TALES FROM THE TRENCHES

Do I need to raise the issue of bulk sale requirements on the transfer of a one-family home used as rental property? That was the second bulk sale question we heard in a week. While bulk sale issues will never result in a lien on the property being transferred, a seller’s business tax liability can become a buyer’s liability if the bulk sale laws apply and the state notification procedure is not followed.

The law in question is N.J.S.A. §54:50-38. In a nutshell, when all or a part of a person’s business assets are sold or transferred in bulk and not in the ordinary course of business, the buyer must give ten days’ notice of the sale to the Director, Division of Taxation. The Director then has ten days to respond as to whether a possible claim for state taxes exists. The official notice form is the C9600 . The Division of Taxation has also published Technical Bulletin TB-60 as amended by TB-60R which links to an Asset Transfer Tax Declaration to assist the Treasury Department in determining an escrow if bulk sale taxes are due. This law provides New Jersey with an enforcement/collection opportunity if taxes are due. While it is not a title insurance underwriting issue, it is a transaction issue whenever one deals with the sale of business assets.

Sometimes it is more difficult to determine if the bulk sale laws apply. Yes, a sale by an estate of business assets owned by the decedent does trigger notification. Yes, a deed in lieu of foreclosure where the lender is taking back income-producing property requires bulk sale notice as well. A traditional sale of a store, restaurant, or gas station is easy, but many transactions are not plain vanilla. A case-by-case application of the bulk sale law is the best rule to follow.

What about that single-family home used as a rental? Does bulk sale apply? Under an amendment to the law, the sale, transfer, or assignment of a one- or two-family home, condo, co-op, or seasonal rental unit is exempt so long as the seller, transferor, or assignor is an “individual,” “estate,” or “trust” as those terms are used for the purposes of the “New Jersey Gross Income Tax Act,” N.J.S. 54A:1-1, et seq., or any combination thereof, but the bulk sale laws WILL APPLY if the seller, transferor, or assignor is a business entity, including but not limited to a corporation or a partnership.