By Patricia A. Kieck, Esq.
The Bulk Sales Act (NJSA 12A:6-101, et seq.) which applied to commercial transactions such as the sale of businesses had been repealed in 1995.
In June 2007, without any fanfare, then Governor Corzine signed into law “NJSA 54:50-38. Notification to director of proposed sale, transfer, assignment of business assets; claim for State taxes” which became effective in August 2007.
This requires every purchaser of business assets to send written notification to the Division of Taxation, Bulk Sales Section of the impending sale. Notice must be given at least ten (10) days prior to the closing date.
What does “business assets” mean? The New Jersey Division of Taxation in a Technical Bulletin No. TB-60 issued on July 3, 2008 defines it as “Business assets,’tangible or intangible, include, but are not limited to, goodwill, materials, supplies, licenses, patents, copyrights, equipment, leases, merchandise or other inventory and realty if the primary use of the realty is to support a business on its premises. [emphasis added] Business was defined as “…any endeavor from which revenue or consideration is realized for the purpose of generating a profit or loss. “
This has been interpreted to mean that a two-family home which is rented, or a single family home which is rented, is now subject to the Bulk Sales, Transfer Act.
Upon receipt of the Notification form and a copy of the signed Contract of Sale, the State will send notification, in writing, advising the purchaser’s attorney and the seller’s attorney of the amount needed to be held in escrow pending the States review of the seller’s records. It is necessary for the seller to complete, sign and deliver at closing, or before, an Asset Declaration Form. The seller’s accountant should prepare the form. The State will complete their review and advise, what, if any, monies are due the State of New Jersey. Once the monies are paid, the State will issue a Tax Clearance Letter.
Unfortunately, the State is rigid in its application of the time periods. If they do not receive the Notification and signed Contract of Sale ten days before the closing date, they will deem it as if a filing was not made and look to the buyer for tax liability of the seller in the event the seller fails or refuses to pay its debt to the state.
State debts are defined as “State tax debts” mean deficiencies (i.e. underpayments), delinquencies (i.e. unfilled tax returns), assessments, penalties, interest, fees and costs.”
As a practical matter, a clause should be put in the Contract of Sale that survives closing of title requiring the Seller to cooperate in completing and filing the necessary Notification and Asset Declaration Form