Earlier this year, Indiana instituted new successor liability notice requirements for sellers and buyers involved in bulk transactions of businesses and business assets in Indiana. For deals closing on or after Feb. 14, 2024, and involving transfers of more than 50% of the tangible personal property of a business, transferees may be liable for the past due Indiana taxes of transferors, including penalties, and interest, up to the amount of the purchase price or value of the tangible personal property transferred. The Indiana tax liabilities included are sales, use, county innkeepers, and food and beverage taxes. The test for determining whether a transferee is a successor in liability is measured by the value of tangible personal property, including inventory, transferred over the total value of tangible personal property owned by the transferor legal entity at the time of the transaction, regardless of location.

A Notice of Transfer in Bulk must be filed with the Indiana Department of Revenue (DOR) at least 45 days before taking possession or paying the purchase price in a transfer or sale of tangible personal property of the business. The notice may be filed by the transferor or transferee and must include all required information and documentation.

If a completed Notice of Transfer in Bulk is filed with the DOR and the transferor has outstanding tax liabilities or past due returns, the DOR will provide a summary of sales, use, food and beverage and county innkeeper’s tax liabilities, including missing or estimated periods. If the transferor has no outstanding tax liabilities or past due returns, the DOR will mail a tax clearance letter to the transferor and transferee within 20 days after DOR’s receipt of the Notice of Transfer in Bulk. If the DOR fails to mail a tax liability summary within 20 days, then the potential successor in liability will not be liable for the transferor’s tax liabilities, unless the transfer was not at arm’s length or was a gift. The transferee will be liable for transferor taxes if the parties complete the transfer or payment before receiving a tax clearance letter. A tax clearance letter is valid for 60 days, and if the parties do not complete the transfer within 60 days, a new notice must be submitted.

A transferee may become a successor in liability even if the transferor does not receive any consideration up to the value of the assets transferred, in which case the DOR may require that the successor in liability provide a third-party valuation for the assets. Moreover, successor in liability status is determined by statute and may not be altered by agreements and contracts between a buyer and seller.

Bottom Line: Beware of Indiana successor liability issues for state taxes for failure to comply with advance notice filing requirements for transfers of business assets.

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