Did a new county tag-agency operator inherit more than $1 million of the former operator's sales-tax liability?

Plain-English summary

Florida concluded that the new tag-agency operator did not inherit the former operator's unpaid sales-tax liability under section 212.10(1). The jeopardy notice exceeded $1 million, but the required sale of a business or stock of goods was missing.

The county had revoked the old license and controlled its reissue to someone from an eligibility list. The new operator was unrelated to the former operator, assumed none of its debts or liabilities, and obtained premises through separate parties. Limited arrangements involving leased equipment, telephone numbers, and specified property did not establish a voluntary buyer-seller transfer benefiting the former operator.

The Department explained that transferee liability generally applied when a buyer voluntarily purchased a business or stock of goods, paid consideration or assumed liabilities, and failed to withhold enough purchase money for the seller's tax debt. Those facts were absent here.

What this means for you

Business buyers and successor operators

Transferee liability turns on substance: whether a business or stock of goods was voluntarily transferred, what consideration flowed, which debts were assumed, and whether the former owner benefited.

Government concessionaires and transaction attorneys

A government license revoked and independently reissued is different from buying the former licensee's business. But overlapping assets, payments, or liability assumptions can change the analysis.

Common questions

Was the county license sold by the former operator? No.

Did the new operator assume the former operator's debts? No.

Did limited asset and telephone arrangements create transferee liability? Not on the stated third-party and no-benefit facts.

Would direct consideration to the former operator matter? Yes. The ruling expressly said a different indication of benefit could change the conclusion.

Citations and references

• Section 212.10(1), Florida Statutes; Rule 12A-1.055, Florida Administrative Code — historical transferee-liability provisions.
• Jacobs v. Kirk, 223 So. 2d 795 (Fla. 4th DCA 1969).
• State ex rel. Sir Richards, Inc. v. Lewis, 9 Fla. Supp. 2d 68 (Fla. 2d Jud. Cir. 1984).

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 90A-054

Original ruling text

Title:

Transferee Liability

Aug 06, 1990

RE: TAA 90A-054
Transferee liability - Sale of a Business or stock of goods under Section 212.10(1) F.S.

Dear

This is a response entitled a Technical Assistance Advisement to your request dated April 30, 1990. In your letter of April 11, 1990, you contend that your client, XXX is not liable for transferee liability under Section 212.10 F.S. considering the facts set forth below.

In your letter you state:

"In XXX County, the procedure for becoming an approved licensee in that the County, from time to time, administers a written examination and then qualifies only a handful of individuals, whose names go onto a waiting list'; at such time as a geographical location becomes available for a tag agency site, the persons on theapproved list' are contacted to determine if any of them wish to undertake to operate the tag agency at that location...

"...the licensee must be an individual; the XXX licensee may operate the agency through a XXX corporation. XXX operated the agency at XXX in XXX for XXX years.

"In 1982, XXX passed the required examination and has been on the `authorized eligibility list' for 8 years... Neither XXX nor XXX are related in any way to the XXX family, which was involved in the XXX operation.

"In addition, there were certain items on the premises that were "leased," including some telephones and a postage meter, and proposed to take over those leases. Also on the

premises, as referenced above, were the computer stations provided the Department of Motor Vehicles on consignment. XXX negotiated an agreement to pay $5,000.00 to XXX for the particular items listed above, as well as for the consent to an assignment of the telephone numbers, which related to advertising already existing in the Yellow Pages. (Since changes to Yellow Pages advertising cannot go into effect until September of each year, when the new directories come out, XXX planned to pay for the monthly Yellow Pages charges relating to the existing telephone numbers, while changing the copy so that -- for the September, 1990 issue
-- the name of "XXX" would appear.)

"In the purchase agreement with XXX, made warranties that the items to be transferred were free and clear of all claims, and that she would indemnify against any claims relating to the prior use by XXX including "state sales taxes." XXX then signed a lease with XXX.

"Pursuant to letter of September 6, 1989, the County Manager advised XXX that its appointment as a tag agency operator was immediately revoked.

"With the cessation of the business of XXX the `qualified persons' on the approved list were solicited, and through this process became interested in opening a business at XXX,... thus XXX began to expend substantial sums to start a tag agency business... In addition, she undertook 2 other actions, which brought her into contact with members of the XXX as follows:

"... She negotiated with a lease for the Store previously occupied by XXX. According to the Secretary of State, XXX is the director and president of XXX,... she is the only stockholder, officer and director."

"After XXX had undertaken the substantial activities described above, she received a `jeopardy tax notice'... from the local office of the Department of Revenue, advising XXX that taxes, including penalty and interest, were due to the State of Florida in the amount of

$1,069,016.15(1) XXX was then advised by the Department's local officer that a question existed as to whether XXX would become obligated for the $1,069,016.15 deficiency by virtue of Florida Statutes (Section) 212.10."

REQUESTED DETERMINATION

In your letter of April 30, 1990, you ask for the following determination:

"Whether or not under the circumstances set forth in the prior correspondence... XXX and/or her company would be subject to transferee liability for the moneys owed by the XXX, for taxes, interest, and penalties."

For purposes of this advisement the Department will respond to the following issue:

Whether the facts presented in your letter dated April 30, 1990, give rise to a sale of a stock of goods or a business within the meaning of section 212.10(1) F.S., so as to cause transferee liability?

This advisement will not address any issues which were not raised in the request for a Technical Assistance Advisement and which may not be raised by the facts.

LAW AND DISCUSSION

Chapter 212.10(1) F.S. provides in part:

"If any dealer liable for any tax, interest, or penalty levied hereunder shall sell out his business or stock of goods... his successor, successors, or assigns shall withhold a sufficient portion of the purchase money to safely cover the account of such taxes, interest, or penalties due and unpaid... If the purchaser of a business or stock of goods shall fail to withhold a sufficient amount of the purchase money he shall be personally liable for the payment of the taxes, interest and penalties accruing and unpaid on account of the operation of the

business by any former owner, owners or assigns."

The rule reiterates this language, see Rule 12A-1.055 F.A.C.

Under section 212.10(1) a purchaser becomes liable for the tax liability of a seller when that purchaser of a business or stock of goods in a voluntary sale, fails to withhold a portion of the purchase money to cover that tax liability of the seller. In Jacobs v. Kirk, 223 So.2d 795 (Fla. 4th DCA 1969), the court stated:

"In this case the transfer of the personal property to the landlord under the lease provision was just as effective a sale, of the tenant's stock of goods as if the tenant had negotiated a sale of the stock of goods to a third person and thereafter paid the proceeds over to the landlord.

"In City Ice & Cold Storage Co., Inc., James and Mary Cochran v. D.O.R., DOAH Case No. 76-676, the Hearing Officer's recommended order stated:

Finding of fact 1. The consideration paid by the Cochrans was the payment of certain promissory notes owed by Middle Florida Ice to third persons...

Conclusion of Law 3. The Cochrans were purchasers of a business within the meaning of Section 212.10(1). The fact that the purchase money paid by the Cochrans was paid directly to creditors of Middle Florida Ice, does not absolve them of the responsibilities imposed under Florida Statutes, (Section) 212.10(1).

In State of Florida ex rel Sir Richards Inc. v. Lewis, 9 Fla. Supp. 2d 68 (Fla. 2d Jud. Cir. 1984), the trial court limited section 212.10(1) transferee liability to voluntary transfers of a business. The court stated:

"The Court finds that the word `sale' which is the subject of the above statutory language should be construed to mean a transaction between buyer and seller, neither of which is compelled to enter into the transaction, and both of which

are aware of the consequences thereof... judicial enforced sales... are not contemplated by the statute language. (Emphasis added)

In the present situation there was no direct transfer of a "stock of goods" or "business" as required by 212.10(1) F.S. The license was and is not owned by XXX and its transfer did not benefit that agency in any way. The facts indicate that no debts or liabilities are being assumed by XXX. Further, the transfer of the license is not voluntary. XXX County revoked the license held by XXX under which operated and its transfer is regulated by that same county. Finally, the transaction under which leased the premises and obtained the license to operate a tag agency, is not between a buyer and a seller as contemplated by 212.10(1), but is between two third parties, XXX County, XXX, and XXX.

CONCLUSION

The above authority indicates that Section 212.10(1) F.S. would apply to voluntary transfers of a business between a buyer and seller where the buyer either pays for the business or assumes liability and debt as consideration for the "buying out of the business or stock of goods." The failure of the buyer to withhold a sufficient amount of that payment, in accordance with Section 212.10(1) F.S. would make the buyer personally liable for payment of the taxes, interest and penalties accruing and unpaid by the seller.

Here, XXX did not assume any liability of the XXX and the transfer of the license was not voluntary from XXX, since the county both revokes the license and regulates its reissue. Finally, the facts indicated that XXX is the entity involved in the lease of the premises with XXX and not XXX. These two third parties, XXX and XXX, are independent of both XXX and although XXX is an officer of XXX, there is no indication that any consideration or benefit recognized by 212.10(1) is flowing to XXX by virtue of the sublease from XXX to XXX. If there were such an indication, then the conclusion of this Technical Assistance Advisement might well be different.

In light of the above case law facts, and analysis, XXX is not liable for previous tax liability under section 212.10(1) F.S.

This advisement expressly addresses only that "transferee liability" which would or could arise by application of the terms of Section 212.10(1) F.S. This advisement does not purport to render the position of the Department of Revenue as to any obligations which XXX County or XXX might have, arising from their relationships under the laws, rules, ordinances, or the Constitution of the State of Florida.

This response constitutes a technical assistance advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advise is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect confidential information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or this response.

Sincerely,

Eric A. de Moya
Assistant General Counsel

EAM/em