08Sep
Buying a Business in Pennsylvania? Don’t Overlook Bulk Sales Tax Clearances
When purchasing a business in Pennsylvania, buyers naturally focus on the purchase price, financing, due diligence, and the assets they are acquiring. One less obvious issue can create significant liability after closing: Pennsylvania’s Bulk Sales Law and the need for tax clearance certificates. Pennsylvania law generally applies the bulk sales requirements when a business sells or transfers 51% or more of certain business assets, including inventory, fixtures, machinery, equipment, buildings, or real estate. 72 P.S. § 1403. The Pennsylvania Department of Revenue similarly advises that the bulk sales law applies to transfers of more than 51% of a business's assets.
Why Should the Buyer Care?
The purpose of a bulk sales clearance is to protect the buyer from inheriting the seller's unpaid Pennsylvania tax obligations. This is important because simply purchasing assets rather than the seller's stock or ownership interests does not necessarily insulate the buyer from these liabilities. The Pennsylvania Department of Revenue warns that a purchaser acquiring more than 51% of a business's assets may become liable for the seller's unpaid Pennsylvania taxes if the required clearance is not obtained. The Commonwealth recommends that the seller obtain and provide the purchaser with a Bulk Sale Clearance Certificate. Accordingly, an asset purchase agreement should generally require the seller to obtain appropriate bulk sales clearances from both the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor & Industry, including clearance of applicable unemployment compensation tax obligations.
Don't Wait Until Closing
The clearance process should be addressed well before the scheduled closing date. Pennsylvania's bulk sales statute requires advance notice of the transaction, and obtaining the actual certificates can take additional time while the Commonwealth verifies that the seller has filed required returns and satisfied outstanding liabilities. If the certificates cannot be obtained before closing, the parties should consider establishing an escrow or holdback from the seller's proceedsuntil the clearances are received. The Department of Revenue specifically recommends retaining part of the purchase price in escrow when a transaction has occurred without the clearance being available. The takeaway is that Pennsylvania business buyers should not assume that an “asset purchase” automatically leaves the seller's tax problems behind. Bulk sales clearance should be part of the due diligence and closing checklist for virtually every Pennsylvania business asset acquisition.If you have questions about a business you are buying or selling contact RC Kelly Law at 215-896-3846 or by email at help@rckelly.com.
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