Did buying business inventory from a probate estate create California successor liability for the decedent's tax?

Plain-English summary

Board staff asked whether a person buying what appeared to be inventory from a probate estate could be liable as successor when the estate itself had not operated the business.

The memorandum said no. It treated former Probate Code section 707.5 as the exclusive method for resolving the decedent's tax debts and reasoned that adding successor liability would interfere with orderly probate administration.

Section 6811 also required the delinquent taxpayer to sell or quit the business. Here, death prevented a pre-death sale or voluntary quitting, so the memorandum found no seller-purchaser relationship supporting successorship. It separately noted that an executor's tangible-property sale might itself be taxable if the estate was a retailer, while inventory could be sold for resale.

What this means for you

Estate representatives, probate purchasers, and tax advisers

Use the probate claim process for the decedent's liabilities and separately classify the estate's own asset sale. Do not treat the absence of successor liability as an exemption for the executor's sale.

Common questions

Q: Did the estate buyer inherit the decedent's tax as successor?

A: No, under this memorandum.

Q: Could the estate's asset sale itself be taxable?

A: Yes, if the seller was a retailer and no resale treatment applied.

Citations and references

• Former California Probate Code § 707.5
• California Revenue and Taxation Code § 6811
• California Sales and Use Tax Regulation 1573

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 535.0087
• Original supporting opinion: 535.0087 PDF

Original ruling text

State of California

Memorandum
To

:

From

: Legal – MHH

Board of Equalization
Legal Division

535.0087
Date :

July 8, 1980

Subject : Does Purchase from a Probate Estate Result in Successor’s

Liability?

Your memo of May 13, 1980 asks whether successory’s liability can be asserted against a person who bought a business from a probate estate. You surmise that the property purchased was inventory, and note that the estate did not operate the business. As you know, Probate Code Section 707.5 sets forth procedures for filing tax claims against the estates of decedents. Subsection (b) of Section 707.5 covers excise taxes administered by the Board. It is our opinion that the Legislature intended this section to be the sole and exclusive method for settling debts of decedents, and that attempting to inject successor’s liability would interfere with the orderly administration of probate estates. It is further our opinion that the language of Revenue and Taxation Code Section 6811 prohibits the imposition of successor’s liability in probate estates. The section requires that the delinquent taxpayer must either sell or quit the business before successor’s liability arises. Since death prevented a sale or quitting of the business, no seller/purchaser relationship existed prior to death and probate administration. It is therefore concluded that purchase from a probate estate does not result in successor’s liability. Note that tax may apply to the sale of tangible personal property by an executor or administrator under court order, however, if the person making the sale is a retailer (see Regulation 1573). By the same token, if only inventory was sold, it could be a sale for resale.