Unbeknownst to most buyers and sellers of businesses in Maryland (as well as New York and a handful of other states), MD law requires the buyer and seller of all or a substantial amount of a business's assets, when the asset sale is “not in the ordinary course of the transferor’s business,” to: (1) comply with a list of notice requirements (not the subject of this article); and (2) pay a 6% sales and use tax on the price of tangible personal property that is sold as part of a sale of a business.
The Bulk Sales tax applies to a business’s tangible personal property, such as furniture and fixtures, business records and customer lists, computer software, and non-capitalized goods and supplies. The Bulk Sales tax does not apply to a business’s real or intangible assets, most importantly intellectual property, goodwill, cash, or accounts receivable, and it does not apply to a business’s inventory as such inventory will be subject to Maryland sales and use tax when it is eventually sold to the business’s customers.
Consequently, this 6% sales and use tax can, unfortunately, be quite costly and often comes as a surprise to the buyers and sellers of a business. Buyers of business tax when a business sale is structured as an asset sale, as opposed to a sale of a business’s stock or eqsses, rightfully so, generally favor structuring the purchase and sale of a business as an asset sale. These buyers receive a stepped-up tax basis in the assets they purchase, avoid hidden liabilities and legal exposure that attach with simply purchasing an existing business’s equity, and are able to amortize goodwill. However, as we see time-and-time again, these same buyers (and sellers) frequently overlook the sales and use tax implications that specifically result from structuring the transaction as an asset sale.
Simply having knowledge of the existence of this additional 6uity, can be quite beneficial for both parties. With such knowledge and foresight of the impending Bulk Sales tax, the buyer and seller can avoid penalties and interest that arise from not paying the tax, can arrange and negotiate how to allocate the sales tax into the purchase price of the business assets, and can ultimately determine if it would be more beneficial to structure the purchase and sale of a business in a different manner.
For questions regarding the Bulk Sales Tax, please contact us at (703)-595-2836 or admin@bjkanglaw.com
The Bulk Sales tax applies to a business’s tangible personal property, such as furniture and fixtures, business records and customer lists, computer software, and non-capitalized goods and supplies. The Bulk Sales tax does not apply to a business’s real or intangible assets, most importantly intellectual property, goodwill, cash, or accounts receivable, and it does not apply to a business’s inventory as such inventory will be subject to Maryland sales and use tax when it is eventually sold to the business’s customers.
Consequently, this 6% sales and use tax can, unfortunately, be quite costly and often comes as a surprise to the buyers and sellers of a business. Buyers of business tax when a business sale is structured as an asset sale, as opposed to a sale of a business’s stock or eqsses, rightfully so, generally favor structuring the purchase and sale of a business as an asset sale. These buyers receive a stepped-up tax basis in the assets they purchase, avoid hidden liabilities and legal exposure that attach with simply purchasing an existing business’s equity, and are able to amortize goodwill. However, as we see time-and-time again, these same buyers (and sellers) frequently overlook the sales and use tax implications that specifically result from structuring the transaction as an asset sale.
Simply having knowledge of the existence of this additional 6uity, can be quite beneficial for both parties. With such knowledge and foresight of the impending Bulk Sales tax, the buyer and seller can avoid penalties and interest that arise from not paying the tax, can arrange and negotiate how to allocate the sales tax into the purchase price of the business assets, and can ultimately determine if it would be more beneficial to structure the purchase and sale of a business in a different manner.
For questions regarding the Bulk Sales Tax, please contact us at (703)-595-2836 or admin@bjkanglaw.com
MD Comm. Law § 6-102(1).
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