Recent Changes to Tax Clearance Procedure Will Help Business Purchasers
Changes in Michigan’s tax clearance procedure will reduce the risk of uncertain tax liability for purchasers of businesses. The act, which favorably amends MCL 205.27a, became effective February 6, 2014.
Previous to the amendment, a seller and a purchaser of a business had to negotiate and agree upon an estimated amount to hold in escrow for the payment of the seller’s unpaid Michigan taxes. After the sale of the business closed, the seller would request the Michigan Department of Treasury (“Treasury Department”) to provide a tax clearance. However, the Treasury Department was under no deadline to provide the clearance, which often took three to twelve months. Unfortunately, if the escrowed amount was not enough to cover the unpaid taxes, the purchaser was on the hook to pay the remaining balance due.
As amended, MCL 205.27a now provides that upon a business owner’s written waiver of confidentiality and request, the Treasury Department must, within 60 days, release to the purchaser the business’s known or estimated tax liability for the purposes of establishing an escrow account. Provided the amount determined by the Treasury Department is held in escrow, the purchaser will not be liable for more than that amount. Moreover, if the Treasury Department fails to release an amount to the purchaser within the 60-day window, the purchaser will not be liable for any of the seller’s unpaid taxes.
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