Successor Tax Liability

Successor Tax Liability

    When purchasing a liquor license or even a portion of a business, a buyer can be held liable for tax debts incurred by the previous owner. This is known as successor liability. Prior to committing to the purchase of any license or establishment, the buyer should request a tax clearance certificate from the seller that indicates that all taxes have been paid up to the date of issuance. Obtaining sound professional assistance from an attorney or accountant can be helpful to identify and avoid any pitfalls and hidden liabilities when buying even a portion of a business. Sellers can make a request for the tax clearance certificate through the Michigan Department of Treasury.

    As a successor in the business, you should withhold sufficient purchase money to cover any business tax debts incurred by the previous owner. These funds may be released when the previous owner produces a receipt showing the taxes have been paid, or a Tax Clearance Certificate from the Michigan Department of Treasury stating that no taxes are due. Note that only the seller can request this information from the Department of Treasury. For more information visit the Michigan Department of Treasury website at www.michigan.gov/taxes/business-taxes/clearance

    For unemployment tax purposes, successors may also be held liable for tax debts incurred by the previous owner. By law, the seller must provide the buyer with certain unemployment insurance information at least two days before an offer to purchase is accepted. For more information about unemployment tax debts, visit the Unemployment Insurance Agency website at www.michigan.gov/uia.