In HUF Rest., Inc. v. Commonwealth, No. 394, 2024 Pa. Commw. LEXIS 105, at *1 (Pa. Commw. Ct. Apr. 24, 2024) the Commonwealth Court ruled that a buyer’s failure to obtain a bulk sale certificate made it liable for the seller’s unpaid taxes on a restaurant and liquor license that the buyer bought. This case involved a dispute between HUF Restaurant, Inc. (HUF) and the Pennsylvania Department of Revenue (Revenue) regarding a bulk sale assessment resulting from HUF’s purchase of a restaurant from Zola New World Bistro, Ltd. (Zola), including the transfer of a liquor license. Id.

FACTS OF THE CASE

Zola operated a restaurant in State College, PA, and agreed to sell its assets and liquor license to HUF for $725,000 in 2015. Id. Both parties submitted tax clearance statements to the Pennsylvania Liquor Control Board (PLCB) for the license transfer. Revenue issued clearances enabling the license transfer. Id. at *9-10.

Before closing the deal, Revenue notified Zola of an upcoming sales and use tax audit, resulting in an assessment. Id. at *10. Zola appealed to the Board of Finance and Revenue, which denied the appeal. Id. at *12. HUF was unaware of the audit before closing and learned of the assessment after the appeal period. Id. at *11-12. Although Zola was responsible for the tax liability, it did not pay the assessment. Id. at *12. Consequently, Revenue issued a bulk sale assessment against HUF for Zola’s pre-closing tax liabilities. Id. at *1.

Zola’s sale of its restaurant and liquor license to HUF triggered the requirement for a bulk sale certificate under Section 1403(a) of Pennsylvania’s Fiscal Code. Id. at *3-4. HUF admitted to not obtaining the required certificate, leading to the Board denying its appeal. Id. at *5.

After the Board’s decision and HUF’s appeal, HUF sold the liquor license to another hospitality business: Spirits at Pugh Centre, LLC (Spirits) for $450,000. Id. at *13. The sale agreement required payment within 30 days, conditional upon the license being free of liens, debts, and taxes. HUF failed to pay the assessment within 30 days. Id. At closing, Spirits deducted $117,296.028 from the sale proceeds to pay Revenue for the owed taxes. Id. at *14. Revenue received this payment, satisfying the bulk sale assessment against HUF and enabling the license transfer to Spirits. Id.

COURT DECISION

According to Section 1403(a) of the Fiscal Code, 72 P.S. § 1403(a), the sale in bulk of more than 51% of a company’s assets will trigger the need for a bulk sale certificate. That section provides as follows:

. . . It shall also be the duty of every corporation, joint-stock association, limited partnership or company to file all State tax reports with the Department of Revenue, to and including the date of such proposed transfer of property and pay all taxes due the Commonwealth to and including said date. The seller or transferer shall present to the purchaser of such property a certificate from the Department of Revenue, showing that all State tax reports have been filed and all State taxes paid to and including the date of the proposed transfer. The failure of the purchaser to require this certificate shall render such purchaser liable to the Commonwealth for the unpaid taxes owing by the seller or transferer to and including the date of such transfer, whether or not at that time such taxes have been settled, assessed, or determined . . .

72 Pa. Cons. Stat. § 1403(a) (2024) (emphasis added).

The Commonwealth Court noted that the Fiscal Code clearly states that a purchaser’s failure to obtain a bulk sale certificate makes them liable for the seller’s unpaid taxes, “whether or not at that time such taxes have been settled, assessed, or determined.” Id. at *17.

The Court explained that the purchaser’s duty to obtain a bulk sale certificate is “not overly burdensome,” and obtaining it would have notified HUF of Zola’s audit and pending tax liability.  Id. at *18. HUF’s lack of diligence in obtaining the certificate prevents it from contesting liability for the tax assessment against Zola. “HUF, like all taxpayers, is presumed to know the law.” Id.

The Sale Agreement between Zola and HUF did not override HUF’s statutory obligations. Id. at *16. “Nothing in Section 1403 [of The Fiscal Code] requires the Department to give any notice to the purchasers concerning taxes which are due and owing by the seller.” Id. at *19.

The tax lien certificate obtained during the liquor license transfer did not suffice for the bulk sale certificate requirement. Id. at *18. The court rejected HUF’s argument for equitable estoppel, noting there was no evidence that Revenue intentionally or negligently misrepresented any material facts. Id. at *20-21. Revenue’s certification during the liquor license transfer was accurate at the time and did not cover the broader tax liabilities outlined in Section 1403(a). Id. at *21-22. HUF’s reliance on the liquor license clearance did not justify an estoppel against Revenue. Id. at *22.

PRACTICAL ADVICE

Compliance is key. As demonstrated in HUF, the court was sympathetic to HUF’s position, but maintained that the strict statutory scheme must be followed. Id. at *19. The court’s unwillingness to waiver for sympathetic positions and mistakes means that taxpayers must be extremely vigilant when engaging in a transaction involving the sale of 51% or more of assets.

Courts are unwilling to bend in the bulk sale certificate requirement. Given the complexities and stringent requirements of section 1403(a), it is advisable for both the buyer and seller to seek legal counsel who are experienced in handling these types of transaction.