CLEARANCE CERTIFICATES – BULK SALES OR FINAL CLEARANCE / DEPT. OF REVENUE (REV) & DEPT. OF LABOR & INDUSTRY (L&I)
The basic premise of clearance certificates is to give the State the ability to collect taxes due to it by an entity before that entity either dissolves or withdraws, merges into a non-qualified company (See Title 15, Sec. 139) or, in the case of Bulk Sales, is about to divest itself of 51% or more of a class of assets (See 72 P.S. § 1403(a). See other Practice Tips for Dissolving a Corporation or LLC, Bulk Sales Transfers or Withdrawing a Foreign entity.
The clearance process is a long one for Revenue but a short one for L&I. The reason for that is because Revenue has more taxes to clear. L&I must only clear the Unemployment Compensation Tax where Revenue must clear all Corporation Taxes, Sales & Use Tax, Employer Withholding Tax, and all the other taxes under the purview of the Department of Revenue.
The process is begun by submitting an “Application for Tax Clearance” (our charge for delivering the application to both offices is $60.00). This includes a review of the application for compliance before submission. The app is usually completed by the company CFO or accountant or lawyer. One practice tip with regard to the completion of the application: Line #3 should be a representative that will know what to do with the Clearance Certificate when the various Departments mail them to that individual. A lot of our clients put our company name and address there so that we receive the certificates and notify them immediately upon receipt. Another benefit of doing this is our office can make status inquiries on your behalf to the 2 Taxing Authorities. If there is a problem with clearing a certain tax, the Department involved will contact us, and we will then contact you so that you can resolve the problem with your client. If you put the client’s name on Line 3, they very often do not respond properly to Revenue and that causes an even greater delay in obtaining the clearance certificates.
With regard to BULK SALES clearances, remember that a 10 day notice must be submitted to the Departments prior to closing the transaction. Our office has an approved, by the Dept. of Revenue, a 10 day bulk sale notification letter which you can freely use. Some Revenue supervisors take the position that the best practice regarding the 10 day notice is to file the clearance application as the notice. When submitting the application for a bulk sale clearance certificate the Department of Revenue requires a fully executed copy of the settlement sheet to accompany the application. Bulk Sale Clearance Applications cannot be submitted before the sale has taken place. We are currently in the process of attempting to determine the purpose and legal effect of the 10 day notice. The conundrum, of course, is that the buyer in a transaction wants the certificates but they will probably take months to obtain, so what to do at closing is often the big question.