Are you familiar with the New Jersey Bulk Sales Act? It’s an important part of state tax laws that can apply to different types of business owners and real estate investors. Above all, it’s important to understand the consequences of failing to comply with this portion of the law.
According to the New Jersey State Department of the Treasury, Tax Division, the bulk sales laws are designed to protect the purchasers of business assets from unfair tax liabilities. With that in mind, the first trick is to understand what is considered a bulk sale. In short, it is anything a business sells that is outside their ordinary course of business.
By and large, this could apply to a number of situations. For example, you could own a small boutique in a retail setting. Your ordinary course of business includes the sale of ladies clothing and accessories. After a few years, you decide to sell the shop. You, therefore, offer the fixtures, display cases, and store racks as part of the transfer of the business.
Once you sell assets that are not a part of selling your regular inventory to retail customers, you have moved away from your ordinary course of business. Therefore, the Bulk Sales Act would apply to any transactions essentially involving the tools used to display items. So, what does that mean exactly?
First, you may want to take a look at the actual statute regarding bulk sales, found at NJSA 54:50-38. Additionally, you should be aware that real estate investors should know about this particular section of the law. In some circumstances, the Bulk Sales Act applies to the “sale, transfer or assignment of a simple dwelling house if the seller, transferrer or assignor is a business entity, including but not limited to a corporation or a partnership.”
Meanwhile, there are exceptions to this law as it pertains to real estate investors. For example, the sale of some seasonal rental units may not be subject to bulk sales actions. An attorney with experience in transactional law can help you determine if you are facing tax consequences under this portion of New Jersey’s tax code.
Once a determination has been made regarding your obligations under the New Jersey Bulk Sales Act, you need to know how to proceed. Again, this is something your lawyer can assist you with to avoid confusion.
Before the actual sale or transfer, the State of New Jersey requires notification in writing. This must be done at least ten days prior to the pending contract of sale or transfer. Additionally, the contract for sale or transfer must be submitted with the form filed with the state.
What happens if a buyer takes ownership before the ten-day notice requirement period? At this point, the purchaser could find themselves liable for taxes that would have been assessed to the seller.
After the necessary forms have been reviewed, the state will then contact the buyer regarding state tax liability. As a consequence, the purchaser may need to hold funds in escrow until a determination is made concerning payment of the tax. If no tax is due, the buyer will be supplied a letter of clearance.
As you can see, notice obligations are an important part of the process. In order to comply with them, it is important to speak with an attorney who has experience dealing with the New Jersey Bulk Sales Act.
Whether you or buying or selling business assets, the Law Offices of Lawrence M. Centanni can assist you. Contact us to schedule an appointment.