Buying a Business in NY or NJ? What You Need to Know About the Bulk Sales Law
When buying a business in New York or New Jersey, first-time buyers naturally focus on price, leases, and inventory. They often sign NDAs, review financials, and “kick the tires” before deciding to move forward. Many even execute a letter of intent that lays out the basic terms of the deal.
Once a corporate lawyer gets involved, first-time buyers are often surprised. They learn about one more step that can delay closing: the bulk sales law. This state-mandated process is designed to protect buyers from inheriting a seller’s unpaid taxes. Ignoring it can create significant problems — and costly surprises — after closing.
What Is the Bulk Sales Law?
The bulk sales law generally applies when you a buy a business. This usually occurs through an asset purchase agreement. The purpose is simple: shield the buyer from the seller’s tax liabilities. For anyone buying a business in New York or New Jersey, understanding this step is essential.
How the Bulk Sales Process Works
In both New York and New Jersey, buyers must notify the state tax authority. The notification must be made at least 10 business days before closing on an asset purchase. In New York, this notice is made by submitting Form AU-196.10 to the Department of Taxation and Finance (see the state’s Bulk Sales Bulletin for more information). In New Jersey, buyers must file Form C-9600 with the Division of Taxation (see the NJ Bulk Sales FAQ).
Once the notice is filed, the state reviews the seller’s tax status and issues instructions. If the seller owes taxes, the buyer must hold back (“escrow”) part of the purchase price at closing. The state may even direct the buyer to send part of the escrow directly to the tax authority. When the liabilities are resolved, the state issues a clearance letter. This letter authorizes the release of any remaining escrow funds to the seller.
This process protects the buyer. If the bulk sale notice is properly filed, the buyer cannot later be held liable for the seller’s unpaid taxes.
Why the 10 Days Matter
The notice period is mandatory. Buyers and sellers need to account for it when setting closing dates.
Sellers who are in a rush often push to skip the process. They may argue that the “indemnification” provisions in the asset purchase agreement are enough protection. They encourage closing before the state issues clearance. While indemnification helps on paper, it only shifts the risk. In practice, the buyer would need to sue the seller. They must also hope the seller still has the money. The buyer must hope the seller still has funds to reimburse taxes and penalties.
Skipping or rushing the bulk sales process can backfire. For example, imagine a buyer closes on a New Jersey restaurant without filing the proper forms to the state. Later, the Division of Taxation finds that the seller owed years of back sales tax. Without bulk sale protection, the state can hold the buyer responsible for that debt.
Action Tip for Buyers
When buying a business in New York or New Jersey, don’t overlook the bulk sales process. Work with a corporate lawyer and accountant early in the process to:
- File the bulk sale forms on time,
- Build the 10-business-day period into your closing schedule, and
- Plan for potential escrow requirements.
A small delay now can prevent major liabilities later.
Disclaimer
This corporate lawyer blog post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey. It may not reflect laws in other jurisdictions.
This blog post is attorney advertising. While efforts are made to ensure the accuracy and usefulness of the information, Russo Law LLC makes no representations, warranties, or guarantees, express or implied. This includes no guarantees about its accuracy, completeness, or applicability. It also encompasses any implied warranties of merchantability or fitness for a particular purpose. Laws and regulations change often. Russo Law LLC is not responsible for updating this blog post to show subsequent legal developments.
Russo Law LLC assumes no legal liability or responsibility for the use of any information, materials, products, or processes mentioned in this post. It does not guarantee that reliance on this information will result in any particular outcome. Prior results do not guarantee a similar result. Links to third-party websites are provided for convenience only. Russo Law LLC does not endorse or assume responsibility for the accuracy or content of external sources.
Do not send confidential or sensitive information through this website or in response to this blog post. Unsolicited information does not create an attorney-client relationship and should not be treated as privileged or confidential.