When a person sells a business, the tax requirements vary with what is being sold. Sales of some assets are subject to the business and occupation tax and/or sales tax, while others are not.
Capital assets and consumable supplies
Sales of capital assets and consumable supplies are not subject to business and occupation tax (B&O) if the seller does not regularly sell this type of property. These sales qualify for the "casual or isolated sale" B&O tax deduction. However, this does not relieve the seller from the obligation to collect retail sales tax on such sales .
Examples of capital assets include:
- machinery and equipment
- office furniture
Consumable supplies include:
- office supplies and forms
- reference books and magazine subscriptions
- canned software
The sale of inventory is subject to B&O tax. If the seller obtains a copy of the buyer's reseller permit then the sale is subject to the wholesaling B&O tax. If a reseller permit is not provided, retailing B&O and retail sales tax applies.
Good will and other intangible assets
Sales of intangible assets, such as good will, are not subject to either business and occupation tax or sales tax (casual sales).
Final tax reporting requirement
Persons selling their business must file a final tax return, with payment, within 10 days of the sale. If you do not have a current tax return, use the Multi-Purpose Combined Excise Tax Return.
Personal property tax
Generally, the county treasurer's office must be contacted when a business is sold. Property tax must be paid to the county treasurer if the property will be sold, destroyed, disposed of, or removed from the county.
If you have questions about the personal property tax, contact your local county treasurer or assessor.
Real estate excise tax
Sales of real estate are subject to the real estate excise tax which is paid to the county treasurer when the change of title is recorded. Also, sales of the controlling interest (50 percent or more) of an entity (corporation, LLC, partnership, etc.) that owns real property located in Washington are also subject to real estate excise tax.
The buyer of a business may be liable for the unpaid taxes of the former owner. If any tax due is not paid within 10 days of the sale of the business, the new owner is liable for the full amount of tax. Therefore, the buyer should require the seller to provide a Tax Status letter obtained from the Department of Revenue.
Under Washington's successor liability law, the buyer must hold back enough money to pay off any taxes due, unless the former owner can prove that they have paid the tax or that no tax is owed.
See WAC 458-20-216 for more information about successor liability.