Rainstorms and blizzards. Is this California?
YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
I rarely do a Q & A for a Bulk Sale (Sale of a Business) transaction, so here is a good chance to cover a very important but overlooked part of such a transaction, and of course, it is about TAXES!
QUESTION: (The wording in the question was cleaned up a little to make it more understandable.)
My name is A______. I have a restaurant in Berkeley CA. Sorry if my English make you hard to understand. I am about to sell my restaurant business. My question is if we do escrow they will deduct to assessor that lien my business ? Or this is different from IRS?
This is my first business in the state. And every time I got mail they say property tax is owed. The property tax my landlord takes care as per the lease agreement. So I ignore for 10 yrs and they keep sending me mail. Then I was curious should I pay them ? And I found out these belong to business owner not landlord but now the amount came thru 36k. So high. If I sell my business and do escrow and they took the money then I won’t sell my business right now.
Hello, A______. There are many types of taxes, especially when running a business:
State of California taxes:
- Unsecured personal property taxes sent yearly to the business owner, calculated on the fixtures and equipment of business
- Secured real property taxes sent yearly to the owner of the property BUT may be paid by the tenant/business owner to landlord/owner as reimbursement when part of the lease agreement
- Sales Tax to the California Dept of Tax and Fee Administration (CDTFA)– taxes charged to the customer when you sell food or products and collected by business owner who sends them to the CDTFA.
- Employer and Employees withholdings deducted from payroll and paid to the Employment Development Dept (EDD)
- Employer withholding taxes owed by business owner to the Franchise Tax Board (FTB)
Federal IRS taxes: This is a federal tax and may be due after you sell the business and you declare the sale on your yearly income tax return.
Based on your email I think you are being charged #1 – the Assessor’s unsecured personal property taxes. The tax is on the declared value of the fixtures and equipment of your business The bill comes out every year and if not paid, penalties and interest accrue every year. This unpaid tax becomes a lien against you and the business and is recorded at the County and State level when it is not paid. Yes, you will have to pay this when you sell the business, no matter if you sell now or later. The sooner you pay, the less interest and penalty there will be.
When an escrow is opened to sell the business, a search is always conducted on the business name, its location and the name of the Seller/Owner of the business. Liens and debts to the government agencies, to your vendors, banks, financing companies, etc will come up and the liens will have to be paid before escrow can close and the business transferred to the new Buyer.
It is NEVER a good idea to ignore notifications from government agencies. These notifications to pay are usually sent by snail mail to the last known address of the person. They are not sent by email (due to the prevalence of email fraud). Disregard these mailed notices at your peril! If you have a question and wonder if it should be paid, at least call the government agency to find out what it is all about. I believe that by law there should be a contact phone number on that piece of mail so that taxpayers and consumers can get their questions answered.
Case in point: I had a transaction on the sale of a small restaurant. The search conducted showed a Labor Department filing on an unresolved dispute from a previous employee. The business owner disregarded the complaint notifications sent by the Labor Department because he felt the ex-employee did not have a valid case. The dispute lien was then filed for record. The escrow canceled and the owner’s hope to sell was put on hold until the labor/wage dispute was resolved.
~ Video of the Month ~
~ Quote of the Month ~
~Flexible people never get bent out of shape!~
Threats to Escrow – Check Fraud
A reminder that it is not only wire fraud that we need to worry about. Check Fraud is the most public of frauds. It can happen to anyone, anywhere, anytime. No escrow transaction necessary! (You can skip and start at the 2:30 mark of the video to get to the in-detail check fraud portion)
You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
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