When a person buys the assets of a business some assets are subject to sales or use tax, while others are not.
Items subject to retail sales tax
The following items (tangible personal property) are subject to sales tax:
- Capital assets such as machinery and equipment, office furniture, and vehicles
- Consumable supplies such as office supplies, stationery, forms, canned software and magazines
Generally, the sales tax should be collected by the seller and then paid to the Department. However, if the seller does not collect the sales tax, then the buyer must pay use tax directly to the Department on the tangible personal property acquired in a business purchase.
Items not subject to retail sales tax
The following items are not subject to sales tax:
- Real estate
- Inventory, if the buyer intends to resell it (the buyer must give a reseller permit to the seller)
- Machinery and equipment for manufacturing use, (the buyer must provide the seller an M&E exemption certificate)
- Intangible assets such as good will, stocks and bonds, etc.
As the buyer of a business, you could be liable for the unpaid taxes of the business. You may complete a Successorship Notice form (pdf) and provide it to the Department of Revenue to reduce your exposure to these tax liabilities. However, a successor could still be liable under RCW 82.32.140(4) if the Department issues an assessment within six months after receiving this form and the predecessor does not pay its tax liabilities.
A buyer should also generally require the seller to provide a Tax Status letter (pdf) with regard to any outstanding taxes owed by the business. The buyer may be required to withhold from the purchase price the amount of any outstanding taxes indicated on the letter and remit the tax to the Department of Revenue. Failure to do so could make the buyer liable for payment of the tax. See WAC 458-20-216 for more information about successor liability.