Successor Liability

What is successor liability?

A purchaser of a business (including a purchaser of a portion of the business, its inventory or it equipment) may be held responsible for the business’s outstanding sales or withholding tax liabilities.[1] No contract provisions between a seller and a purchaser can eliminate this liability. The Department can file a lien against the purchaser and pursue all appropriate enforced collection activity to collect the tax debt owed by the previous business owner.

What can a purchaser do to avoid successor liability?

A purchaser of a business or its assets should ensure that there are no outstanding tax liabilities. To do so, the purchaser should request a copy of a Tax Clearance Certificate (Form TSD-10 Application for Tax Clearance Certificate). Only the taxpayer or a party with a signed disclosure form can obtain this certificate.

The Department will not issue a Tax Clearance Certificate if there is an outstanding tax balance or unfiled tax returns. If there are outstanding liabilities, the law requires that the purchaser must withhold the outstanding amount of the purchase price. The purchaser may only release the funds only when the Department issues a Tax Clearance Certificate.

The purchaser’s personal liability is limited to the amount of consideration paid for the business. The purchase price may include:

  • Funds paid or to be paid for the business
  • Assets being transferred
  • Debts assumed or forgiven by the purchaser
  • Value of any assets given in trade or exchange for the business or assets transferred

The way that funds are transferred—whether through a gift, purchase agreement, stock exchange, profit sharing agreement, or otherwise—is not relevant for whether a purchaser is a successor. 

 

[1] O.C.G.A. § 48-8-46 (Sales Tax); O.C.G.A. § 48-7-106 (Withholding Tax)