BILL ANALYSIS �
AB 698
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Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 698 (Grove) - As Amended: March 21, 2013
SUSPENSE
Majority vote. Fiscal committee.
SUBJECT : Sales and Use Tax Law: successor liability
SUMMARY : Limits the circumstances under which a business
purchaser may be held personally liable for sales and use tax
(SUT) liabilities of the business' former owner. Specifically,
this bill provides that the purchaser shall become personally
liable only if the purchaser intentionally fails to comply with
existing law requiring purchasers to withhold from the purchase
price an amount sufficient to cover the prior owner's SUT
liabilities.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Provides that, if any person with a SUT liability sells
his/her business or stock of goods, the purchaser must
withhold from the purchase price an amount sufficient to cover
the liability until the former owner produces a receipt from
the State Board of Equalization (BOE) showing that the
liability has been paid or a certificate stating that no
amount is due.
3)Provides that, if a business purchaser fails to withhold from
the purchase price as required, he/she becomes personally
liable for the amount required to be withheld to the extent of
the purchase price.
4)Provides that, upon receiving a written request from a
purchaser for a certificate, the BOE must either issue the
certificate or mail notice to the purchaser of the amount that
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must be paid as a condition of issuing the certificate.
Failure of the BOE to mail the notice releases the purchaser
from any further obligation to withhold.
5)Provides that, if the BOE finds that a purchaser's failure to
withhold is due to reasonable cause and circumstances beyond
the purchaser's control, and occurred notwithstanding the
exercise of ordinary care and in the absence of willful
neglect, the purchaser may be relieved of any penalty included
in a notice of successor liability.
FISCAL EFFECT : According to the BOE staff, a total of 79
successor liability billings were issued in fiscal year 2011-12,
for a total of $3.4 million. No specific information is
available at this time to determine how many of these billings
resulted from the purchaser intentionally failing to withhold
sufficient funds from the purchase price. However, it is likely
that only a small portion of these billings are the result of a
purchaser's intentional actions. Thus, Committee staff
estimates that this bill would result in significant, but
presently unknown, General Fund revenue losses.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Often, buyers are unaware that they can be held liable for
the unpaid tax of a business that they purchase. It is not
until the buyer applies for a seller's permit that they
learn they should have asked for a tax clearance from the
State Board of Equalization and withheld money from the
purchase price to pay any sales tax owed by the seller.
During the 2011-12 fiscal year, there were 71 instances of
successor billings issued by the State Board of
Equalization. Though the average amount is not huge at
$32,900, this often times can be enough to ruin the venture
of the new business owner before he/she can even get
started.
[. . .]
This bill would very simply add one word to Revenue &
Taxation Code [Section] 6812(a) to say: "If the purchaser
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of a business or stock of goods intentionally fails to
withhold from the purchase price as required . . ."
This small change in law would afford the State Board of
Equalization discretion over if and when a successor should
be billed, giving some much needed financial assurance to
prospective small-business owners in California.
2)This bill is sponsored by BOE Member George Runner, who notes
the following:
AB 698 authorizes the Board of Equalization to hold
business purchasers financially accountable in the event
that they intentionally do not withhold and remit
sufficient funds to settle the tax liability of a business
they purchased, up to the total price of the purchase.
Implementing AB 698 will protect new business owners from
getting stuck with a liability they did not create, while
preserving the state's ability to hold successors
responsible in the case of knowing avoidance or collusion.
3)Committee Staff Comments:
a) The SUT Law's existing successor liability provisions :
Existing law imposes specific obligations on business
purchasers. Specifically, the SUT Law requires business
purchasers to withhold sufficient funds from the purchase
price to cover any SUT liabilities of the seller, until the
seller produces a:
i) Receipt from the BOE showing that all liabilities
have been paid; or,
ii) Certificate from the BOE stating that no amount is
due.
When a business purchaser requests a sales tax clearance
certificate, the BOE must either issue a certificate or
inform the purchaser of the amount that must be paid as a
condition of issuing the certificate.
b) The power of one little word : Under this bill, a
business purchaser would only become personally liable upon
intentionally failing to withhold from the purchase price
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an amount sufficient to cover the seller's SUT liabilities.
Thus, before imposing successor liability on a business
purchaser, the BOE would arguably be required to find that
(1) the purchaser knew of his/her legal obligation to
withhold funds from the purchase price and (2)
intentionally failed to comply with this requirement. This
would effectively turn the SUT Law's successor liability
provisions on their head, and render ignorance (or
potentially even negligent disregard) of one's legal
obligations a shield against successor liability.
Committee staff recognizes that there are situations in
which a business purchaser, unaware of her obligation to
withhold funds, is subsequently held liable for the SUT
liabilities of the business' former owner. Such
liabilities may very well impose a significant hardship on
the purchaser. Committee staff would note, however, that
individuals and businesses alike are held responsible for
complying with a myriad of laws and regulations, and in
almost all cases, ignorance of one's legal obligations does
not excuse compliance. Indeed, the Latin axiom "ignorantia
juris non excusat" is a bedrock principle of our legal
system.
c) Related legislation : SB 1501 (Johnson), of the 2001-02
legislative session, would have required the BOE to exhaust
all remedies against a business seller before proceeding
against the business purchaser. SB 1501 died in the Senate
Committee on Revenue and Taxation.
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization Member George Runner
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
AB 698
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