Bulk Sales: Reporting Requirements Impact Realty

LEGAL   CONCERNS:   REQUIRED  NEW  NJ  CLOSING   DOCUMENT

 

Editor’s Note: Below are articles written by two people about the NJ law which might hold a buyer responsible for a seller’s debt to the State of New Jersey. The form, which must be sent by registered or certified mail, is easy to complete (only one page).

The Law mainly concerns the sale of commercial property and probably will not be enforced if you are buying a house under $500,000. Nevertheless, Buyer Beware!

 

New Jersey Bulk Sales Law

 

by Steve Gregory

 

There was a law passed in NJ in 2007 that affects buyers who buy anything other than the Sellers primary residence.

 

The State of New Jersey has expanded the bulk sale provisions to impose that buyers must notify the Department of Revenue at least 10 days prior to settlement or if the seller owes money, the buyer can be held responsible.

 

If the property being bought is the seller’s primary residence, there is no need of notification. Due to recent changes in the NJ Bulk Sale Law NJSA 54:50-38, transfers of income producing real estate are supposed to be reported to the State so the State has the opportunity to inquire into possible tax debts of the Seller and perhaps requiring a possible escrow of sale proceeds at closing.

 

For the purposes of this regulation, "Business assets" include "realty if the primary use of the realty is to support a business on its premises." "Business" means any endeavor from which revenue is realized for the purpose of generating a profit or loss.

 

This law was modified Effective Aug 1, 2007 but is now being publicized. NJ Investors be aware. If you Google “Bulk Sale New Jersey,” the details will come up. Courtesy of the Diversified Real Estate Investor Group (Pennsylvania). March 2011 Newsletter. Visit www.digonline.org

 

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Bulk Sales: Reporting Requirements Impact Realty

 

by Stephen M. Flotow, Esq.

 

Although the subject of tax-related reporting requirements is generally beyond the scope of title coverage, we have received several inquiries concerning Bulk Sales and the provisions of N.J.S.A. 54:50-38 as amended. Here’s summary of the topic that we hope you will find informative.

The bulk sale of certain assets is subject to taxation under the Sales and Use Tax Act, N.J.S.A. 54:32B-1 et seq. Accordingly, the statutory scheme imposed a notice requirement in connection with such sales. Practitioners who routinely handle the sale of businesses are familiar with the need for the preparation of a so-called “bulk sale notice.”

In 2007 the Legislature enacted P. L. 2007, c.100, §5, (effective June 28, 2007 and operative Aug. 1, 2007). This section, which has been codified as N.J.S.A. 54:50-38, expands the bulk sale requirements as follows:

    

 

Whenever a person shall make a sale, transfer, or assignment in bulk of any part or the whole of the          person’s business assets, otherwise than in the ordinary course of business, the purchaser ... shall, at least   ten (10) days before taking possession of the subject of the sale ... notify the Director [of the Division of Taxation]. ... Within 10 days of receiving such notice, the Director shall notify the purchaser ... that a possible claim for State taxes exists .... [Emphases added.]

The statute goes on to state that if the purchaser fails to give notice to the State, the amount of unpaid taxes becomes a lien on the proceeds of sale payable to the seller. Furthermore, the purchaser shall be personally liable for the payment of the taxes due to the State. See also N.J.S.A. 54:49-1 (entitled “Tax a debt and a lien...”).

Does the sale of real estate fall within the scope of the foregoing statute? In the summer of 2009, the Treasury Department, Division of Taxation, published a Technical Bulletin regarding this subject. TB-60 (7-3-08). The bulletin notes that the term business assets includes realty, but only “if the primary use of the realty is to support a business on its premises.” [Emphases added.]

What does the last phrase mean? Some attorneys have advised that notice of the proposed sale of all non-single family real estate must be given to the Division of Taxation. That notice would be given via form C-9600, Notification of Sale, Transfer, or Assignment in Bulk that must be submitted 10 days “before taking possession of, or paying for, the property.” The form must be submitted by registered mail, but” certified mail or overnight delivery is also acceptable.” Responsibility for compliance lies with the purchaser (or his or her attorney). And in the event of non-compliance, a personal penalty is imposed on the purchaser (rather than a lien on the realty).

So just what transactions ARE covered by the new notice requirement? Is the conservative approach mentioned earlier warranted? In short, yes!

In response to an inquiry we made to the Division of Taxation as to the applicability of the notice provisions, by letter dated February 19, 2009 the Division responded,

“The general rule applied to real estate transfers should be: If the realty is not the primary residence of the seller, the transfer should be reported by the transferee or their representative to the Division of Taxation as per the TB-60. Since there may be some exception so this general rule, it is best to file form C-9600 and discuss the specific facts and circumstances with a representative of the Bulk Sale Section.”


The telephone number for the Bulk Sale Section is 609-292-6604. Keep it handy.

A copy of the Bulletin and links to related forms will be found at:
www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb60.pdf

Thanks to Lawrence J. Fineberg, Esq. of Chicago Title Insurance Company for the background material.

Reprinted by Permission. Stephen M. Flatow, Esq. has more the 35 years of experience in the title insurance industry. Visit www.vestedtitleblogspot.com or www.vested.com; call (973) 808-6130 or email sflatow@vested.com