Family Ties Don’t Outweigh Tax Liabilities in New York
- Feb 26, 2015 | Gail Cole
Picture this: A man opens a glass and mirror installation business in 1976. His son opens a glass and mirror installation business of his own in 1999. In 2008, the father dissolves his business and his son moves his business into his father’s business space. The son receives a client list from his father (along with the clients’ goodwill), and two vehicles. Two of the father’s employees stay on to work for the son. The father’s business sign remains in place, although one word is added to it; the letterhead and phone number of the father’s business is used by the son’s business.
Has a bulk sale of the father’s business to the son’s business occurred?
This is a real life situation in New York, and it has real tax consequences. The father operated Werner Glass from 1976 to December 2008; his son operated Werner Boys, Inc. in a separate location from 1999 to 2009. In 2009, the son moved his business to his father’s business space and added a word to the father’s Werner Glass business sign; the sign then said “Werner Glass Boys.”
Both father and son insist that no bulk sale took place. Unfortunately for the Werners, the New York State Department of Taxation and the New York State Division of Tax Appeals don’t see the situation in the same light. They determined that a bulk sale did occur based on the following reasons:
- The son moved his business into his father’s old business space, keeping fixtures and the slightly altered sign, and using the father’s old letterhead and phone number.
- The son obtained a client list from the father, along with the clients’ goodwill (evidenced by the son’s drastic increase in business).
- Two of the father’s employees stayed and were employed by the son.
- The son employed his father.
- The father’s business transferred two vehicles to the son’s business.
Both the Department of Taxation and the Division of Tax Appeals consider the purchaser (the son’s business) “liable for any sales tax remaining due and unpaid by the transferor to the extent of the greater of the actual purchase price or the fair market value of the assets transferred as of the date of the sale.” (See Tax Law § 1141 [c]; 20 NYCRR 537.0 [c] , 537.4 [c].)
It is the responsibility of the taxpayer to establish the fair market value of transferred assets, but in this case the taxpayer didn’t. Therefore, the New York State Division of Tax Appeals determined that the taxpayer “failed to meet its burden of proof challenging the Notice of Determination” by the Department of Taxation.
As a result, the New York State Division of Tax Appeals denied the petition for a revision of a determination or for a refund of sales and use taxes. Werner Boys, Inc. is liable for “additional sales and use tax in the amount of $314,162.82 for the period March 1, 1998 through February 28, 2009.” This could make family dinners more stressful.
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