WAC 216

"Consumer."

Deficient tax or penalty payments--Notice--Interest--Limitations.

"Business."

Correction of tax--Administrative procedure--Conference--Determination by department.

Reduction of tax after payment--Petition--Conference--Determination by department.

"Successor."

Successors, quitting business.Effective 7/1/70.Updated 5/1/99. Update effective 7/31/05.

Bankruptcy liquidations: Retail sales and use tax

BANKRUPTCY LIQUIDATIONS: SALES AND USE TAX Revised 2/2/09 See ETA 3087.2009

SUCCESSORSHIP -- DEFACTO CORPORATION AS PREDECESSOR -- SUCCEEDING TO TAX LIABILITY.Purchasing a business from a corporation which has not registered with the Secretary of State does not defeat one's successorship liability if the taxpayer had knowledge that he was dealing with a corporation, defacto or otherwise. The taxpayer is estopped from asserting lack of capacity. American Radiator Co. v. Kinnear, 56 Wn. 210, 105 P. 630 (1909).

SUCCESSORSHIP -- DEFINITION -- OVERLY BROAD. The definition of successorship is not overly broad.It is a rational means of collecting taxes which might otherwise be uncollectible. Tri-Financial v. Dept. of Rev., 6 Wn. App. 637, 495 P.2d 690 (1972).

SUCCESSORSHIP -- REGULAR LEGAL PROCEEDING TO ENFORCE A LIEN -- USC 6325 (b) (2) (A) -- "RELEASE OF LIEN OR DISCHARGE OF PROPERTY." The procedure to obtain a release of IRS lien on property under USC 6325 (b) (2) (A) is a "regular legal proceeding to enforce a lien."

EXCISE TAXES -- SUCCESSOR LIABILITY -- BONA FIDE PURCHASER OF ASSETS -- PARTIAL PAYMENT OF PREDECESSOR'S DEBTS. Taxpayer purchasing assets of a defunct business from the IRS does not become successor notwithstanding the fact that it pays certain dishonored checks or past-due obligations of the predecessor.

SUCCESSOR -- NOTICE. The Department is only barred from issuing an assessment of successorship liability if the successor has given written notice to the department of the acquisition of a business and no assessment is issued within six months of receipt of thesuccessor's notice.

SUCCESSORSHIP -- MAJOR PART OF THE MATERIALS, SUPPLIES, MERCHANDISE, ETC. RCW 82.04.180 requires, among other things, that a taxpayer acquire a "major part of the materials, supplies, merchandise, inventory, fixtures, or equipment" of its predecessor, if the taxpayer is to be a "successor" as defined in that statute.

RETAILING B&O TAX -- RETAIL SALES TAX -- USE TAX -- SUCCESSORSHIP -- NOTICE OF ASSESSMENT TO SUCCESSOR.After receiving written notice of acquisition from a successor, a notice of successorship from the Department of Revenue merely indicating liability resulting from purchasing the seller's business or assets, without mailing a copy of the seller's assessment within six months to the successor or, at least, a written notice stating an amount due, type of tax, and a payment due date, is not an assessment notice as required by RCW 82.32.140.Accord:Det. No.

SUCCESSORSHIP -- “STEP TRANSACTION DOCTRINE”.The Department may not collapse steps of a transaction to determine successorship.For example, the fact that a lessor repossesses property and immediately leases the property to a third party may not be treated as the acquisition of property from the previous lessee.

SUCCESSORSHIP -- ELEMENTS -- OPERATION OF A SIMILAR BUSINESS.Whether a person operates a business similar to that of the alleged predecessor is irrelevant to a determination of successorship.

SUCCESSORSHIP -- “MAJOR PART OF THE MATERIALS, SUPPLIES, INVENTORY, FIXTURES, OR EQUIPMENT.”The element of successorship requiring the acquisition of a "major part of the materials, supplies, inventory, fixtures, or equipment" refers to the tangible personal property of the alleged predecessor and does not include intangible property.

SUCCESSORSHIP -- ELEMENTS.The five elements of a statutorily defined successor are:(1) The successor must acquire from a taxpayer; (2) who is selling out, exchanging, or disposing of a business; (3) in bulk and not in the ordinary course of business; (4) by sale or conveyance; (5) a major part of the materials, supplies, merchandise, inventory, fixtures, or equipment of the delinquent taxpayer.

SUCCESSORSHIP -- ENFORCEMENT OF A LIEN--PEACEFUL REPOSSESSION.A secured party’s acquisition of property by “regular legal proceedings to enforce a lien” does not subjectit to successorship liability.Peaceful repossession qualifies as a regular legal proceeding.Acceptance of a bill of sale in satisfaction of a lien is a peaceful repossession.

SUCCESSORSHIP -- LANDLORD’S LIEN.The holder of landlord’s lien has the same rights as a secured creditor and is entitled to same defenses against an assessment of successorship liability.

SUCCESSORSHIP -- ELEMENTS.The five elements of a statutorily defined successor are:(1) The successor must acquire from a taxpayer; (2) who is selling out, exchanging, or disposing of a business; (3) in bulk and not in the ordinary course of business; (4) by sale or conveyance; (5) a major part of the materials, supplies, merchandise, inventory, fixtures, or equipment of the delinquent taxpayer.

B&O TAX -- SUCCESSOR -- LIABILITY OF.The successor of a business is liable for excise taxes left unpaid by the former owner of the business as provided by RCW 82.32.140 and RCW 82.04.180.The successor liability provisions provide constitutionally valid means of collecting taxes.

SUCCESSORSHIP -- LANDLORD'S LIEN -- FORECLOSURE -- TIMING. The provisions of Rule 216 do not prohibit foreclosure action which would cure successorship from occurring after a Notice of Successorship Liability is issued.

SUCCESSORSHIP -- MERCHANDISE -- ACQUISITION.The acquisition of a predecessor's merchandise subjecting a taxpayer to successorship liability does not have to be by virtue of a direct conveyance or sale by that predecessor.

SUCCESSORSHIP -- LANDLORD'S LIEN -- SUMMARY FORECLOSURE.

MERGER -- LIABILITY OF SURVIVING CORPORATION FOR PENALTIES IMPOSED ON DISAPPEARING CORPORATION.The surviving corporation of a merger is not a successor corporation under the successor corporation statute and rule that limit a successor corporation to liability for taxes only because the disappearing corporation did not sell or convey the assets to the surviving corporation.The surviving corporation of a merger is liable for interest and penalties, as well as taxes, imposed on the disappearing corporation prior to the merger.Citing, Palmer v.

COMMUNITY PROPERTY -JOINT DEBT - LIABILITY.A debt incurred by either spouse during marriage is presumed to be a community debt. The acid test to determine whether an obligation incurred by a spouse is a community debt is whether or not the transaction was intended for the benefit of the community or expectation of benefit for the community.

TAX LIABILITY - DISSOLUTION DECREE - RELEASE FROM LIABILITY TO PAY. The court in a divorce action cannot adjudicate the rights of creditors who are not parties to the action. A Decree of Dissolution that required the husband to pay the liability owed to the Department of Revenue does not preclude the Department from seeking payment from the wife.

82.32.140: SUCCESSORSHIP – EQUIPMENT – TRANSFER. When newly-acquired equipment was knowingly and intentionally placed in an existing corporation in order to take advantage of its limited liability and corporate insurance coverage pending the formation of a new corporation, passing only briefly through the names of the shareholders, the equipment was indirectly acquired by the newly-formed corporation, and its designation as a successor was justified.

RCW 23B.14.220:CORPORATION -- ADMINISTRATIVE DISSOLUTION -- REINSTATEMENT.A corporation that was administratively dissolved and subsequently reinstated by the secretary of state was a valid corporate entity for all periods after incorporation.The reinstatement related back to the time of dissolution.

CORPORATION -- ADMINISTRATIVE DISSOLUTION -- OFFICERS LIABLE AS PARTNERS.Corporate officers were not liable as partners for corporate debt where a valid corporate entity existed at the time the tax liabilities were incurred.

EXCISE TAXES – LIABILITY OF SUCCESSOR.Effective July 1, 2003, the legislature amended the definition of "successor" in RCW 82.04.180 for excise tax purposes to include a person who acquires fifty percent of the fair market value of either the tangible assets or intangible assets of a business.Hence the taxpayer is the successor of her predecessors, if: (1) they quit, sold out, exchanged, or disposed of their business; (2) they sold or otherwise conveyed, directly or indirectly; (3) in bulk and not in the ordinary course of their businesses; (4) more than fifty percent of the fair market val

SUCCESSORSHIP. A "successor" is one who buys a major part of the equipment, supplies, merchandise, inventory, fixtures, or materials from a person who is quitting, selling out, or disposing of a business.

RULE 216: SUCCESSORSHIP – “REGULAR LEGAL PROCEEDINGS TO ENFORCE A LIEN.” A successor did not obtain assets from the IRS through “regular legal proceedings to enforce a lien” when the IRS never released its lien on the predecessor’s assets with a Certificate of Discharge. Distinguishing Det. No. 90-377, 10 WTD 173 (1990).

RULE 216: SUCCESSORSHIP – “OTHERWISE CONVEYED.” A predecessor “otherwise conveyed” assets to a successor when it permitted the successor to use its assets as a bailee or in exchange for the successor’s payments of predecessor’s underlying purchase contracts.

RULE 216; RCW 82.32.140, RCW 82.32.180: SUCCESSOR – ASSUMPTION OF DEBT. A person who acquires most of the assets of a business and assumes the business’ debt is a successor, liable for the business’ tax liability.

RCW 82.04.220; RCW 82.08.020; RCW 82.04.030: LIMITED LIABILITY COMPANY (LLC) – CHOICE OF BUSINESS ENTITY RESPECTED – MEMBER OF LLC SEPARATE FROM THE BUSINESS ENTITY. An LLC that is sold to new owners, but maintains its business form, business name, business location, and UBI number, is liable for taxes accrued prior to the sale, because the LLC is the entity that accrued the tax liability and remains the entity liable for the tax after the entity is sold.

SUCCESSORSHIP -- TRANSFEREE -- AFFILIATE -- SUCCESSOR -- WHAT CONSTITUTES. A taxpayer that liquidates its business and transfers its assets to an affiliate company creates successorship liability in the affiliate business.

SUCCESSORSHIP -- NOTICE. A successor is not liable for the interest assessed in an audit of the business records of the previous owner.The successor is liable only for the tax assessed in the audit report.A taxpayer can raise its successorship status for the first time upon appeal, thereby exempting itself from any interest and/or penalties imposed against the previous owner.

SUCCESSORSHIP -- LIABILITY. A successor is liable for the full amount of the previous owner's tax liability. A successor is not liable for the interest and/or penalties associated with the previous owner's tax liability.

SUCCESSOR -- LIABILITY FOR TAX -- CONTRACT PROVISIONS -- "HOLD HARMLESS" CLAUSE. A successor is liable for the full amount of the previous owner's tax liability. A contract provision claiming to "hold harmless and defend purchasers against any and all claims.."is insufficient to avoid the successorship liability.

EXCISE TAXES -- SUCCESSOR LIABILITY -- PROPERTY PEACEFULLY REPOSSESSED UNDER SECURITY AGREEMENT. Taxpayer is not liable as a successor if it merely takes possession of tangible personal property pursuant to a security agreement, nor is it liable if it operates the business temporarily as a means of liquidating the property repossessed. Where taxpayer operates the same type of business in the same location as its debtor, it is a successor by virtue of having succeeded to the business.THIS DETERMINATION HAS BEEN OVERRULED OR MODIFIED IN WHOLE OR PART BY DET.NO. 97-121, 17 WTD 64 (1998).

SUCCESSOR LIABILITY: Landlord is a successor where he takes bill of sale, partly in satisfaction of past-due rent, for all equipment of tenant who has quit business several months prior to the sale and where tenant is now disposing of the assets of the business even though the landlord does not step in the operate a similar business or to continue tenant's business. However, liability will be limited to the value of the property acquired by the successor.