| Office | California Department of Tax and Fee Administration, which handles seller's permits and sales and use tax |
|---|---|
| Paperwork | A final sales and use tax return, a request to close or transfer the account, and a clearance request if the buyer wants one |
| Timing | Ask for clearance as soon as the letter of intent is signed |
Watch for this: A buyer who does not get a clearance can be held liable for your unpaid sales tax, so expect a hold back at closing.
Why Buyers Worry
If your company sells goods, it holds a seller's permit and files regular returns. When the company changes hands, California can hold a buyer responsible for tax the seller still owes.
The usual protection is to hold back part of the price until the state confirms the account is clear. That protects the buyer, and it can delay your proceeds.
What a Clearance Does
A buyer or seller asks the department to review the account. The department either issues a certificate or says what is owed. The agency has a set time to respond, so a request made the week before closing can push the date.
Your Seller's Permit Is Yours
A permit does not pass to the buyer. The buyer applies for a new one, and you close yours after the sale and file the last return for the period in which you sold.
Seller Checklist
- Confirm every return for the last three years was filed and paid
- Reconcile reported sales with your books and bank deposits
- Pay any balance due before listing or from proceeds
- Tell your CPA the closing date so the account closes on time
- Keep records for the period the state can audit
Questions Owners Ask
How long does a clearance take? Timing varies, which is why you request it early. Escrow often holds part of the price until the certificate arrives or the balance is paid.
What if the state finds an amount due? Pay it from proceeds. That is far better than a demand letter months after closing.
What about use tax on equipment I bought? Tell your CPA, because use tax issues can surface in the same review.
Records Make the Sale Easier
Buyers pay for provable profit. Under reported sales feel like savings now but lower value later and complicate a clearance. Our add back guide shows how buyers read your books.
Stores and shops with inventory should also read about equipment property tax. Your company's last income tax return is covered on the final return page.
If you sell more than one location, close each location account separately so none is left open by mistake.
Ask your CPA to confirm the account closed properly after the sale.
This page is not tax or legal advice. Confirm each step with the department, your CPA or your attorney.
Want a range for the whole company? Request a confidential valuation.