Did you know that the first and last residential condominium unit sales by a developer are each subject to the New Jersey Bulk Sales Act (N.J.S.A. 54:50-38) even though all other unit sales are exempt? This and other issues were covered by panelists during the New Jersey Institute for Continuing Legal Education’s webinar, Bulk Sales For Real Estate, Corporate and Tax Lawyers on September 15, 2016. Gibbons attorneys Ivette P. Alvarado, a Director in the Real Property & Environmental Department, and Peter J. Ulrich, a Director in the Corporate Department, were joined on the panel by three investigators from the New Jersey Division of Taxation, Bulk Sales Section (the “Division”), Audrey Graham, Elizabeth Hartmann, and Keith Muller.
The panel provided the nearly 160 webinar participants with the basics of the Bulk Sales Act, which requires purchasers of certain business assets to notify the Division of the impending asset sale by submission of a Notification of Sale, Transfer or Assignment in Bulk (Form C-9600), after receipt of which the Division reviews the tax records of the seller and either issues a clearance letter to the buyer stating that there are no outstanding taxes due, or if there are outstanding tax liabilities, issues a letter requiring that the buyer escrow a certain amount at closing to cover such tax liabilities. Failure to comply with the Bulk Sales Act exposes the buyer to joint liability for all of the seller’s tax obligations to New Jersey. The panel also offered practitioners practical tips for navigating the Bulk Sales Act. Highlights of the webinar included:
- Although not readily apparent in the Bulk Sales Act, or the Division’s FAQs, the Division regards the first and last inventory sale of a business, including the sale of a residential condominium unit by a developer, as not being in the ordinary course of business, and thus not exempt from compliance with the Bulk Sales Act.
- Pursuant to N.J.S.A. 54:50-8, Asset Transfer Tax Declarations (TTDs) filed by sellers under the Bulk Sales Act are not public documents when filed; they are confidential and privileged and are for the most part legislatively exempt from New Jersey’s Open Public Records Act (N.J.S.A. 47:1A-1 et seq.). Sellers that want to keep their tax and financial information confidential should therefore file their TTDs directly with the Division instead of through the purchaser.
- For sign and close transactions, the Division will accept an unexecuted, near final draft of the contract in lieu of the executed contract otherwise required to be submitted with the Form C-9600, provided that the submission is accompanied by a letter signed by both purchaser and seller wherein the seller authorizes the purchaser to withhold any required bulk sales escrow, and wherein purchaser undertakes such obligation.
- One of the questions the Division encounters the most is whether the sale of seasonal rentals is subject to the Bulk Sales Act. Pursuant to the amendment to the Bulk Sales Act enacted in September 2011, the sale by an individual, trust or estate of one- and two-family homes is always exempt, no matter whether such property was income producing or not.
- Where a residential home developer is engaged in the business of selling real property in the ordinary course of business, and such developer acquires title to its various properties via separate single purpose entities (SPEs), each of which is a disregarded entity for income tax purposes (“DRE”), then in most cases the single unit sale by each individual DRE should not require compliance with the notification requirements of the Bulk Sales Act.