Surprise! Pay the tax debt now or we will close this business.Successor liability for sales tax owed by the prior owner is awful. Anyone buying a business in Texas had better be careful because their life savings can disappear if they do not follow all of the rules. My client purchased a convenience store. He paid the prior owner the purchase price in full. The Comptroller visited his new business a few weeks later and claimed that he owed all of the money he paid the prior owner to the State of Texas. Shocker! He does not know where the other owner is living. Turns out, Texas requires the withholding of sales tax out of the purchase price and the new owner to seek a clearance letter from the Comptroller prior to completion of the purchase. The risk belongs to the buyer. My client could not pay the debt and was forced to borrow money to pay part of the debt of the old owner before he could pay the taxes due over time. His entire life savings was used up in buying the business. Tax trap! Pay careful attention if you want to buy a business. Look at the rules for withholding the taxes that are owed by the prior owner or you could lose everything.
William Kunofsky CPA JD