a separate website where you can search for 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.
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.