HAVE CLIENTS THAT ARE CONSIDERING BUYING OR SELLING A FLORIDA BUSINESS? – YOU SHOULD FOLLOW SB 170 / HB 103
You may already know, under current Florida law, the purchaser (transferee) of a business ASSUMES the past sales and use tax and communication service tax liabilities of the purchased business (transferor) without a full audit by the Florida Department of Revenue blessing the transaction (or by a certified sales tax auditor). See, §§ 213.758, 213.053, 213.10, 212.10, and 202.31, Florida Statutes ("F.S."). Think about it – an audit is bad enough. Does the seller of a business really want to initiate an audit in order to sell the business? What purchaser would be willing to buy the business without one? The current statutes are stifling the market of buying and selling businesses in Florida and savvy purchasers often require large contingency escrow accounts to hedge against adopting potentially large, unknown Florida tax liabilities. The escrow account often needs to stay in place for 3 years to allow the statute of limitations to run on Florida's ability to assess the relevant taxes.
[UPDATE - BILL PASSED AND SIGNED BY GOVENOR - READ MORE ABOUT IT BY CLICKING HERE]
What surprises many people is the same egregious rule forces liability on the buyer even when the buyer only purchases substantially all the assets of a business. See, § 213.758, F.S. That's right – even if a buyer does not want the business itself and merely wants the assets, the Florida Department of Revenue can still treat this as a purchase of the business itself and hold the buyer liable for any unpaid sales and use tax and communication service tax liabilities of the old business as if the entire business had been purchased. The old business owner is also jointly liable for the tax, but what if the old business owner is insolvent? What buyer wants to be surprised by a large tax assessment (with interest and 50%+ penalties) based on business activity of someone else's business? What tax professional wants to explain, after the fact, why their client is actually legally responsible for these taxes? The answer to both questions is clearly – none.
To address this problem, two identical bills have been introduced into Florida's Congress to provide relief to both buyers and sellers of businesses in Florida. House Bill 103 was filed by Representative WOOD on August 25, 2011 and the identical Senate Bill 170 was filed by Senator ALTMAN on August 29, 2011. There are various provisions in the Bills, but the heart of the matter is that if the new law is enacted, the buyer of a business could purchase a business or substantially all the assets of a business without assuming the sales and use tax and communication services tax liabilities of the prior business if:
- The transferee (buyer) receives a certificate of compliance from the transferor (seller) showing that the transferor (1) has not received notice of audit, (2) has filed all required tax returns, (3) has paid the tax due from those returns, and (4) there are no insiders in common between the transferor and the transferee; OR
- The Department of Revenue conducts an audit, at the request of the transferee or transferor, and finds that the transferor is not liable for any taxes.
In addition, according to the Senate Bill Analysis and Fiscal Impact Statement, the bills provide that section 213.758, F.S., would not impose liability on a transferee of a business, assets of a business, or stock of goods of a business when:
- The transfer is an involuntary transfer; or
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The transferee is not an insider; and
- The asset transferred is a 1 to 4 family residential real property, real property that has not been improved with any building, or owner-occupied commercial real property; and
- No other assets of the business are included in the transfer.
The net effect of these proposed bills would bring much greater certainty to the buyer of businesses (or unsuspecting buyer of substantially all the business assets) and make Florida businesses both more marketable and more valuable in the process. The Bills would effectively amend sections 213.758 and 213.053, F.S., and repeal sections 212.10 and 202.31, F.S. Most importantly, in today's economic climate, the Bills are not considered to be tax increases. As such, both bills have flown through various committees remaining intact and with unanimous support including:
HOUSE:
- Civil Justice Subcommittee (Yeas – 14, Nays – 0)
- Economic Affairs Committee (Yeas – 14, Nays – 0)
- Finance and Tax Committee (Yeas – 22, Nays – 0)
SENATE:
- Community Affairs (Yeas – 5, Nays – 0)
- Commerce and Tourism (Yeas – 6, Nays – 0)
- Budget Subcommittee on Finance and Tax (Yeas – 5, Nays – 0)
If you or a client of yours is considering buying or selling a Florida based business, then you should keep your eye on these bills. Both buyer and seller may come out ahead if the transaction takes place after (if) the bills become law. Furthermore, if you are in favor of this bill, then I encourage you to contact your locate Representatives and Senators to show your support.
If you are considering buying or selling a business in Florida, then make sure you have someone very knowledgeable in Florida State and Local Tax. Our firm consists of Florida licensed CPA's and Attorneys with strong state and local tax backgrounds and a primary practice are of Florida State and Local Tax Law. Contact us today for a free initial consultation about your proposed or executed business sale.
AUTHORITY
§ 213.758, F.S., Transfer of tax liabilities
§ 213.053, F.S., Confidentiality and information sharing
§ 213.10, F.S., Deposit of tax monies collected
§212.10, F.S., Sale of business; liability for tax; procedures; penalty for violations (Sales and Use Tax)
§ 202.31, F.S, Sale of business; liability for tax; procedures; penalty for violations (Communication Services Tax)
ADDITIONAL RESOURCES
Florida Senate Bill 170 (2011) Bill Analysis and Fiscal Impace Statement (1-6-2012)