03 Mar Does my LLC owe tax for selling an investment property?

Q. Does an out-of-state, multi-member LLC owe the 8.97% on the gain after the sale of investment real property?
— Selling

A. Generally, a sale of real estate triggers bulk sales rules in New Jersey.

The purpose of the Bulk Sale Statute is to protect a purchaser from inheriting any tax debt from a seller of business assets, said Ken Bagner, a certified public accountant with CLA in Livingston.

He said a bulk sale is the sale (or transfer or assignment) of an individual’s or company’s business assets, in whole or in part, outside of the ordinary course of business.

When a bulk sale of business assets occurs, the New Jersey Division of Taxation needs to be notified so it can collect any taxes owed. Business assets are any assets that generate income or loss and may include real estate:

So how is this reported?

According to the Division of Taxation website, the purchaser of business assets, other than in the ordinary course of business, must notify the state at least 10 business days in advance of the sale.

This will allow an escrow to be established if the seller has potential tax obligations, it said.

To report a bulk sale, file form C9600.

“The purchaser or the purchaser’s attorney must submit all notifications of bulk sales,” it said. “A filing by the seller or a third party does not protect the purchaser from being held responsible for potential tax obligations of the seller.”

It continues: “You can reduce the 8.97% withholding if you send a division caseworker additional information. The major form is the asset transfer tax declaration form – Seller must fill out to show less escrow is owed. Then it can be reduced. Your accountant can assist you with this form – It basically calculates the gain on the sale and the tax estimated to be incurred.”

Bagner said the purpose of the law is to ensure nonresidents deposit tax for New Jersey property sold.

“If the tax deposit exceeds the New Jersey tax when you file your tax return, you will receive a New Jersey refund,” he said. “If you sell property in New Jersey, as a nonresident, you will generally be required to file a New Jersey gross income tax return for that year.”

Because this can be complicated, we recommend you work with a tax professional with experience in such sales.

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This story was originally published on March 3, 2023.

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