A new law now requires that the Michigan Department of Treasury provide a purchaser of a business with the business’ known, or estimated, tax liability within 60 days of requesting this information. If the Michigan Department of Treasury fails to provide this information within 60 days of the purchaser’s request, the purchaser will not be liable for any unpaid taxes of the seller.
Senate Bill No. 337 which was signed into law by Governor Snyder on January 30, 2014 amended MCL 205.27a (among other changes). MCL 205.27a requires a purchaser of a business to put in escrow sufficient money to cover the tax liability of the seller under a theory of “successor liability”. Under successor liability, the purchaser of a business may be liable for the taxes incurred by the business under its previous owner when the previous owner fails to pay.
Before the new law took effect, however, the purchaser might not have known what the true tax liability of the seller was as the Michigan Department of Treasury was under no obligation to release this information within 60 days of a purchaser’s request. Under the new law, the Michigan Department of Treasury has 60 days to provide the known or estimated tax liability of a business to the purchaser upon request. If the purchaser puts money in escrow in the amount of the known or estimated tax liability of the business as provided by the Michigan Department of Treasury, the purchaser cannot be held liable for more than the known or estimated tax liability disclosed by the Michigan Department of Treasury. Furthermore, if the Michigan Department of Treasury fails to provide this information within 60 days of a request from the purchaser, the purchaser cannot be held liable.
Although the new law adds more protection and predictability to purchasers of businesses, it is important to ensure compliance with the requirements of MCL 205.27a. For example, if a purchaser fails to request this information from the Michigan Department of Treasury or does not put money in escrow to cover the amount, the purchaser may be liable for all taxes owed by the business. In addition, a purchaser should remember that they must obtain a written waiver of confidentiality by the seller in order to request the tax liability from the Michigan Department of Treasury.
The full text of the amended law can be accessed at the link below:
If you have any questions regarding the purchase of a business or changes under the new law, please contact the attorneys at Demorest Law Firm.
