As times are getting tougher for businesses, and the State of New Jersey is getting more hungry for tax revenues, we are seeing a crackdown by the State on enforcement of the bulk sale notification requirements. The statute containing those requirements, N.J.S.A. 54:32B-22(c), provides as follows:
(c) Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the director by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferrer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this act, and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.
Whenever the purchaser, transferee or assignee shall fail to give notice to the director as required by the preceding paragraph, or whenever the director shall inform the purchaser, transferee or assignee that a possible claim for such tax or taxes exists, any sums of money, property or choses in action, or other consideration, which the purchaser, transferee or assignee is required to transfer over to the seller, transferrer or assignor shall be subject to a first priority right and lien for any such taxes theretofore or thereafter determined to be due from the seller, transferrer or assignor to the State, and the purchaser, transferee or assignee is forbidden to transfer to the seller, transferrer or assignor any such sums of money, property or choses in action to the extent of the amount of the State’s claim. For failure to comply with the provisions of this section the purchaser, transferee or assignee, in addition to being subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, shall be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act."
In 1995, I co-wrote an article with my former colleague, Susan Inverso, entitled "What Secured Lenders Need to Know About Notice Requirements and Tax Liabilities Before Repossessing Personal Property" This topic is becoming more relevant today, as more lenders are repossessing property and taxing authorities trying to make up shortfalls in State budgets by action to collect delinquent taxes.
The State of New Jersey has made clear that they intend that statute to apply not only to transfers of personal property, but also to real estate if the real estate is the principal asset of the seller.
The statute also applies to any transfer, regardless of the dollar amount. This means that even if the transfer is for no consideration, the buyer or transferee must comply with the bulk sale notification procedures. If the seller owes taxes, either the seller or buyer must come up with the escrow amounts. Otherwise, the buyer will be liable for the seller’s state tax obligations.
Before accepting the transfer of any property outside of the ordinary course of business, you should confirm that all requirements, such as the New Jersey Bulk Sale Transfer Notice requirements, are met, so that no unforeseen liabilities result from the transfer.