New Jersey Bulk Sales Notification Requirement—the End of Form TTD

The Notification and Escrow Process

To satisfy the notice requirement of the Act, the purchaser or transferee must notify the Division of Taxation of a potential transfer of business assets prior to closing. Specifically:

• The purchaser must submit a fully completed and signed Form C-9600, including valid tax I.D. numbers for the seller and the purchaser, as well as a specific date of closing and a copy of the executed contract of sale clearly showing the sales price and all terms and conditions of the transfer.

• The Form C-9600 should be submitted via registered, certified mail or by overnight mail, FedEx, or UPS.

• The Form C-9600 and contract must be received by the Division at least 10 business days prior to the date of closing.

There is no filing fee for the Form C-9600, and the seller need not countersign it.

Within 10 business days of receiving the Form C-9600, the Division should notify the purchaser of the amount of the state’s tax claim, if any. If an escrow is required, the Division will issue an escrow letter (stating the escrow amount) to the purchaser with a copy to the seller. If any of the transferor’s returns are delinquent, the Division will issue a “Returns Required Letter” outlining which returns need to be filed and tax paid to obtain clearance regarding the bulk transfer. If the transferor has no state tax debts, then the Division should issue a “Clearance Letter” to the transferee permitting the release of any previously requested escrow funds to the transferor.

The purchaser or its escrow agent must hold back the escrow amount from the purchase price. If not, the purchaser can be liable for the seller’s New Jersey state tax liabilities, even for an amount in excess of the purchase price. A Clearance Letter will also be issued after all final returns have been filed and all final payments of state taxes are remitted. Note, a Clearance Letter does not release the transferor from any liabilities that may be determined to be due at some future date, for example, as a result of an audit of the transferor.

New Jersey Division of Taxation’s Calculation of Escrow Amount

The Act itself does not provide guidance as to how the Division of Taxation is to determine the amount it will require a transferee to place into escrow prior to closing.

In our experience with the Bulk Sale Section over the last few years, the Division is focused on deficiencies, delinquencies, and sellers that are unregistered for New Jersey tax purposes such as entities, including tax-disregarded entities such as single-member LLCs, that have never filed Form NJ-REG. This is slightly different from the non-identical lists of factors provided in the Frequently Asked Questions on the Division’s website, updated May 1, 2024, or Tax Bulletin TB-60R, updated April 29, 2024. Those sources both reference deficiencies and delinquencies, but the FAQs reference gain on the subject sale of assets, while the TB-60R references costs of collections and fees. Neither of these sources references the requirement that the seller be registered for New Jersey tax purposes.

When it determines that the transferor has outstanding tax obligations or other open items, the Bulk Sale Section typically requires that approximately 10% of the transaction consideration be placed into escrow by the purchaser. Many sellers will be aggrieved by a 10% escrow requirement because such an amount often overstates the amount of New Jersey income tax actually triggered by a given transaction. Form TTD offered a way for a seller to demonstrate a reasonably comprehensive gain and tax calculation to show a more reasonable estimate of income taxes due by a taxpayer on a transaction. Accordingly, in the past, we would counsel such a seller to submit a completed Form TTD to the Bulk Sale Section.

The updated FAQs now provide that Form TTD is no longer required to be submitted and has been discontinued, and the form is no longer available on the Division’s website. At first this may appear to be taxpayer-adverse, but it is our understanding that the Bulk Sale Section is not calculating bulk sale escrows based on the income tax triggered by the transaction itself, but rather simply requiring a percentage of the transaction consideration be held until delinquencies and deficiencies are satisfied. Accordingly, it is better viewed as a taxpayer-neutral development.

In our experience, the escrow amount may be reduced by sending additional information to the Bulk Sale Section demonstrating: (i) the filing of delinquent returns; (ii) the payment of deficiencies and audit assessments; and (iii) the registration of sellers that had not previously filed a Form NJ-REG.

Conclusion

The Act does not expressly state how the New Jersey bulk sale escrow will be determined on the sale or transfer of business assets. However, our experience shows that the Division of Taxation is focused on delinquencies, deficiencies, and unregistered taxpayers and no longer is as focused on estimated income tax due by the seller on the subject transaction itself. This understanding was ratified recently when the Division discontinued Form TTD.

Peter J. Ulrich is a director in Gibbons’ corporate group, Nicole E. Taplin is a director in the real property group at the firm, and Eric B. Udowychenko is a corporate group director at the firm.

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Reprinted with permission from the September 5, 2024 issue of the New Jersey Law Journal. © 2024 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.