This past December, the New Jersey Division of Taxation posted expanded Frequently Asked Questions and responses regarding the Bulk Sales Act, NJSA 54:50-38. Given the breadth of the Act, which was expanded a couple of years ago to cover transactions in which any seller makes a bulk sale, not just sellers who collect and remit sales tax, a review of these new FAQs is advisable.
For a detailed analysis of the Act, see the article in the New Jersey Law Journal authored by Peter Ulrich and Russell Bershad, “Broad View of the Expansion of the Tax Bulk Sales Notification Requirements.”
When in Doubt, File
The expanded FAQs and responses don’t carry the weight of law, they are interesting and in some cases surprising. They reflect the position that the Division will be taking on many bulk sales issues. The message running throughout is clear: when in doubt, file.
Indeed, that’s precisely the response to Question 22:
22. Q: Suppose the purchaser is unsure if the bulk sale statute applies to her transaction? What should she do?
A: When in doubt, file a completed bulk sale C-9600 form notice in a timely manner. This does not automatically mean that the Division will treat the transfer as falling within the bulk sale law, but it guarantees that the purchaser will not incur any tax liability of the seller for failure to comply with the notice provisions of the law.
57. Q: Is the conveyance of a single family home that has been used solely as a primary residence lived in by the seller, subject to the bulk sale statute?
A: No. A single family home used as a primary residence, not used for business, including rental income purposes, is not considered a business asset
As a Full time Realtor I am coming across this situation now more often than before.
So now part of my presentation to sellers includes questions (answers from bulk sales act) such as:
1> Have you EVER rented your property? even for as a seasonal rental?
"47. Q.Does the bulk sale law apply to the sale of the residential property if it is only being rented for a short period of time (e.g. three months) or all or most of the property is owner occupied with only a smaller part being rented?"
A. Generally, the bulk sale law, N.J.S.A. 54:50-38, applies to transactions “Whenever a person shall make a sale, transfer, or assignment in bulk of any part or the whole of the person's business assets, otherwise than in the ordinary course of business…” The law does not limit applicability to where only a part of realty is being used as a business asset. Also, even property rented to family members or friends are considered business assets. Accordingly, sales of such property fall under the coverage of the bulk sales law.
If in doubt, the buyer should always file aC-9600 form notice with the Division in a timely manner to ensure protection against liability for the seller’s tax debts.
Example: An individual owns a single family dwelling which she rents out, making her a landlord. Since the landlord is in business to collect rents, the selling of the dwelling constitutes a bulk sale. Even if the property was a multifamily dwelling and the owner resided in one of the units, the transfer of the property will still be considered a bulk sale because the other unit or units was/were rented and it is not in the owner’s ordinary course of business to sell rental properties.
2> Have you EVER claimed a part of your home as an office?
"A. If the homeowner is expensing the portion of the home on her tax return as a home office and receiving a tax benefit from operating a business out of the home, sale of the home must be reported by timely filing the C-9600 form."
49. Q. Suppose the Buyer doesn't know that the house was used for rental purposes (e.g. the seller inadvertently or intentionally doesn't disclose this fact)? Unknown to the buyer, the seller resided in the one-family house as his principal residence most of the year but would rent it out when he went on long vacations out of state which he did not disclose.
The BUYER doesn't provide the C-9600. Is the Buyer liable for the seller's tax liabilities? Would it make any difference if the seller provides an affidavit to the purchaser or put in the sales contract that the house had not been used for any rental or other business?
A. The Division cannot control what the seller does or does not tell the purchaser. Either way, if the purchaser does not file the notice, the purchaser is still liable for any State tax liabilities of the seller. If the seller omits to tell purchaser of the income producing nature of the property, then the purchaser can take legal action against the seller for any seller’s state tax liabilities that the Division seeks to assess against the purchaser. Obviously, the seller can provide the purchaser with whatever affidavit it wants to. However, the Division is not bound by any such affidavit in determining liability for failure to file the C-9600 notice. Again, if the affidavit is misleading or in some other way incorrectly states that the property is not income producing, the purchaser’s recourse for failure to file the C-9600 notice is to take legal action against the seller for any seller’s state tax liabilities that the Division seeks to assess against the purchaser.
Also in New Jersey we are now dealing more and more with sellers moving out of the state. So when selling your home be prepared to have 2% of your proceeds set aside in escrow for the state taxes to be paid.
Conducting real estate transactions are getting more complex daily so it is in your best interest to hire a seasoned real estate professional who has your interests at heart and can guide you through the maze of paperwork and trending legalities.
Above all always consult with your accountant and other legal proffessionals.