samedi 8 novembre 2014

Does it raise a red flag if a seller is reluctant to provide payment of sales tax?

Hi. I ran into a puzzling situation regarding sales tax clearance in the process of purchasing a business & was wondering if this is a common occurrence & how I should proceed.



The seller has been great by opening up his business to me for review. He's given me access to his financials & his POS to verify sales, income & inventory & secured the assignment of the lease for me. However, an issue came up when my lawyer requested for verification of sales tax payment by asking for 2 years of filing receipts or copies of canceled checks.



For whatever reason, the seller became non-compliant & even confrontational when pressing for it. He kept stressing that it was not necessary since he claimed he owned no back taxes, is currently not & has never been audited & the amount held in escrow is sufficient insurance. Then ultimately, he only agreed to provide copies of sales tax payment only if I signed off on the contract & gave my deposit, & also requested that any liability outstanding is capped at the escrow amount, not more.



I would like to think that the seller is honestly trying not to be deceitful, but his action is puzzling given how he's been accommodating up to this point. The issue is the business has been in existence 10 years so my lawyer is just trying to provide some protection, but at this point not sure how I should proceed. What's his reluctance to show proof? Could the seller have taken the request as being disrespectful? If he truly believes he has nothing outstanding, why request that his liability should be capped at the escrow amount.



My lawyer is suggesting at this point we can add a clause requesting that the filing receipts or canceled checks be provided within 1 week & that I have an additional week to review with the option to cancel the contract if I wish. In addition, she is stressing that the contract doesn't limit the liability of the seller to just the escrow amount, that the seller should be responsible for the full amount of any tax liability generated by the seller up to the date of closing. Alternatively I have the option to request that the entire amount of the sale be placed in escrow until I get sales tax clearance from the state? Are any of these options valid, advisable or simply not necessary?



I really want this business, but given it's my first time purchasing a business, I just want to make sure I think rationally through the situation. Therefore if anyone has any idea of the seller's intent or on how I should proceed, I'd appreciate the insight. Thank you.




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