BUYING OR SELLING A BUSINESS IN COLORADO

Is the business you are purchasing current on its sales, use and other taxes?

When a business is purchased the seller must pay any sales taxes due within 10 days of the sale. The new business owner may become liable for any unpaid tax due on the sales made by the previous owner if the taxes are not remitted. Note: Discovery of seller’s errors and a prior liability through an audit of prior periods may not occur for a number of years.

What should you do?

The purchaser should request from the seller a tax status letter. The CO Department of Revenue (DOR) will supply this information only at the present owner’s (seller’s) request. The letter will indicate whether all business tax filings are current. To obtain a tax status letter, the seller must request the information by filling out the form DR 0096.
Request for Tax Status Letter and remit the appropriate fees. It could take 6 weeks for the seller to receive the information.

CAUTION: A status letter indicating the seller is current on filings is not a determination that underreporting or other collection and remittance errors haven’t occurred! A managed audit or due diligence review should be completed. See Mergers & Acquisitions.

Will I owe tax on the assets I purchase with the business?

Use tax is commonly due on non-inventory assets purchased with the acquisition of a business. A number of factors regarding the structure of the sale influence taxability. Attorneys and accountants commonly focus on income tax consequences without regard to sales or use tax implications. Contract language may be included to attempt to keep liability for prior liabilities upon the seller and may wisely establish an escrow account. However, a purchaser cannot contractually remove successor liability since the DOR was not party to the contract.

The information in this tax tip addresses issues in general. Any potential results discussed may vary and circumstances may warrant more or less favorable outcomes.

It’s best to be proactive and to identify and resolve issues before an auditor contacts you. Voluntary Disclosure Agreements are no longer available once you’ve been contacted.

The good news is that remedies are often available when you’ve discovered obligations before auditors contact you. Anonymous Voluntary Disclosure is one option. Even if you are already under audit, we can often help. See our Audit Case Studies.

To learn more about how we can help with these or the following issues, please Contact us today:

• Assistance with proactive minimization of prior period sales/use tax liabilities
• Help with nexus questions and issues
• Other sales and use tax related questions

What are your priority issues and when do you want them resolved?

Please click here for more Sales Tax Tips. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.

* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.