Buying an Existing Business and Successor Liability

If you buy the assets of a Texas business, are you then responsible for that company’s existing state tax liability?

The answer is often YES. It is called Successor Liability (Tax Code Section 111.020 and 111.024) and it is applied by the Texas Comptroller to the purchasers of many businesses in this state. Many people don’t know that just buying the assets of a company can cause the prior tax liability to be assigned to the purchaser. Even if you didn’t buy the assets, the Comptroller can still attempt to assign the debt if a number of other criteria are met. The bottom line is that this is a very gray area of Texas taxation and only an experienced firm can help.

The Texas Comptroller’s Publication titled Buying an Existing Business (Form 98-117) begins with: “Before you buy an existing business, find out if the owner owes any Texas taxes”.

Worst Case Scenario: Erroneous Successor Liability Assigned

It is also possible that the Comptroller’s Office will ERRONEOUSLY assign Successor Liability even if little or no credible supporting evidence is found. Once these tax bills are issued, the person or business must quickly file for an Administrative Hearing and then prove they don’t owe the debt.

Texas Tax Group has represented clients who have received these Successor Liability tax bills and simply DID NOT OWE THEM. In one case the Client simply occupied the same space and continued to run the same type of business. This client didn’t even know the prior client much less purchase their assets. But they received a Successor Liability tax bill based on Tax Code Section 111.020 and 111.024 and the Comptroller then demanded payment within 30 days. We were able to eventually cancel the tax assessment after providing a significant amount of documentation.

These are truly difficult cases since the Comptroller can simply send the Successor Liability tax bill to anybody and then make them prove they are not responsible. The Comptroller can issue these tax bills with as a very little burden to prove these assessments, but the business owner must I can truly say that the Comptroller is often careless when issuing these Successor Liability assessments.

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