Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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535.0000 SUCCESSOR'S LIABILITY—Regulation 1702

Annotation 535.0014

535.0014 Consideration—Payment Made to Seller's Lender. A taxpayer purchased the inventory of another company. At that time, the company from which the inventory was purchased was indebted to the Board for unpaid sales taxes. The taxpayer agreed, as sole consideration for the purchase of the inventory, to pay all of the seller's obligations that were secured by the inventory directly to the seller's lender.

When the Board issued its Notice of Successor's Liability to the taxpayer, the taxpayer claimed that the successor's liability was improper because there was no purchase price paid from which a withholding could have been made.

When the taxpayer negotiated for the purchase of the inventory of the other company, it paid for the inventory by its promise to pay the purchase price directly to the other company's lender. Under the holding of the Knudsen Dairy Products Co. v. State Board of Equalization (1970) 121 Cal.App.3d 47, the taxpayer had a duty to structure its purchase agreement with the other company in such a manner as to provide for the payment of the outstanding tax liability to the Board. Accordingly, the successor liability was properly imposed upon the taxpayer. 3/11/96.