Further to our last blog post regarding income taxes, the business buyer and seller must also pay attention to sales tax and property tax considerations.

Sales Tax Considerations:
When a business is sold, the seller typically transfers two types of tangible personal property to the buyer: (1) equipment and furniture, and (2) stock in trade and merchandise. Because the stock in trade and merchandise of the business is usually sold to the buyer for purposes of resale in the regular course of business, the sale of that type of property is not taxable as a retail sale. However, because the State Board of Equalization may presume that all gross receipts are subject to sales tax and the seller has the burden of proving that a sale of tangible personal property is not a retail sale, the seller should always obtain a resale certificate from the buyer. Because the other business assets, such as furniture and equipment, are not generally sold for resale, the gross receipts from their sale are subject to taxation unless they are ”intangible” or otherwise exempt under the Revenue and Taxation code. A common exemption available to some taxpayers relates to “occasional sales exemption” which is a sale of business furniture and equipment used in a business that does not involve retail sales – i.e., the taxpayer conducts an activity (providing a service) for which a sales tax permit is not required. Although the seller must report any taxable proceeds on his or her final sales tax return this tax is often chargeable to the buyer.

Property Tax Considerations:
If the sale of the business includes the real property on which the business is conducted (or personal property that is affixed to the real property), the buyer faces property tax consequences. All property in California is subject to property taxation at its full value on an annual basis.

Therefore, in order to conduct a smooth transaction, it is very important for a business seller and the business buyer to consider implications of both Sales and Property Tax.

For expert advice on business selling and business buying, keep visiting Quantum™ Blog.

This entry was posted on Sunday, February 24th, 2008 at 9:53 am and is filed under Quantum Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.