BULK SALES TAX REVISITED

The “bulk sale” of certain assets is subject to taxation under the Sales and Use Tax Act, N.J.S.A. 54:32B-

1 et seq. Accordingly, the statutory scheme imposed a notice requirement in connection with such sales. In

2007 the Legislature enacted P. L. 2007, c.100, §5 (eff. June 28, 2007 and operative Aug. 1, 2007). This

section, which has been codified as N.J.S.A. 54:50-38, expands the bulk sale requirements as follows:

“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 purchaser ... shall, at least ten (10)

days before taking possession of the subject of the sale ... notify the Director [of the Division of Taxation]. ...

Within 10 days of receiving such notice, the Director shall notify the purchaser ... that a possible claim for

State taxes exists... .” [Emphases added.]

The statute goes on to state that if the purchaser fails to give notice to the State, the amount of unpaid

taxes becomes a lien on the proceeds of sale payable to the seller. Furthermore, the purchaser shall be

personally liable for the payment of the taxes due to the State. See also N.J.S.A. 54:49-1 (entitled “Tax a

debt and a lien...”). The notice requirement is satisfied through the timely submission by the transferee of

form C-9600 (“Notification of Sale, Transfer or Assignment in Bulk”) to the Treasury Department. As a

practical matter, the “bulk sales” program has become a general tax collection statute, which enables the

government, when it is notified of a pending transaction, to collect any taxes which may be due and owing

from the seller.

The Treasury Department, Division of Taxation, has published a Technical Bulletin regarding this

subject: TB-60 (7-3-08), as amended by TB-60R (10-21-10). Annexed thereto is form TTD (“Asset Transfer

Tax Declaration”), which is to be completed by the trans- feror. Note that form TTD does not replace form

C-9600, which must also be submitted. If the Treasury Department is unable to make a timely determination

of the amount of tax due (which frequently occurs), it will require that a portion of the proceeds be held in

escrow. To what extent does real estate fall within the scope of the foregoing statute?

TB-60R notes that the term business assets includes realty, “…if a use of the realty is to support a

business on its premises which includes, but is not limited to, “renting space to another”. In any event, it

seems that

the Treasury Department takes the position that sales of real estate which do not occur “in the ordinary

course of business” are subject to the bulk sales rules.

Thus, the sale of a warehouse or factory is included within the scope of the law, because the

seller’s “ordinary course of business” is the storage or manufacture of goods, rather than the sale of real

estate. Similarly, the sale of a multi-family dwelling is included, even if the seller occupies one of the

units, because the seller’s “ordinary course of business” consists of the collection of rents, rather than the

sale of real estate. (But the Legislature has amended N.J. S.A. 54:50-38 to exempt certain one- and two-

family dwelling units and seasonal rental properties from bulk sales requirements, provided the seller is

an individual, estate or trust.) On the other hand, the sale of a house by a builder or developer is excluded,

because it is part of the developer’s “ordinary course of business” to build and sell homes. For more

information, visit the website of the Division of Taxation: www.nj.gov/treasury/taxation.

To what extent is the bulk sales tax a title insurance issue? Compliance with tax laws is, in

general, beyond the scope of coverage afforded by the policy and thus beyond the concern of title

companies. There are, of course, exceptions to the rule, such as taxes which (if unpaid) become liens on

realty. Even to the extent that real estate transactions fall within the scope of the law, it is clear that the

responsibility for compliance lies with the purchaser (or his or her attorney), and not the title company.

And in the event of non-compliance, a personal penalty is imposed on the purchaser (rather than a lien on

the insured realty). Even if the State obtains a judgment against the purchaser based on his or her personal

liability, it would not become a lien on the insured realty until after the policy had been issued, and, in

any event, it would be excluded from coverage under the policy’s terms. See ALTA Owner’s Policy

(2006), Excl. No. 3(a).

Thus, although compliance with bulk sales requirements can be a significant problem in many

real estate transactions, it is not a title insurance issue. For this reason, many title insurers (including

FNTG) have suggested that bulk sales be treated by way of an informational note inserted in the title

commitment, rather than as a requirement which must be fulfilled.

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Title Talk is published periodically in printable electronic format by the Fidelity National Title

Group, and is distributed free of charge to its customers and friends. Title Talk contains general

information about topics of interest to those involved with real estate conveyancing and title

insurance in New Jersey. It is not intended to provide legal advice or opinions or as a substitute

for obtaining the advice of counsel.