IN THE CONTEXT OF MERGERS AND ACQUISITIONS, THE buyer can engage in either a stock purchase or an asset purchase. While a stock purchase is typically simpler, the buyer generally assumes the seller’s tax liabilities, although the buyer is typically indemnified for those liabilities. For this reason, many business owners prefer to structure their acquisitions as an asset purchase. However, unless the buyer takes precautionary measures, the buyer can also be liable for certain taxes in an asset purchase, typically referred to as “successor liabilities” because they are liabilities of the successor company (i.e., the buyer). NEBRASKA SUCCESSOR LIABILITY 1. Sales or Use Taxes: In Nebraska, a buyer, as the immediate successor to the seller’s business, can become automatically liable for delinquent sales or use taxes the seller owes.1 Other provisions and case law also create buyer liability for a seller’s delinquent income tax.2 Buyers can mitigate risk of an unexpected tax liability in two ways under Nebraska law.3 First, the buyer can withhold a portion of the purchase price that is required to pay the outstanding tax liability, if known. Second, the buyer can require the seller to obtain a receipt from the tax commissioner showing taxes have been paid or a certificate stating that no amount is due, known as a Tax Clearance Certificate. In Nebraska, a certificate of clearance can be obtained by filing a Tax Clearance Application, Form 36, with the Nebraska Department of Revenue. 2. Personal Property Taxes: Personal property taxes are assessed locally and attach to the property, not the owner. If personal property taxes are not timely paid, a lien can attach to the property. As such, buyers should confirm whether personal property assets are subject to a lien. Buyers can perform lien searches for property taxes and review UCC filings for tax liens. 3. Real Property Taxes: The default rule in Nebraska is that the owner of real property as of Dec. 31 is liable for any taxes assessed and levied, but this default rule may be modified by contract.4 IOWA SUCCESSOR LIABILITY 1. Business Taxes: In Iowa, a buyer, as the immediate successor to the seller’s business, is personally liable for any delinquent taxes accrued in the operation of the seller’s business.5 Under Iowa law, a purchaser of substantially all the assets of business can have successor liability for sales tax,6 fuel tax,7 local option tax,8 and hotel/motel tax.9 Buyers can mitigate risk of an unexpected tax liability in three ways under Iowa law. The first two ways are similar to Nebraska. First, a buyer can withhold a sufficient portion of the purchase price to pay the amount of delinquent tax.10 Second, the buyer can request a statement of the amount of unpaid tax the seller owes by filing an Immediate Successor Liability Form 14-109 with the Iowa Department of Revenue.11 Thirdly, and uniquely to Iowa, a buyer “in good faith” can obtain a certified statement from the seller that no delinquent tax, interest, or penalty is unpaid.12 Importantly, the statement should specify that all taxes, including, but not limited to, income, sales, and use taxes, have been timely paid by the seller. A certified statement from a licensee, retailer, or seller BUYER BEWARE: Successor Liability in Business Acquisitions BY HANNAH FISCHER FREY, CARRIE SCHWAB & CHRISTOPHER THORPE, BAIRD HOLM LLP 18 Nebraska CPA
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