Most business owners are aware of their obligation to collect and remit sales tax for products and services sold. Sales tax also plays a role in the liquidation or sale of your business. The failure to take certain simple steps could result in an unexpected sales tax liability.
In general, sales tax is imposed when a person or entity: (i) sells, licenses, leases, or rents; (ii) tangible personal property; (iii) at retail; (iv) as a retailer; (v) in Wisconsin. As it relates to the assets used in your business, the liquidation or business sale satisfies all of these elements and a tax will be owed unless an exemption is applicable. The “occasional sales” exemption may apply, if proper procedures are followed.
An often overlooked aspect of the occasional sales exemption is that you must relinquish your seller’s permit for it to apply. To relinquish your seller’s permit, make a written request to the Department of Revenue by mail, phone, or e-mail (firstname.lastname@example.org) with your business name, address, seller’s permit number, and the date the business ceased operations. The seller’s permit is deemed to be relinquished at 12:01 a.m. on the day the inactivation request was properly sent, meaning that you can perform this action even after the transaction closes if there is uncertainty that the deal will go through.
The Supreme Court of Wisconsin concluded that holding any seller’s permit will preclude use of the occasional sales exemption, regardless of the specific purpose for the seller’s permit. Therefore, any seller’s permit must be inactivated prior to the liquidation or business sale to avoid a sales tax liability. If you are partially liquidating while continuing another portion of your business that requires a valid seller’s permit, you may have to balance your various seller’s permit obligations.
If you have any questions about how the information in this article may affect you or your business, please call(608) 257‑2281 or contact your Stroud attorney.
DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice. This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship. You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.