Successor Liability

What is successor liability?

Transfers of business: A dealer selling out a business must make final return and payment in 15 days after the date of the sale or termination of the business. If the dealer opens a similar business under the same ownership, he is liable for any tax, interest, or penalty owed by the original business. [La. Rev. Stat. Ann. §47:308; La. Admin. Code §61:I.4357.]

Business buyers: A purchaser of a business, or purchaser of a portion of a business, must withhold a sufficient amount of the purchase money to cover taxes, interest, and penalties due and unpaid until the former owner produces a receipt from Secretary of Revenue showing payment or a certificate stating that no taxes, etc. are due. Failure to do so renders purchaser personally liable for taxes, etc. accrued and unpaid on the former owner's business. A dealer, who quits a business and later opens another similar business under the same ownership, is liable for any tax, interest, or penalty owed by the original business. [La. Rev. Stat. Ann. §47:308; La. Admin. Code §61:I.4357.] The Louisiana Department of Revenue will not honor any contracts between the purchaser and seller that purport to circumvent the statutory requirements holding the purchaser personally liable for the tax debt owed by the seller in the event the purchaser fails to obtain the necessary tax certification from the seller indicating that the business owes no outstanding taxes to the Louisiana Department of Revenue prior to purchasing the business.

What can a purchaser do to avoid successor liability?

A purchaser of a business or its assets should ensure that there are no outstanding tax liabilities. To do so, the purchaser should request a Louisiana Department of Revenue Letter of Good standing from the seller. Only the seller of the business or a party with a signed disclosure form can obtain this Letter. The Louisiana Department of Revenue will not issue a Letter of Good standing if there is an outstanding tax balance or unfiled tax returns. If there are outstanding liabilities, the law requires that the purchaser must withhold the outstanding amount of the purchase price.

The purchaser’s personal liability is limited to the amount of consideration paid for the business.

The purchase price may include:

• Funds paid or to be paid for the business
• Assets being transferred
• Debts assumed or forgiven by the purchaser
• Value of any assets given in trade or exchange for the business or assets transferredli>

The Louisiana Department of Revenue includes any transfers of ownership to determine whether a purchaser is a successor. Therefore, transfers of ownership via gifts, stock purchase agreements, exchanges of stock, asset purchases, profit sharing, donations or otherwise will be considered by the Louisiana Department of Revenue in determining whether a purchaser of a business will be held personally liable for unpaid taxes owed by the seller.

If you have any further questions you may email us at business.tax@la.gov or call us at 1-855-307-3893.