Commentary: One of the steps that business people frequently overlook when planning to purchase or sell an interest in a business in New Jersey is the tax clearance certificate. Under New Jersey law and regulation, the Division of Revenue (“Division”) requires that when a business is being sold or dissolved, the Division must be given the opportunity to analyze whether any state taxes are due and owing. If they are, notice is given to the effect that in order for the closing to take place, suitable arrangements to pay those taxes must be made.
One of the reasons this is so important is that often businesses are being sold specifically because they have become unable to pay their expenses as they come due. Therefore, the Division takes the approach that this may be the last point at which it can easily collect the back taxes owed by the seller of the business. While it is true that there can be personal liability to the business owner for failure to remit payroll taxes for example, nevertheless, the Division does not want to have to chase the person after his or her interest in the business is transferred.
Importantly, the tax clearance certificate is necessary even if less than the entire business is being sold. Also, even if the business is being dissolved, rather than sold, the tax clearance certificate may be required.