PERMANENT RULES
Date of Adoption: March 31, 1999.
Purpose: To explain the circumstances under which a person is considered a successor to a person quitting business. Successors are liable for the payment of any outstanding tax liability incurred by the person to whom the successor succeeds.
Citation of Existing Rules Affected by this Order: Amending WAC 458-20-216 Successors, quitting business.
Statutory Authority for Adoption: RCW 82.32.300.
Adopted under notice filed as WSR 99-04-014 on January 22, 1999.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 1, Repealed 0. Effective Date of Rule: Thirty-one days after filing.
March 29, 1999
Russell W. Brubaker
Assistant Director
Legislation and Policy Division
OTS-2336.2
AMENDATORY SECTION(Amending Order ET 70-3, filed 5/29/70, effective 7/1/70)
WAC 458-20-216
Successors, quitting business.
(1) Introduction. RCW 82.32.140 requires a taxpayer to remit any outstanding tax liability to the department of revenue (department) within ten days of quitting business. If this tax is not paid by the taxpayer, any successor to the taxpayer becomes liable for the outstanding tax. This rule explains under what circumstances a person is considered a successor to a person quitting business. It explains the successor’s responsibility for payment of an outstanding tax liability incurred by the person quitting business. This rule also provides examples illustrating when successorship does or does not apply.
(2) "Successor" defined. For purposes of this rule, the term "successor" means:
(a) Any person to whom a taxpayer quitting, selling out, exchanging, or disposing of a business sells or otherwise conveys, directly or indirectly, in bulk and not in the ordinary course of the taxpayer's business, a major part of the materials, supplies, merchandise, inventory, fixtures, or equipment of the taxpayer. RCW 82.04.180. Persons acquiring only intangible assets such as copyrights and trademarks are not "successors."
(i) A person is a successor if he or she acquires a major part of the taxpayer’s materials, supplies, merchandise, inventory, fixtures, or equipment in bulk, whether he or she operates the business or not. A person acquires a "major part" of the materials, supplies, merchandise, inventory, fixtures, or equipment if he or she acquires more than fifty percent of the fair market value of any such property at the time of conveyance.
(ii) However, persons who acquire a major part of a taxpayer’s materials, supplies, merchandise, inventory, fixtures, or equipment through insolvency proceedings or regular legal proceedings to enforce a lien, security interest, or judgment, or by repossession under a security agreement are not successors.
(b) Any person obligated to fulfill the terms of a contract as a guarantor of a defaulting contractor is deemed a successor to that contract. RCW 82.04.180.
(3) Responsibility for outstanding tax liability. Whenever ((any)) a taxpayer quits
business, sells out, exchanges or otherwise disposes of his or her business ((or his stock of
goods)), any tax ((payable hereunder)) administered by the department and which the taxpayer is
liable for shall become immediately due and payable((, and such)). The taxpayer shall, within
ten days ((thereafter, make a)) of quitting, selling out, exchanging, or otherwise disposing of the
business, complete a tax return and pay the tax due. ((Any person who becomes a successor to
such business shall become liable for the full amount of the tax and)) RCW 82.32.140.
(a) A successor shall withhold from the purchase price a sum sufficient to pay any tax due
from the taxpayer until ((such time as)) the taxpayer ((shall)) produces a ((receipt)) statement of
tax status from the department ((of revenue)) showing either no tax is due or payment in full of
any tax due ((or a certificate that no tax is due)). If the tax is not paid by the taxpayer within ten
days from the date of sale, exchange, or disposal of the business, the ((purchaser or)) successor
shall become liable for the payment of the full amount of tax. RCW 82.32.140.
(b) The payment ((thereof)) of the seller's tax liability by the ((purchaser or)) successor
shall((, to the extent thereof,)) be deemed a payment upon the purchase price. If ((such)) the sum
of the payment to the department plus any payments made, directly or indirectly, to the seller is
greater in amount than the purchase price, the amount of the difference shall become a debt due
the ((purchaser or)) successor from the taxpayer. RCW 82.32.140.
((A successor shall not be liable for any tax due from the person from whom he has
acquired a business or stock of goods, if he gives written notice to the department of such
acquisition and no assessment is issued by the department within six months of receipt of such
notice against the former operators of the business and a copy thereof mailed to such successors.
The word "successor" means any person who shall, through direct or mesne conveyance, purchase or succeed to the business, or portion thereof, or the whole or any part of the stock of goods, wares, merchandise or fixtures or any interest therein of a taxpayer quitting, selling out, exchanging or otherwise disposing of his business. Any person obligated to fulfill the terms of a contract shall be deemed a successor to any contractor defaulting in the performance of any contract as to which such person is a surety or guarantor.
The work "successor" includes all persons who acquire the taxpayer's equipment or merchandise in bulk, whether they operate the business or not, unless the property is acquired through insolvency proceedings or regular legal proceedings to enforce a lien, security interest, judgment, or repossession under a security agreement.)) (c) A successor is not liable for any tax due from the taxpayer if:
(i) The successor provides written notice of the acquisition to the department; and
(ii) Within six months of receiving the written notice, the department has not issued a tax assessment against the taxpayer and mailed a copy of a notice of tax due to the successor. RCW 82.32.140.
(d) Written notice of the acquisition must be sent either to Department of Revenue, Taxpayer Account Administration, P.O. Box 47476, Olympia, Washington 98504-7476 or to one of the department's field offices. The six-month period begins upon the department's receipt of the written notice. The written notice must contain the following information:
(i) The taxpayer’s name, business name, address, and UBI number if known;
(ii) The date of the acquisition;
(iii) A statement that the successor acquired assets of the taxpayer who was quitting business; and
(iv) A description of the assets acquired.
(4) Examples. The following factual situations illustrate the application of ((the
foregoing:)) successorship. These factual situations should be used only as a general guide. The
successorship status of each situation depends on all the facts and circumstances.
(((1))) (a) Taxpayer ((sells)) quits business and ((stock of goods)) sells all equipment,
fixtures, and inventory to one purchaser. The taxpayer may be either solvent or insolvent at the
time of sale. The purchaser is ((the)) a successor.
(((2) Taxpayer sells stock of goods in bulk. Purchaser is the successor, even though
taxpayer continues in business through purchase of new stock.
(3))) (b) Taxpayer quits business, selling only intangible assets consisting of customer lists and a covenant not to compete. The purchaser is not a successor.
(c) Taxpayer sells business, including all fixtures((, good will, etc.,)) and equipment to
((one party)) Purchaser A, and ((his stock of goods)) all inventory to ((another)) Purchaser B. Both purchasers are successors.
(((4) Taxpayer sells one branch of the business and stock of goods, and continues to carry
on his business at other locations. Purchaser is successor to the portion of the business purchased
and liable for any tax incurred in the operation of that business.
(5))) (d) Taxpayer sells business, including all fixtures, equipment, and inventory in the following percentages of fair market value to three purchasers:
| PURCHASER A | PURCHASER B | PURCHASER C |
| 55% of fixtures | 25% of fixtures | 20% of fixtures |
| 30% of equipment | 30% of equipment | 40% of equipment |
| 30% of inventory | 55% of inventory | 15% of inventory |
(e) Taxpayer obtains a loan from a financial institution to purchase equipment, fixtures, and inventory. The financial institution secures the loan by taking a security interest in the equipment, fixtures, and inventory. Taxpayer quits business, leaving the equipment, fixtures, and inventory behind. The financial institution repossesses these items. The financial institution is not a successor.
(f) Taxpayer purchases all equipment and inventory under a line of credit extended by a bank and guaranteed by a third party. The third party perfects a security interest in the equipment and inventory. Taxpayer quits business, surrendering the equipment and inventory to the third party guarantor. The third party guarantor is not a successor.
(g) Taxpayer leaves business, including fixtures ((and stock of goods)), materials and
inventory, which ((his)) the landlord holds for unpaid rent. The landlord ((will be a successor
unless he proceeds to foreclose his landlord's lien by posting notice and holding a sale by the
sheriff.
(a) If the landlord, instead of foreclosing his lien, takes a bill of sale to all of the taxpayer's interest in the business or stock of goods in satisfaction of rent, he is a successor.
(b) If the landlord fails to foreclose his lien and sells the fixtures or stock of goods and the purchaser continues the business or a similar business, the purchaser is a successor.
(c) If the taxpayer does not leave any fixtures or stock of goods and the landlord engages in a like business in the same location or rents to a third person, neither the landlord nor the third person is a successor.
(6))) forecloses the landlord's lien using the summary foreclosure provisions of RCW 60.10.030, or holds a foreclosure sale by the sheriff, or accepts a bill of sale in satisfaction of the landlord's lien for rent created by RCW 60.72.010. The landlord is not a successor.
(h) Taxpayer purchases ((business,)) all equipment((, or stock of goods)) and inventory
under a security agreement ((and)).
(i) If the property is repossessed by the vendor, the vendor is not a successor.
(((a) If the vendor sells to a third person who continues the business, the third persons is
not a successor.
(b))) (ii) If the taxpayer sells his or her equity under the security agreement to a third person, the third person is a successor.
(((c))) (iii) If the ((property)) equipment and inventory is not repossessed and the vendor
buys back the interest of the taxpayer without following the summary foreclosure provisions of
RCW 60.10.030, the vendor is a successor((, and any third person who purchases the same from
such vendor and continues the business is also a successor)).
(((7))) (i) Taxpayer dies or becomes bankrupt, goes into receivership, or makes an
assignment for the benefit of creditors. (((a))) The executor, administrator, trustee, receiver, or
assignee is not a successor but stands in the place of the taxpayer and is responsible for payment
of tax out of the proceeds derived upon disposition of the assets. (((b))) A purchaser from the
executor, administrator, trustee, receiver, or assignee is not a successor, unless under the terms of
the purchase agreement ((he)) the purchaser assumes and agrees to pay taxes and/or lien claims.
(((8))) (j) Taxpayer is a contractor and is required to post a bond to insure completion of
the contract. Taxpayer defaults on the contract and the bonding company completes it. The
bonding company is a successor to the contractor to the extent of the contractor's liability for that
particular contract and is also liable for taxes incurred in the completion of the contract.
((Bulk transfers. Under chapter 62A.6 RCW persons whose principal business is the
sale of merchandise from stock (including manufacturers) who transfer
(1) A major part of the materials, supplies, merchandise or other inventory of the business; or
(2) All or substantially all of the equipment of the business are required to furnish to the transferee a sworn list of all creditors, showing their names, addresses, and amounts owed. The parties (both the transferor and transferee) are then required to prepare a schedule of property being transferred, the schedule to be sworn to by the transferor. The list of creditors and schedule of property must be
(a) Preserved by the transferee for 6 months available for inspection and copying by any creditor,
(b) Filed by the transferee with the county auditor, and
(c) Served by the transferee on the department of revenue.
In addition to the foregoing, the transferee must, at least 10 days prior to taking possession of the goods or making payment for them, give notice of the transfer to
(1) All persons shown on the list of creditors,
(2) Any other persons known to hold or assert claims against the transferor, and
(3) The department of revenue.
The notice to creditors must also be filed with the county auditor and shall state
(1) That a bulk transfer is about to be made,
(2) Names and business addresses of the transferor and transferee,
(3) Whether debts of the transferor will be paid in full as they fall due and if so (a) the location and general description of the property to be transferred, (b) the estimated total of the transferor's debts, and (c) certain other information specified by RCW 62A.6-107.
Revised June 1, 1970.))
[Order ET 70-3, § 458-20-216 (Rule 216), filed 5/29/70, effective 7/1/70.]