Was the buyer of one manufacturing facility liable for the seller's sales tax from its other business locations?

Plain-English summary

A company purchased one California manufacturing facility. The seller owed sales tax from that facility and from other business locations, and staff initially asserted successor liability for all of it.

Counsel agreed with the Petition Unit that the assessment was too broad. Regulation 1702(e) treated each establishment at a separate location as a separate business with a separate stock of goods. Buying the entire facility made the purchaser successor for sales tax arising there, but not for the seller's sales tax from other locations.

The memorandum also clarified that failure to request clearance could establish the possibility of successor liability, but did not itself determine how much liability belonged to the purchased business.

What this means for you

Multi-location sellers, facility buyers, and tax advisers

Map tax liabilities to the specific establishment being acquired. A clearance omission creates risk, but it does not automatically attach every sales-tax debt of a multi-location seller to one facility buyer.

Common questions

Q: Was each location treated as a separate business?

A: Yes, under Regulation 1702(e).

Q: Was the buyer liable for tax from the acquired facility?

A: Yes.

Q: Was it liable for tax from the seller's other locations?

A: No, under this memorandum.

Citations and references

• California Sales and Use Tax Regulation 1702(e)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 535.0050
• Original supporting opinion: 535.0050 PDF

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
535.0050
To:

Mr. Robert Wils
Petition Unit

Date:

October 16, 1990

From:

David H. Levine
Senior Tax Counsel

(916) 445-5550
ATSS 485-5550

Subject:

U--- S--- C--- C--SY -- XX-XXXXXX-010

This is in response to your memorandum dated September 12, 1990. U--- S--- C--- [C] purchased a manufacturing facility of G--- C--- [G] located in [city], California. We have asserted successor liability against [C] for all of [G]’s tax liability, including tax liability related to other business locations. You believe that [C] can only be held liable for the tax assessment as it relates to the Industry location. We agree. In the report of discussion of audit findings dated October 3, 1989, the staff’s position is set forth as follows: “[C] is clearly a successor to [G], and our claim is valid. It is not important that some of the audit liability is the result of previous asset sales unrelated to [C]’s acquisition of [G]. The liabilities that exist for [G] could come from any number of sources, i.e. payroll taxes, insurance expense, etc. This is not the determining factor in establishing successor’s liability. The primary consideration is that a tax clearance was not requested, and liabilities existed for [G] which became the burden of the purchaser, [C], because they purchased a business or stock of goods. I must admit that I do not understand the reference to [G]’s liabilities for payroll taxes, insurance expenses, etc. It is true that [G] could have had liabilities arising from many sources, but the only liabilities relevant to the question of successor liability are the sales tax liability and the purchase price liability. And while it is also true that a primary consideration for successor liability is that a tax clearance was not requested, that only establishes that there is a possibility of successor liability, not the amount of that liability.

Mr. Robert Wils

-2-

October 16, 1990
535.0050

Subdivision (e) of Regulation 1702 provides that where one person operates several business establishments, each at a separate location, each establishment is a separate “business” and has a separate “stock of goods” for purposes of determining the liability of the successor. “A purchaser of the business or stock of goods of any such establishment is subject to liability as a successor with respect to that establishment even if he does not purchase the business or stock of goods of all the establishments.” (Reg. 1702(e).) This clearly establishes [C]’s liability for sales tax arising from the [city] location since it purchased that entire “business.” This provision also implies the answer to the question at issue in this case. That is, [C] purchased the business at the
[city] location and is the successor for purposes of tax liability arising from that location. Since for purposes of successor liability that location is a separate business, [C]’s liability as a successor arises only with respect to that separate business. Sales taxes owed by [G] with respect to any other location are not part of [C]’s successor liability for purchasing the business at [city].

DHL:wak
2528C