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 535.0076

535.0076 Successor's Liability—In General. A taxpayer incurred a substantial audit liability. The taxpayer subsequently sold approximately 90% of its assets and related business activities which were conducted from a single location to a new unrelated corporation. The taxpayer continued to operate the other 10% of the business. It later sold the assets and stock of goods of the remaining 10% of the business. The audit liability was still outstanding at the time of the second sale.

Any liability the taxpayer has incurred in its operation of the business will follow the taxpayer, and a purchaser of the remaining business must withhold a sufficient amount of that purchase price to cover any liability of that business, including any debt from the prior (90%) sale of the business. If the purchaser fails to withhold as required, the purchaser becomes personally liable for the amount required to be withheld to the extent of the purchase price. (Section 6811 and 6812.)

However, if the taxpayer moved the remaining portion of the business out of state and then it sold the 10% of business or stock of goods which was located out of state to a nonresident of California who would have no intention of doing business in California, the purchaser would not have purchased the business in California. The purchaser would be outside the state's jurisdiction and the Board would not have the authority to impose successor liability. 12/7/93.