When a purchaser acquires a business, the purchaser needs to be concerned not to assume the tax liabilities of the seller. As an important protection in Illinois for a purchaser of a business not to assume the tax liabilities of the seller of the business, compliance should be made with the bulk sales requirements in Illinois on purchase of a business.
The bulk sales requirements in Illinois on purchase of a business generally apply to transactions involving the sale of all or substantially all of the seller’s assets. For such a transaction, the purchaser must file (or require the seller to file) a notice (“bulk sales notice”) of the sale with the Illinois Department of Revenue (Bulk Sales Unit). The bulk sales notice (Form CBS-1, “Notice of Sale, Purchase, or Transfer of Business Assets”) requires disclosure of information about “the business, business assets, or business property being sold or transferred”, “the seller or transferor”, “the purchaser or transferee”, “the terms of sale or transfer”, copies of certain pages from “the sales contract”, and a copy of “the financing agreement (if requested)”.
Within 10 business days of receipt of the bulk sales notice, the Illinois Department of Revenue will issue an order (“bulk sales stop order”) that describes the amount, if any, that the purchaser should withhold from the purchase price to satisfy the tax liabilities of the seller. It is critical that the purchaser follow the direction in the bulk sales stop order and withhold the “bulk sales stop order” amount from the purchase price. If the seller fails to pay its tax liabilities, the Illinois Department of Revenue may make a claim against the purchaser for the “bulk sales stop order” amount, and thus if the purchaser properly withheld this “bulk sales stop order” amount, the purchaser will not have to bear any personal liability.
Within 60 business days of issuance of the bulk sales stop order, the Illinois Department of Revenue will issue a final determination of the tax liabilities of the seller. The purchaser should continue to withhold the “bulk sales stop order” amount from the purchase price until the purchaser receives a certificate (“bulk sales certificate”) from the Illinois Department of Revenue showing that the tax liabilities of the seller have been satisfied or that there are no tax liabilities due from the seller. It should be noted that the above references to “tax liabilities” also include interest and penalty liabilities, if applicable.
The above discussion describes bulk sales requirements in Illinois under the Illinois Income Tax Act and Retailers’ Occupation Tax Act. There are also potentially applicable bulk sales requirements in Illinois under the Illinois Unemployment Insurance Act and various county and municipal laws.
It is important that “bulk sales” issues be addressed in the contract between the seller and the purchaser for the purchase of a business (including as to the timing of filing and execution of the bulk sales notice, and the manner of withholding of the “bulk sales stop order” amount from the purchase price). Thus, purchasers of businesses need to work with a qualified attorney, such as Kameli Law Group, which has significant experience in purchases and sales of businesses and “bulk sales” issues. Please contact Kameli Law Group, at taher@kameli.com or 312-233-1000, for help.
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As an important protection in Illinois for a purchaser of a business not to assume the tax liabilities of the seller of the business, compliance should be made with the bulk sales requirements in Illinois on purchase of a business. Within 10 business days of receipt of a “bulk sales notice” (Form CBS-1, “Notice of Sale, Purchase, or Transfer of Business Assets”), the Illinois Department of Revenue will issue an order (“bulk sales stop order”) that describes the amount, if any, that the purchaser should withhold from the purchase price to satisfy the tax liabilities of the seller. It is critical that the purchaser follow the direction in the bulk sales stop order and withhold the “bulk sales stop order” amount from the purchase price. If the seller fails to pay its tax liabilities, the Illinois Department of Revenue may make a claim against the purchaser for the “bulk sales stop order” amount, and thus if the purchaser properly withheld this “bulk sales stop order” amount, the purchaser will not have to bear any personal liability. The purchaser should continue to withhold the “bulk sales stop order” amount from the purchase price until the purchaser receives a certificate (“bulk sales certificate”) from the Illinois Department of Revenue showing that the tax liabilities of the seller have been satisfied or that there are no tax liabilities due from the seller.
