Credit: Brian Campbell/Adobe Stock

Introduction

New Jersey's bulk sales tax law, N.J.S.A. Section 54:50-38 (the Act), applies to any sale, transfer, or assignment of a person's business assets that is not made in the ordinary course of business. A transferee's failure to comply with the Act can result in successor liability to such transferee for any New Jersey taxes that the transferor owed, including but not limited to sales, use, corporate income, and gross income tax withholding, and any interest and penalties thereon. 

Compliance with the Act is normally triggered by a corporate asset acquisition or a purchase of real property that had been operated as a business asset, but the Act can apply to tax-free transactions such as contributions of property to joint ventures. The primary purpose of the Act is to give the state an opportunity to collect state taxes from an important liquidity event. 

The only penalty for failing to comply with the Act is that the transferee may become liable for the transferor's unpaid state taxes—there is no separate monetary penalty. However, a purchaser of business assets or real property located in New Jersey needs to carefully weigh whether to file the required notification or rely on contractual indemnification from the seller.