Was a buyer successor to a newspaper that ceased publication when an $8 million agreement transferred its lists, archives, name rights, trucks, and racks?

Plain-English summary

A newspaper agreed to cease publication and sell assets for $8 million payable over five years. The agreement covered intangible rights, subscription, circulation and advertising lists, microfilm back issues, libraries and archives, delivery trucks, and newspaper racks.

The buyer later said it purchased only the subscription list and right to the masthead, did not buy the business or physical assets, and assumed no liabilities. California relied on the signed asset purchase agreement instead. The buyer's own letterhead also listed the seller's newspaper within its group.

Because the seller was quitting the business and the agreement transferred its operating assets, California treated the buyer as successor under section 6811. If the seller's tax was not withheld and remitted from the installment payments, successor liability should be imposed.

What this means for you

Media buyers, installment purchasers, sellers ceasing operations, and tax advisers

The executed asset schedule controls over later shorthand descriptions. With a multi-year price, preserve enough of each payable amount or obtain clearance before releasing consideration.

Common questions

Q: Did the agreement include physical assets?

A: Yes, including trucks and newspaper racks.

Q: Did the seller cease publication?

A: Yes, at or around closing.

Q: Was the buyer a successor?

A: Yes, under the memorandum's analysis.

Citations and references

• California Revenue and Taxation Code §§ 6811 and 6812

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 535.0065
• Original supporting opinion: 535.0065 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

535.0065

Memorandum
To:

Mr. Rick Murphy
--- Compliance, --

From:

Thomas Cooke
Tax Counsel

Subject:

1. O--- T---, Inc.
   SR -- XX-XXXXXX (Seller)

Date:

July 13, 1993

2. A--- N---, Inc.
   SY -- XX-XXXXXX (Buyer)
   The Legal Division has received your memorandum dated June 4, 1993 in which you requested an opinion as to whether A--- N---, Inc. is a “successor” to the O--- T--- pursuant to the provisions of Revenue and Taxation Code sections 6811 and 6812. The parties have signed an “Asset Purchase Agreement” in which A--- N--- agreed to purchase certain intangible and tangible assets of the O--- T--- for $8,000,000 payable over a five-year period. The sale is to “close” at or about the time that the O--- T--- ceases publication. The assets to be sold (listed in Attachment A of the agreement) include all intangible assets, all subscription, circulation and advertising sales lists, all microfilm back issues of the T---, related libraries, morgues, and all delivery trucks and newspaper racks used by the T---. In a letter dated May 3, 1993, L--- S---, controller of A--- N--- G---, stated that “A--- N--G--- purchased only the O--- T---’s subscription list and the right to their masthead or name. We did not buy their business, assume any of their liabilities, or purchase any of their physical assets.” On the letterhead for A--- N--- G---, the O--- T--- is listed as one of the newspapers in the Group. You state in your memorandum that O--- T---’s current liability is $265,790.71 with an estimated audit liability of approximately $50,000.00. Revenue and Taxation Code section 6811 states: “If any person liable for any amount under this part sells out his business or stock of goods or quits the business, his successors or assigns shall withhold sufficient of the purchase price to cover such amount until the former owner provides a receipt from the board showing that it has been paid or a certificate stating that no amount is due.”

Mr. Rick Murphy

-2-

July 12, 1993
535.0065

It is the opinion of the Legal Division that A--- N---, Inc. is a “successor or assign” of the O--- T--- within the meaning of Revenue and Taxation Code section 6811. The purpose of the Asset Purchase Agreement is to sell the newspaper’s assets at the time that it ceases publication or “quits the business.” Successor liability should be imposed on A--- N---, Inc., for the tax liability of the O--- T--- if the amount of the liability is not withheld and remitted to the Board from the sums payable to the O--- T---.

TJC:ph
cc:

Mr. R. A. Slater
Supervisor of Collections, MIC:55