When Do You Owe Bulk Sale Tax On Real Estate?

Tax Bill ImageHome Based Businesses, Residential Rentals and Commercial Properties May Trigger Bulk Sale Tax Liability…for the Purchaser Too!

In New Jersey, the Division of Taxation wants to be sure that businesses and business owners pay all of their taxes before they sell everything off, close doors, and hightail it to the tropics.  How does the state make sure this happens?  The Bulk Sale Tax, codified at N.J.S.A. 54:50-38, states that the purchaser, assignee or transferee of any business assets, including real property, other than in the ordinary course of business, must notify the state at least 10 business days in advance of the sale so an escrow can be established if the seller, assignor or transferor has potential tax liabilities to the Division of Taxation.  If the purchaser closes on the property without filing a required Bulk Sale Notice, the law provides that the state can go after the purchaser for any taxes that the seller owes and fails to pay.

Does this apply to a typical home buyer?  Not usually, but sometimes it does.  Does it apply to the purchase of a commercial property?  Usually, but sometimes not.  Let’s unpack the law.

How is a “business asset” defined for real estate sale purposes?

The most important phrase in the state is “business asset.”  Any property that was used to produce income, or for business purposes, is subject to Bulk Sale law.  Your standard commercial property is included, as well as:

  • unimproved farmland
  • vacant land owned by a business
  • residence which is rented out (wholly or in part, temporarily or permanently)
  • residence which has a home business in it, if the seller is expensing a portion of the home on its tax return as a home office.

What does “other than in the ordinary course of business” mean?

The next important phrase is “other than in the ordinary course of business.”  If the Seller’s business is the sale of property, the sale is “in the course of business” and therefore the Bulk Sale requirements don’t apply.  Examples of situations in which the Bulk Sale law doesn’t apply:

  • sale of commercial property by a developer
  • sale of residence by a home builder
  • sale of residence by a seller that buys, rehabilitates, and sells properties
  • sheriff foreclosure

File Timely…Meaning 10 Days Before

Once you’ve determined that the Bulk Sale law applies, you need to file a C-9600 form, via certified or overnight mail, no later than ten calendar days prior to the closing date.  Include a copy of the contract with the notice to ensure the notice is accepted.

Double Check If You Aren’t Sure

Keep these rules, exceptions, and deadlines in mind when selling or buying a residential or commercial property.  You wouldn’t want to get stuck with an unexpected tax bill.  This is especially true for purchasers who can get seller’s tax bill after they’re long gone.  For more detailed questions, please contact Melanie Levan, Esq.  General information is available at the Bulk Tax Sales FAQ page for the State of New Jersey Division of Taxation.