You may be thinking about buying a business or the assets of a business and wondered whether a tax clearance from the CDTFA is necessary.
Certificates of tax clearance are issued under the provisions of the following Revenue and Taxation Code (RTC) sections:
• Sales and Use Tax 6812;
• Motor Vehicle Fuel Tax 7959;
• Use Fuel Tax 9022;
• Diesel Fuel Tax 60472; and
• Oil Spill Response, Prevention and Administration Fees 46452.
If the CDTFA receives a request online, it would be routed to the office of control for the account to issue the tax clearance when appropriate. Additionally, when an office receives a request in person, or by mail or fax, the receiving office will generally be responsible for the clearance assignment.
The effect of the CDTFA issuing the tax clearance is to protect the purchaser of a business from being held liable as a successor for amounts due which the seller fails to pay, limited to the extent of the purchase price. Moreover, it has no effect in relieving the seller of any liability.
When will the CDTFA issue a tax clearance?
The CDTFA will not generally issue a tax clearance should until all taxes and fees noted above, collection cost recovery fees, and associated penalties and interest of the seller have been determined and paid, including any potential CDTFA audit liability, or an amount determined by this department has been posted as outlined in CPPM section 650.023 (K).
When the purchaser of a business or the purchaser’s agent makes a written or online request for a certificate of tax clearance, the CDTFA must either issue the tax clearance, or provide the purchaser a notice that identifies the amount that must be paid as a condition of issuing the tax clearance.
When a person registers for a permit, license or account online, and they answer “Yes” to the question, “Would you like to request a tax clearance on previous business?”, it is considered a written request for a tax clearance for the purposes of the RTC sections listed in CPPM section 650.010. This generates a work item in the system and should be pulled by the appropriate escrow technician.
The purchaser is released from any obligation as a successor if the CDTFA fails to take one of the following actions within the period of time stated in the statute:
• Issue a CDTFA–471, Certificate of Payment, when it has been determined that no tax, interest, or penalty is due from the seller for the period of operation (see CPPM section 650.025).
• Issue a CDTFA–1274, Notice of Amounts Due and Conditional Release, when it has been determined that there is or will be tax, penalty or interest due from the seller for the period of operation (see CPPM section 650.030).
• Issue a CDTFA-370, Request for Certificate of Payment Existing Balance, or CDTFA-48, Notice to Purchaser on Request for a Certificate of Payment, when the buyer and seller are not using an escrow company or other agent for the transaction, and there is or will be tax, penalty or interest due from the seller for the period of operation (See Section 650.030).
The letters referenced above are for sales and use tax or use fuel tax accounts. If a request for a certificate of tax clearance for a motor vehicle fuel tax, a diesel fuel tax, or an oil spill response, prevention and intervention fee account is received, a custom letter containing similar language should be issued.