Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2017

Sales and Use Tax Annotations

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535.0000 SUCCESSOR'S LIABILITY—Regulation 1702

Annotation 535.0075

535.0075 Successor's Liability—Formation of Partnership. C and B formed a partnership to operate a new car dealership. C, who was already engaged in the business of selling cars, contributed all of his individual sole proprietorship assets and known liabilities to the partnership. A certificate of release from successor's liability was not requested by the new partnership. A subsequent audit of C's sole proprietorship disclosed a liability for unpaid sales taxes. The partnership paid various other liabilities assumed from C's sole proprietorship, but not the audit liability. The partnership then dissolved with all the assets being assigned to B along with the assumption of partnership liabilities.

The failure to withhold from the purchase price an amount to cover C's tax audit liability caused the partnership to be liable for that tax as a successor. There is no distinction between a situation where a buyer pays a sum of money to a seller, who then pays the money to a creditor, and the short-cut method followed here where the buyer pays the money directly to the seller's creditors. In these circumstances, a partnership liability for C's taxes was created and it is included in the liabilities assumed by B when the partnership was dissolved. 8/21/41.