I am pleased to announce the creation of the Wisconsin Law Forum Blog. Throughout the existence of the Tax Law Forum, I have considered it appropriate to address certain non-tax issues that I thought are relevant to Wisconsin based readers. These non-tax commentaries will now be found on the Wisconsin Law Forum. I have moved the articles previously appearing on this blog to the new webpage. Hopefully this change provides some clarity to visitors looking for information on Wisconsin business law, employment law, estate planning or litigation developments. No longer will they have to look to a blog focusing on tax law to find information and learn about these areas.
Wednesday, September 10, 2008
Tuesday, September 9, 2008
SALES TAX - What is Successor Liability for Wisconsin Sales Taxes?
The buyer of a business should be aware that if the seller has an outstanding liability for Wisconsin sales or use taxes, the buyer can become personally liable for the unpaid tax of the seller if the proper steps are not taken. With careful planning, however, the buyer can avoid the successor liability problem.
The successor liability rule, found in Wisconsin Statute Section 77.52(18), is:
“If a retailer liable for any sales or use tax sells his business or inventory or otherwise quits business, the retailer’s successors or assigns are required to withhold a sufficient amount of the purchase price to cover the tax obligations until the seller produces either (i) a receipt showing that the tax was paid or (ii) a certificate stating that no tax is due.”
This means that the buyer of a business or a stock of goods, including furniture, fixtures, equipment, and inventory must withhold purchase price money from the seller until the buyer receives a:
1) Receipt from the seller showing the tax was paid, or
2) Certificate stating that no tax is due.
If the buyer does not withhold purchase money until one of the two above is received, the buyer will be personally liable for unpaid tax to the extent of the purchase price.
This provision puts the burden of making sure that tax gets paid on the buyer of the business. The buyer must make sure that the taxes are paid or become liable for the debts. The buyer and seller cannot get rid of successor liability by contract. Successor liability is determined by law and no agreement between buyers and sellers can change this. Of course, a buyer and seller can agree that if the buyer ends up having to pay the seller’s tax, the seller will indemnify the buyer. This indemnification, however, gives the buyer recourse against the seller. It does not do anything to protect a buyer from liability to the Department of Revenue.
The successor liability rule, found in Wisconsin Statute Section 77.52(18), is:
“If a retailer liable for any sales or use tax sells his business or inventory or otherwise quits business, the retailer’s successors or assigns are required to withhold a sufficient amount of the purchase price to cover the tax obligations until the seller produces either (i) a receipt showing that the tax was paid or (ii) a certificate stating that no tax is due.”
This means that the buyer of a business or a stock of goods, including furniture, fixtures, equipment, and inventory must withhold purchase price money from the seller until the buyer receives a:
1) Receipt from the seller showing the tax was paid, or
2) Certificate stating that no tax is due.
If the buyer does not withhold purchase money until one of the two above is received, the buyer will be personally liable for unpaid tax to the extent of the purchase price.
This provision puts the burden of making sure that tax gets paid on the buyer of the business. The buyer must make sure that the taxes are paid or become liable for the debts. The buyer and seller cannot get rid of successor liability by contract. Successor liability is determined by law and no agreement between buyers and sellers can change this. Of course, a buyer and seller can agree that if the buyer ends up having to pay the seller’s tax, the seller will indemnify the buyer. This indemnification, however, gives the buyer recourse against the seller. It does not do anything to protect a buyer from liability to the Department of Revenue.
Friday, September 5, 2008
Friday's Tax Quote
“Death and taxes and childbirth. There’s never any convenient time for any of them.”
- Margaret Mitchell
- Margaret Mitchell
Thursday, September 4, 2008
SALES TAX - From Personal Liability for Wisconsin Sales Taxes to Successor Liability.
I have written many posts on the issue of how the Wisconsin Department of Revenue can collect a business' sales tax liability from the individuals owning or operating that business. I also explained that the personal liability of any responsible person will survive the dissolution of a business. Liability for unpaid sales taxes will also survive the sale of a business.
For example, if a business owner sells the assets or the stock of his corporation (or other business form) but the business has not paid all of its sales taxes, that owner could still be personally responsible for the payment of the sales tax. Unfortunately, however, the buyer of the stock or assets of the business can also be responsible for the unpaid sales tax if he/she/it is unaware of the liability or does not take the right steps to avoid this “Successor Liability.”
In a series of posts that will follow, I will address successor liability for Wisconsin Sales Taxes and the procedures for avoiding this potentially costly obligation.
For example, if a business owner sells the assets or the stock of his corporation (or other business form) but the business has not paid all of its sales taxes, that owner could still be personally responsible for the payment of the sales tax. Unfortunately, however, the buyer of the stock or assets of the business can also be responsible for the unpaid sales tax if he/she/it is unaware of the liability or does not take the right steps to avoid this “Successor Liability.”
In a series of posts that will follow, I will address successor liability for Wisconsin Sales Taxes and the procedures for avoiding this potentially costly obligation.
Tuesday, September 2, 2008
SALES TAX - What can be Done if the Wisconsin Department of Revenue Asserts Personal Liability for Sales Taxes?
Under the rule imposing personal liability for Wisconsin Sales Taxes, a person must be required to collect, account for or pay the amount of sales tax due and willfully fail to make that payment. Further, before an individual can be held personally liable for the sales taxes, the business itself must be established not to be able to pay the amount to the Department.
When an individual receives a notice from the Department of Revenue that it intends to pursue collection of a business’s sales tax liability from the person himself or herself, the first analysis that takes place is whether the Department of Revenue can, in fact, collect the sales tax from that person under the law.
In conducting the analysis, we will look to the specific facts and circumstances surrounding that person and their involvement with the business. We will look to the relationships of the parties, any governing documents and other circumstances that may have led to the assertion of the sales tax against that individual. Based on the specific facts and circumstances of a case, a variety of information may be useful in demonstrating that a person should not be liable for the sales tax, including documentation, explanations and sworn affidavits.
If this information is unavailable, another option may exist. The Statute imposing personal liability requires that the principal (i.e. the business) is unable to pay the amounts due. Therefore, if an arrangement for payment between the business and Department of Revenue is made (possibly an installment agreement), the Department of Revenue will withhold from collecting the Sales Tax from an individual pending the business’s payment of the tax.
This may mean that the person who could be liable for the Sales Taxes needs to allow the Department additional time to consider the personal liability issue. In most instances where this is required, the extension of time does not prejudice the person and prevents the personal liability from being assessed. Without an assessment of the tax, there should be no liens, levies, garnishments or other collection action taken against that person unless the business fails to pay the tax.
When an individual receives a notice from the Department of Revenue that it intends to pursue collection of a business’s sales tax liability from the person himself or herself, the first analysis that takes place is whether the Department of Revenue can, in fact, collect the sales tax from that person under the law.
In conducting the analysis, we will look to the specific facts and circumstances surrounding that person and their involvement with the business. We will look to the relationships of the parties, any governing documents and other circumstances that may have led to the assertion of the sales tax against that individual. Based on the specific facts and circumstances of a case, a variety of information may be useful in demonstrating that a person should not be liable for the sales tax, including documentation, explanations and sworn affidavits.
If this information is unavailable, another option may exist. The Statute imposing personal liability requires that the principal (i.e. the business) is unable to pay the amounts due. Therefore, if an arrangement for payment between the business and Department of Revenue is made (possibly an installment agreement), the Department of Revenue will withhold from collecting the Sales Tax from an individual pending the business’s payment of the tax.
This may mean that the person who could be liable for the Sales Taxes needs to allow the Department additional time to consider the personal liability issue. In most instances where this is required, the extension of time does not prejudice the person and prevents the personal liability from being assessed. Without an assessment of the tax, there should be no liens, levies, garnishments or other collection action taken against that person unless the business fails to pay the tax.
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