New Obligation Imposed on a Seller of Real Estate
An issue has arisen that we must address on behalf of property sellers in the State of New Jersey. That is, the applicability of the Bulk Sales Act to residential closings.
By way of background, the Bulk Sales Act law was traditionally viewed as a means to collect taxes owed by the Seller in the selling of a going business. It is similar to the 2% exit tax credit imposed on real estate transactions a couple of years ago. It is not a new tax, but rather a new method of trying to catch Sellers for any taxes that they owe or may owe as the result of the transaction at issue. In the past, sellers need not worry about the Bulk Sales Act as it relates to residential settings, but only regarding the sale of going businesses.
However, recently the law has been expanded through a revision to the Bulk Sales Act, N.J.S.A.54:50-38. The Amendment expanded the scope of the Bulk Sales Act to include any sale, transfer, or assignment in bulk of any part or the whole of business assets other than in the ordinary course of business. Subsequent case law as well as the Advisory Frequently Asked Questions (FAQ) issued by the Department of Treasury, presently indicates that the Bulk Sales Act may apply to the sale of single family residences. I can say with some confidence that the typical single family home sold by an owner occupant (who has never rented that property) would not be subject to the Bulk Sales Act. However, that same home even if it had been partially used for business purposes or had been rented by the owner, could be subject to Bulk Sales Act. Currently the safest policy is to comply with the law by sending a Bulk Sales Notice in every residential transaction. The reasoning is that if the seller misrepresents the nature of his or her ownership or simply is not aware that taxes are due for a business use involving the premises, (i.e., partial use of the premises for business purposes), the buyer could be held responsible for all the Seller’s taxes.
As updated 12/9/10 by the Division of Taxation in its FAQ, “sending a Bulk Sales Notice” approach is recommended. Therefore, the safest policy at this time is to notify the Bulk Sales Section of the impending real estate sale. It is not prudent to address the issue any other way, such as an affidavit from the seller as the non-applicability of Bulk Sales. The Division of Taxation’s FAQ response disapproves of the “Affidavit of Seller” approach.
How does one comply? To comply with the Bulk Sales Act, and thus insulate the Buyer from being responsible for the seller’s taxes, the buyer must file with the Bulk Sale Division a form C9600 at least ten business days prior to the closing taking place. In my practice, as soon as the contract is signed I obtain a copy of the C9600 and immediately forward it to the seller or his representative for the appropriate information. Once it comes back to me completed by the seller, the buyer completes his portion of the form and the fully executed form, along with the fully executed sales contract, is forwarded to the Bulk Sales Division. The magic number of days, as mentioned above, is ten business days. If you do not hear from the state in that time period, the seller is still responsible for his taxes, but the buyer is not. If the state has not responded within the ten days, you should follow up with the State of New Jersey before allowing a property to close.
Finally, it appears this revision to the law will generate a flood of notices to the Bulk Sales Section. Once these notices start to arrive, legislative relief may occur. It has been suggested that one-family or two-family residences be exempted from the Bulk Sales Act and only time will tell if the legislature creates this exemption.
Please contact us for a free consultation at 856-637-3000, in the event that you are considering entering into a real estate transaction. I will be happy to assist you.
– Robert J. Wiltsee, Esquire